The credit market contagion that led to record losses at some of the world's largest financial institutions may be far from over, according to hedge fund managers gathered in Monaco this week.

``These times will get worse before they get better,'' said Christophe Aurand, head of European operations for York Capital Management LLC, a $13 billion fund manager preparing to invest in distressed debt. He spoke at the GAIM International conference, Europe's largest annual hedge fund gathering.
More than 80 percent of the fund managers, investors and hedge fund service providers at the event said they expect the credit crisis will continue, a survey found. Almost a quarter said they expect the situation ``will deteriorate significantly.''
Banks worldwide have reported $397 billion of write-downs since the start of the U.S. sub-prime crisis last year. John Paulson, the founder of $33 billion hedge fund Paulson & Co. who made billions betting on a drop in the value of sub-prime loans last year, estimated banks are only about a third of the way through $1.3 trillion in write-downs and losses.
Zurich-based UBS AG, Switzerland's biggest bank, took more than $38 billion in write-downs, more than any other European bank. Citigroup Inc. Chief Financial Officer Gary Crittenden yesterday forecast ``substantial additional'' write-downs at the New York- based bank this quarter.
``It's all bad news on the horizon,'' said Maria Boyazny, who oversees a $3 billion fund that invests in other hedge funds for Siguler Guff & Co. in New York. ``This correction is going to be a long one. It's a recipe for disaster for credit markets.''
Edward Altman, a professor at New York University's Stern School of Business who has tracked defaulted debt for nearly 40 years, said an impending wave of defaults could be the worst on record in the U.S., at 16 percent of corporate debt.
``It may be the worst recession since the Great Depression, that's not impossible,'' said Altman, who estimates default rates on U.S. corporate debt have tripled so far this year from record lows last year. ``There's a lot of negatives out there.''
The U.S. recession will be deeper and longer than the previous one because of the drop in home values, said Max Holmes, founder of Plainfield Asset Management, a $4.8 billion hedge fund in Greenwich, Connecticut. He bought distressed assets in the previous three U.S. recessions and lived in Houston during the region's real-estate bust in the 1980s.
``This is a major, major event, it's going to take a while to resolve itself,'' said Holmes, who reckons the U.S. slipped into recession in December. ``In the last recession the banking industry was healthy, this time it's very, very sick.''
Even after banks have written off almost $400 billion in debt from the collapse of the U.S. sub-prime market, more markdowns probably are in store, the fund managers said.
(Source: Bloomberg)