NEW YORK (Bloomberg) — Losses from securities linked to sub-prime mortgages may exceed $265 billion as regional US banks, credit unions and overseas financial institutions write down the value of their holdings, according to Standard & Poor's.

S&P cut or put on review yesterday the ratings on $534 billion of bonds and collateralised debt obligations, many of which were rated as high as AAA. The action was the broadest by the New York-based firm in response to rising delinquencies among borrowers with poor credit. Moody's Investors Service yesterday increased its predictions for sub-prime-mortgage losses for at least the third time, causing it to reassess the securities.

While banks and securities firms such as Citigroup Inc. and Merrill Lynch & Co. accounted for most of the $90 billion in write-downs to date, S&P said the next wave may descend on regional US banks, Asian banks and some large European banks. The ratings actions may create a "ripple impact" that further reduces debt prices, S&P said.

"There's a lack of confidence in the markets and this exacerbates that," said Anthony Davis, a banking analyst at Stifel Nicolaus & Co. in Florham Park, New Jersey. "This will have a chilling effect on the markets."

Almost half the sub-prime bonds rated by S&P in 2006 and early 2007 were cut or placed on review, also potentially forcing credit unions and government-sponsored enterprises such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks to write down their holdings, S&P said. The securities represent $270.1 billion of sub-prime mortgage bonds and $263.9 billion of CDOs. About 35 percent of all CDOs comprised of asset-backed securities were put under review, S&P said.

Potential forced sales by holders who must dispose of downgraded bonds may have "implications for trading revenues, general business activity, and liquidity for the banks", S&P said in a statement.

Some of the largest banks have already taken "significant" losses related to sub-prime mortgages and CDOs, and aren't likely to report more write-downs, S&P said. CDOs package assets into new securities with varying risks, from AAA to unrated classes.

Moody's, also based in New York, boosted its expectations for the most likely losses on sub-prime loans underlying 2006 bonds to between 14 percent and 18 percent, according to a statement yesterday. The firm plans to reassess the credit quality of the bonds in the "next couple of weeks," Moody's chief credit officer Nicolas Weill said in a telephone interview.

After the resolution of the downgrade reviews announced yesterday, no "further major ration actions" will be needed for recent sub-prime-mortgages securities, S&P analyst Ernestine Warner said on a conference call yesterday. Reassessments of "prime," "Alt-A" and earlier sub-prime mortgage securities will continue, she said.

S&P and Moody's are making sweeping cuts after being criticised by investors and lawmakers for their failure to better anticipate the extent of homeowner defaults. Some AAA rated CDOs lost all their value last year, and the ratings were slashed within months after the debt was created.

Accounting rules have allowed many financial companies to avoid writing down their holdings to market prices until the credit ratings fall if they intended to keep them until maturity or hold them for long periods. S&P said it will review the ratings of smaller banks that are "thinly capitalised". It didn't name any of the institutions.

S&P's move came a day after RealtyTrac Inc. said the number of US homeowners entering foreclosure climbed 75 percent in 2007 from a year earlier as mortgages became more difficult to refinance and falling property values made it tougher to sell.

More than one percent of US households were in some stage of foreclosure during the year, up from 0.58 percent in 2006, according to RealtyTrac, an Irvine, California-based seller of real estate data.