More financial institutions are likely to be hiding losses due to collateralised debt obligation (CDO) exposure in the wake of Basis Capital's losses, Morningstar analyst Sallyanne Cook said.
Cook said it was unlikely Basis Capital is the only financial institution to have exposure to the CDO issues.
While issuer defaults in the CDO structure will reduce the returns available to equity holders, high levels of defaults could result in capital losses, she said.
"It also seems odd that there haven't been other reported fallouts in investment banking and collateral manager circles. Maybe these guys are burying losses in their very large balance sheets," Cook said.
"The amount of leverage in these structures makes them susceptible to financiers recalling their loans.
"I think the big concern for Basis right now is the margin calls on the borrowings in these CDO structures which may mean they are trying to liquidate parts of their portfolio at distressed prices."
Standard & Poor's has placed both Basis Capital's Yield and Aust Rim Opportunity Funds on hold following a lack of communication over recent losses.
Basis Yield Alpha Fund last week informed its investors it had lost around 14 per cent in June, while its Basis Pac-Rim Fund dropped 9.2 per cent.
Basis Capital said the falls took place after bond dealers suddenly marked down the value of the securities, which it said were otherwise fundamentally sound.
