Housing Market Tracker - Global Subprime Fallout: Japan Real Estate Hurting

by: Judy Weil

Global Subprime Fallout

Deutsche Bank's 'Transparency' Hides Much From Investors' View. “Deutsche Bank’s exposure to the subprime collateralized debt obligations… looks, at €1.2 billion ($1.9B) net of hedges, small compared with UBS's €8B-plus. Its €7.9B position in Alt-A mortgages… is smaller than that of HBOS, the U.K. retail bank… [Of] Deutsche's €17B exposure to commercial real estate, nearly half is in Germany... But… on the marks it used to value its liquid assets: Its black box of ‘Level 3 assets’ -- the most illiquid of mortgage-backed and other securities -- has doubled in a year to nearly €88B… Deutsche gets to use its own undisclosed valuation methods for such assets.” (Wall St. Journal, Mar. 27th)

Cooperative German Bank Fund Threatened By US Subprime Crisis – Report. “Manager Magazin: A fund linked to cooperative German banks has been frozen since July owing to the international financial crisis, said their investment bank, Union Investment. The fund, which specializes in asset-backed securities or financial instruments often backed by high-risk mortgages, might have to be liquidated, which could entail the loss of around €600 million. But the Union investment spokesman said a 'forced liquidation is not on the agenda' and 'discussions were in progress' Luxembourg authorities who have control over the fund on which steps to take.” (Forbes, Mar. 26th)

AIB Profit Drop Hits Chief’s Wages. Ireland: “Pre-tax profits at AIB Capital Markets fell by 8% in 2007 as it suffered from a €92m hit on investment portfolio from falling stock markets and a €39m write-down in assets linked to subprime mortgages… The bank’s shares were one of the worst performers on the Irish stock market during the year, losing 31% of their value… A third of the bank’s outstanding Irish loan portfolio, 29.9bn, is to the construction and property sector. This figure excludes €24.5bn in residential mortgages in Ireland.” (Irish Examiner, Mar. 26th)

2007-08 Growth Will Be Near To 9 Pc: Chidambaram. “India expects economic growth to be near 9% in the fiscal year ending in March although financial market turbulence is making it harder to achieve such growth rates, Finance Minister P Chidambaram said on Wednesday. He said problems stemming from the credit markets would affect India, even though only one Indian lender had exposure to US subprime mortgages.” (India Economic Times, Mar. 26th)

Two Chinese Top Banks Report Steep Profit Rise, Limited Subprime Exposure. “Industrial and Commercial Bank of China and Bank of China, two of the nation's top lenders, reported steep profit growth Tuesday, saying the impact from the US subprime crisis was limited… The Industrial and Commercial Bank of China, the country's largest lender, said its net profit for 2007 jumped 65.5% from the previous year to 81.5 billion yuan ($11.6B)… It held $1.23B in US subprime mortgage-backed securities at the end of 2007, but it did not see any major impact from the subprime crisis... It made allowances for impairment losses of $400M for its subprime-related assets, including $343M booked in Q4.” (AFP, Mar. 25th)

Ontario Now in Recession: Report. “Ontario has already been pushed into a recession by the slump in the U.S. economy, a Canadian financial institution said Tuesday in advance of the release of that province's annual budget. "Its economy is at the mercy of the manufacturing industry, especially the automotive sector, which is going through a period of major restructuring ... and will not be able to avoid a drop in production in [H1’08]," Yves St-Maurice, deputy chief economist at Desjardins Group. "Technically, therefore, Ontario will be in a recession in the early part of the year," he said.” (Windsor Star, Mar. 25th)

Japan Condominium Market Has ‘Deteriorated,’ Mori Chief Says. “Akira Mori, CEO of closely held developer Mori Trust Co.: The collapse of the subprime market in the U.S. has made it harder for Japanese developers to borrow at the same time as building materials and land have become more expensive, Mori said. Sales volumes may extend last year's drop and Japan's slowing economy will make it harder to increase condominium prices.” (Bloomberg, Mar. 26th)

China Development Financial Ratings Unaffected By Subprime Losses. “S&P Ratings Services: The rating on China Development Financial Holding Corp. and on its subsidiary, China Development Industrial Bank, are not affected by the subprime-related losses at CDFHC or potential exposure to additional valuation losses if the global capital markets continue to fluctuate. S&P believes the group is highly likely to maintain a credit profile commensurate with the current ratings, given CDFHC's good capitalization and core earnings ability. CDFHC announced Monday that write-downs from CDIB's subprime-related assets, including exposure to super-senior ABS CDO and SIVs, reached Taiwan dollar 3.2 billion [in] 2007… Equivalent to about 30% of the notional amount of the related instruments.” (Asian Banker, Mar. 26th)

Credit Storm Exposes Value In Benelux Financials. “Financial services groups in Belgium and the Netherlands have weathered the credit crisis better than their U.S. and European peers… thanks to their conservative outlook and focus. Combined, Fortis ING Group, Aegon and Rabobank have written off or devalued €7.5 billion ($12B) on bond investments laced with subprime debt… Less than half the amount written off by Merrill Lynch and a fraction of the $130B done so by major banks and financial institutions worldwide… Reuters: Benelux banks are priced at a relative discount to their global peers, trading at an average 6.1 times projected 2008 earnings versus 8.2 for global financials.” (Reuters via The Guardian, Mar. 26th)

Mortgage Lenders Struggle to Find Cash. UK: “Mortgage lenders are running out of cash. Figures from The Council of Mortgage Lenders showed £24 billion worth of mortgages advanced in February, 7% lower compared with the previous month and 6% down on the previous year. Michael Coogan, CML: Problems in the money markets had left its members unable to meet demand, as they effectively ran out of money to lend. Demand for mortgages remains strong but cannot be fully met from existing funding... Many lenders [have] reduced their product ranges, increased their mortgage prices and, in some cases, reduced their lending capacity, added Mr Coogan.” (Homemove.uk, Mar. 25th)

Japan's Ebank To Raise $100 Mln For Subprime Loss. “Business Daily Nikkei: Japanese lender eBank is seeking a capital infusion from Development Bank of Japan, as the online lender looks to shore up its balance sheet in the wake of losses on investments linked to U.S. mortgages. Japan's leading online bank will issue as much as ¥10 billion ($100 million) of subordinated bonds to DBJ by the close of the fiscal year ending March 31… eBank is the third Japanese financial institution to seek external funding after racking up heavy losses on subprime-related investments. The bank has reported ¥5B in subprime losses so far and [another] ¥5B is expected.” (MarketWatch, Mar. 25th)

Subprime Woes Threaten Japan Real-Estate Boom. “Nikkei business daily: The transformation of Japanese real estate into a financial product has helped to draw investments from abroad and underpin higher land prices, but the same forces are poised to deflate the market. While REITs, have played a key role in the surge in property values, their holdings, purchased for ¥6.9 trillion ($690 billion), carry a much lower market value of roughly ¥4T… The nearly ¥3T in unrealized losses underscore the sector's potential weakness… the subprime mortgage fallout has weakened the investment capabilities of hedge funds and other purchasers of Japanese property. Financial institutions are also growing more cautious about funding such transactions.” (MarketWatch, Mar. 24th)

Japan's Watanabe Says Subprime Needs Group Effort. “Tokyo's new financial services minister Yoshimi Watanabe said he was not currently worried that U.S. subprime problems would directly shake up the financial system in the world's second-largest economy. Watanabe: "This is not just a problem of a liquidity crisis, there is also the problem of credit risk... we need to deal with this globally. In Japan, I think it is necessary for the central bank, Ministry of Finance and the Financial Services Agency to work together to deal with this." (Reuters, Mar. 24th)

Canadian Western Eschews Subprime to Beat Bank Rivals. “Canadian Western Bank [had no] quarterly losses for the past 20 years [and] quadrupled [its stock] in five years… The Canadian lender has avoided credit losses stemming from the subprime mortgage crisis, which has led to about C$6.65 billion ($6.5B) of writedowns at bigger Canadian rivals Bank of Montreal and Canadian Imperial Bank of Commerce. The bank primarily lends to companies that service Canada's oil and gas industry, the largest supplier of fuels to the U.S. Canadian Western's first-quarter earnings climbed 27% to C$25.9 million on record revenue. By contrast, Canada's six biggest banks reported their first average profit decline since 2002.” (Bloomberg, Mar. 24th)

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