Global Banks Struggle to Get Beyond Subprime - Housing Tracker

Global Subprime Fallout

Sobered By Subprime Crisis, French Banks Get Back To Basics. “Shaken by losses linked to the US subprime loan crisis, major French banks are… cutting costs and shifting their focus from high-risk activities back to traditional savings and loans… Several banks last week announced plans to cap bonuses, cut costs and correct their business model to adapt to the new landscape… Credit Agricole launched a strategic review of its businesses [and] its investment banking arm Calyon is to shift its focus to traditional business lines rather than higher-risk securities... Investment bank Natixis, whose Q1 earnings plunged 88% due to [subprime] exposure… announced it would cut costs by €400 million by 2009, chiefly in its investment operations.” (AFP, May 19th)

Credit Suisse CEO Says Subprime Position Valuation Close To Lowest Level. “Credit Suisse Group CEO Brady Dougan said he believes the banking sector's remaining subprime positions are close to their lowest valuation and volatility has consequently reduced. Nevertheless, many banks still had substantial risk positions on their books at the end of March because they had hoped for a market recovery that has failed to materialise, Dougan said... Many solvent investors are still holding back as they are waiting to pick up bargains, he noted.” (Forbes, May 19th)

IFA Firm Thinc Fined For Subprime Mis-Selling. “UK Financial Services Authority: Independent financial advisers Thinc Group has been fined for not telling customers the risks of investing in subprime mortgages. Thinc, owned by Europe's second-biggest insurer, France's AXA, was fined £900,000 by the FSA. Thinc… was broker on 2.7 billion pounds' worth of mortgage contracts during the 21 month period for which it was fined, including subprime mortgages worth £77 pounds from January 1, 2006-Sep. 30, 2007. Thinc was fined for failing to obtain adequate financial information about some of its subprime mortgage customers before giving advice and not demonstrating why the particular subprime mortgage products it recommended matched those customers' needs.” (Reuters UK, May 15th)

Crédit Agricole Plans Major Asset Sales To Cover Subprime Losses. “Just days after announcing a rights issue, the French bank Crédit Agricole on Thursday named a new head for its investment banking unit and said it planned to sell €5 billion of assets to help cover losses linked to the subprime market downturn. The asset sales, equivalent to $7.7B, are to be accompanied by a €5.9B rights issue later this year, Crédit Agricole said. Pressure on its British rival, Barclays, to also raise capital through a share sale increased Thursday when the bank said its first-quarter earnings declined from Q1’07. CFO Chris Lucas did not rule out a rights issue.” (Int’l Herald Tribune, May 15th)

Blackrock-UBS Deal A Sign Buyers Returning To Subprime. “BlackRock's (BLK) purchase of a massive subprime portfolio from UBS is a sign that first buyers are returning to assets long considered too toxic to touch, and more similar deals may follow. BlackRock will take a portfolio with a notional value of $22 billion off UBS's books for $15B, making it the biggest of its kind so far. David Williams, analyst at Fox-Pitt Kelton: "It suggests the smart money can commit money to this [now.]” Few details of the portfolio have been revealed… It consists of subprime and Alt-A -- which range from near-prime to near-subprime -- bonds, rather than structured products, priced at an average $0.68 to the dollar.” (Reuters, May 15th)

Natixis Surges After Chief Says Provisions ‘Near End'. Natixis SA, France's fourth-biggest bank, had its biggest gain in Paris trading after posting an unexpected first-quarter profit and saying provisions tied to the U.S. subprime-mortgage collapse may be “nearing an end.'' Natixis surged €1.82, or 17%, to 12.44, Natixis's corporate and investment banking arm had €431 million of asset writedowns linked to the subprime crisis in Q1, pushing the unit to a loss of €145M from a profit of €289M a year earlier. CEO Dominique Ferrero: Provisions related to the collapse may be coming to a close.” (Bloomberg, May 15th)

BNP Net Drops 21% On 'Violent' Conditions. “Large French bank BNP Paribas [has] reported a 21% drop in first-quarter profit after "violent" market conditions led to asset write-downs and increased provisions for risky loans…CEO Baudouin Prot: "This performance confirms the group's ability to weather the storm and to continue to pursue its development strategy.” Net income fell to €1.98 billion, or $3.06B, from €2.51B a year earlier. Profit beat the €1.62B median [analyst] estimate. Sales fell 10% to €7.4B, matching estimates… The loss was led by a 73% drop in earnings at BNP Paribas' corporate and investment banking division. BNP wrote down investment bank assets by €514 million in Q1.” (Int’l Herald Tribune, May 14th)

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