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Global Subprime Fallout

CDS market posts record growth H2 2007 – BIS. “Bank for International Settlements: The credit default swap market… showed record growth in H2’07. CDS' are contracts and are bought to cover losses in case of default. Buyers of such swaps pay premiums to insure against default in the debt they are exposed to while sellers are typically banks, hedge funds and other financial institutions who have gathered up such debt assets and packaged them. With the U.S… higher-risk [like subprime] mortgage market collapsing in August 2007, investors… acquired [more] insurance… pushing up the premiums charged. Gross market values of CDS' soared 178% in H2’07, compared with 53% growth in H1’07.” (Thomson Financial via Forbes, May 22nd)

UBS Launches $15.5 Bln Deep-Discount Rights Issue. “Swiss bank UBS (NYSE:UBS)launched a deeply discounted rights issue worth 16 billion Swiss francs ($15.55B) on Thursday, aiming to issue new stock at about a third below its latest market price. The emergency offering, at SF21/share – [is] a whopping 73% below its peak price less than one year ago… The world’s largest wealth manager was forced to write down around $37B of assets hit by the U.S. subprime mortgage crisis. The price comes far below what some analysts had expected in recent weeks… around SF24-25/share, but above the SF17-20 price feared by some, which would have meant a massive dilution for existing shareholders.” (Reuters, May 22nd)

KfW May Decide on Potential IKB Buyer Next Week, Welt Reports. “KfW Group, Germany's government-owned development bank, may decide by next week on a final interested party to continue negotiations with over the sale of IKB Deutsche Industriebank AG, die Welt said. IKB, the German bank being sold after a bailout over U.S. subprime investments, may sell for €800 million ($1.26B), the newspaper said.” (Bloomberg, May 22nd)

Hapoalim Sells Securities to Pimco for $2.55 Billion. “Bank Hapoalim Ltd., Israel's biggest bank by assets, sold its mortgage-backed securities to Pacific Investment Management Co. for $2.55 billion… recording a pretax loss of $870 million from the sale in Q1’08. Hapoalim [also] took a $103M markdown on its structured investment vehicles, [and] won't reach its [targeted] return-on-equity ratio of 15% this year. It now expects a return of between 7%-10%. Capital adequacy ration fell to 9.8% at the end of Q1 from 10.3% at the end of 2007... Following the MBS sale [and] the disposal of a 4% stake in Hapoalim to York Capital Management LLC, the bank [expects to] boost its ratio to 10.1%.” (Bloomberg, May 21st)

Nation's Major Banks Feel Subprime Pinch. Japan: “The current circumstances in which U.S. and European financial conglomerates have suffered massive losses and now face recapitalization and restructuring presents a golden opportunity for major Japanese banking institutions to increase their presence in the global market. The government has submitted to the Diet a bill aimed at revising the Financial Instruments and Exchange Law, [to] relax regulations on the scope of services provided by financial institutions… Shortcomings in risk management can be eliminated through thorough checks. Furthermore, new business operations can be tapped at securitization markets and through brokering corporate mergers and acquisitions… Such efforts by banks will… eventually rejuvenate the economy.” (Yomiuri Shimbun editorial, May 21st)

Morgan Stanley Cuts Securitization Jobs in Japan, People Say. “Sources: Morgan Stanley (NYSE:MS)… is cutting as many as 25 jobs at its Japan real estate securitization unit… Eric Ellison, co-head of Morgan Stanley's securitized products group in the nation, is leaving the firm, people said, [and] another 20-25 bankers and employees were asked to leave last week… Morgan Stanley cut about 40 jobs at the division, which buys mortgages and packages them into tradable securities, in February... The U.S. subprime mortgage crisis has generated at least $19.6 billion of losses at companies in Asia, triggering job cuts at Morgan Stanley, Merrill Lynch & Co. and Mizuho Financial Group Inc.” (Bloomberg, May 20th)

Citigroup Shuts UK Call Centre And 49 Branches. “Citigroup (NYSE:C) announced plans yesterday to extricate itself completely from new sub-prime lending in Britain… closing down Future Mortgages, its mortgage operation, and CitiFinancial, its unsecured loans business. Its 92,000 mostly sub-prime customers – people with blemished credit histories – will continue to be serviced by other parts of Citigroup on the same terms. The bank said that it planned to close its Doxford call centre operation near Sunderland, where 400 people are employed, and 49 CitiFinancial branches, employing 300 people… Some [staff] may be offered jobs elsewhere in the group.” (UK Times Online, May 20th)

ING Stakes A German Real Estate Claim. “ING Direct, the online banking subsidiary of Dutch financial services provider ING… said it had launched a bid of €64 ($99.23)/share for Germany's largest independent mortgage broker, Interhyp, valuing the company at €416.0 million ($645.1M). Including a dividend and an additional one time payment totaling €4.10 ($6.36)/share, the offer implies a premium to Friday's closing price of 42.0%, said ING… Interhyp sells residential mortgages from more than 50 banks via telephone and Internet and is part of a growing category within the German mortgage market.” (Forbes, May 19th)

Home Loans Resume At First Direct. “First Direct, part of the HSBC banking group (HB), has started selling mortgages again to new customers, six weeks after it called a temporary halt… on 1 April after being deluged by new applicants as the mortgage drought took hold. Meanwhile the Halifax has become the latest big lender to cut the interest rates on some of its mortgage deals. From Wednesday it will reduce some offers by 0.15%, but only for existing borrowers seeking to re-mortgage. Last week, two of the UK's biggest mortgage lenders, the Abbey and the Nationwide, made slight cuts to the interest rates on some of their home loans.” (BBC News, May 19th)



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Source: Global Subprime: UBS Launches Emergency Rights Issue - Housing Tracker