Global Subprime: We Are All Connected [Housing Tracker]

Quote of the Day

"These bubbles have burst and the slump in residential investment from elevated levels threatens to drag both economies from one tail of the growth distribution to the other.” – From a new study called "A Tale of Two Countries," conducted by Bruegel, a Brussels-based think-tank. The report looks at Ireland and Spain, two of the weaker members to join the European Union, whose meteoric growth was largely reflected in their housing markets. (EU Observer, June 11th)

Global Subprime Fallout

Investment Banking Fees Crash 32%. “The subprime crisis’… effect on investment banks in India: Fewer deals and a falling equity market have caused a 31.6% drop in i-banking fees in the country in H1’08. Except a few large local banks, most foreign i-banks and smaller domestic banks have shown a fall in fee income. Both inbound and outbound deals have seen a 74% and 47% drop, respectively, in H1’08. Thomson Financial: I-banking fees in the country for H1’08 were at $354.3 million against $518.3M last year… The debt market [fell] 36% to $16.4M.” (India Economic Times, June 12th)

Babcock Plunges by Record on Concern Over Debt Review. “Babcock & Brown Ltd., Australia's second-biggest securities firm, plunged by a record in Sydney trading, pushing its market value to a level that may trigger a review of agreements on A$2.8 billion ($2.6B) of debt... Creditors have the right to demand early repayment of debt should Babcock's market capitalization remain below A$2.5B for longer than four months, Babcock said. Babcock has tumbled 73% this year… even as it avoided the subprime mortgage losses… The company, whose debt is about five times its equity, has been dragged down as the collapses of Australian firms including Allco Finance Group Ltd. caused investors to shun indebted companies.” (Bloomberg, June 12th)

'Subprime Keeping Rates High'. “SBI chairman O P Bhatt said that SBI, India’s biggest lender, had no direct exposure to the US subprime market and the crisis would have no major impact. "However, the indirect adverse effect of this is being felt in the form of tightening system liquidity and firmness in pricing, which has kept rates from softening," Bhatt said. Bhatt was, however, bullish about Indian economy and said SBI would soon set up equity funds to cater to the needs of the booming economy.” (The Times of India, June 12th)

Limited Further U.S. Subprime-Related Rating Impact On European Banks – Fitch. “Fitch Ratings expects minimal further rating impact on European banks relating to U.S. subprime exposure... Fitch also said it expects challenges ahead for European banks, as western European economies slow and domestic banking systems face funding challenges, slowing profitability, strained capitalization and declining asset quality. Banks have already reported a significant percentage of their expected subprime losses… The deleveraging process currently underway in European banks is likely to act as a drag on profitability and asset quality… Fitch added that banking systems in the UK, Ireland, Germany and Iceland may face the greatest headwinds over the next 12-18 months.” (Forbes, June 11th)

Banks Love A Russian Rumor. “Suleiman Kerimov, a Russian billionaire, is reportedly buying stakes in large Western banks and wants other tycoons to join him. According to the Russian newspaper Kommersant, he held 3.0% of Deutsche Bank (DB) last year and wants to increase that stake to 9.0%... European regulations states that any investor must publicly declare ownership if a holding rises or falls below certain levels, including 3.0%, 5.0%, and 9.0%. The article [said] that Kerimov was seeking to form a pool of Russian investors who could jointly increase stakes in a coordinated fashion, thus allowing them to avoid disclosing when they breach regulatory thresholds. (Forbes, June 11th)

BNP to Buy Bank of America’s Equity Prime Brokerage. “BNP Paribas SA, France's biggest bank, agreed to buy Bank of America Corp.'s (BAC) prime brokerage unit that caters to hedge-fund customers so it can expand in the U.S. BNP Paribas is paying as much as $300 million for the business… BNP Paribas' Americas said. The division provides securities lending and secured financing to more than 500 hedge funds and has 320 employees… BAC CEO Kenneth Lewis put the unit up for sale in January, after third-quarter profit at the corporate and investment bank plummeted 93%. BAC profits… have declined for three straight quarters.” (Bloomberg, June 10th)

S.Korea Kookmin Bank To Sell 400 Mln Euro MBS. “Kookmin Bank, the top South Korean retail lender, said on Tuesday it sell issue floating-rate residential mortgage backed securities [RMBS] to raise €400 million ($623.1M) on Thursday. The bond will be sold to an unidentified European institution in a private placement at a rate of 110 basis points above the Euribor, carrying a weighted average life of three years, the bank said… The underlying assets would be mortgages in South Korea. Kookmin Bank, the country's biggest mortgage bank, said the issuance, managed by ING Bank, would be its first RMBS sale.” (Reuters, June 10th)

Cathay Life Insurance to Raise NT$15 B. in 2008. “Cathay Life Insurance Co., Taiwan`s largest life insurer, said that it will issue NT$2 billion (US$66.22 at US$1:NT$30.2) in new shares at NT$75 (US$2.48) per share this year, enabling the firm to raise NT$15 billion (US$496.68 million) in new capital. The capital-increase project will be the largest of ever launched by Cathay Life in its 46-year history… Domestic life insurers are pressured to increase capital due impact from the U.S. subprime mortgage crisis, loss from currency exchange, and revision to the risk-based capital regulation for the insurance industry.” (CENS.com, June 10th)

Fortis Dips On Downgrade, Funding Concern-Traders. “Belgian-Dutch financial services group Fortis fell sharply Tuesday… on a downgrade by Merrill Lynch analysts… Merrill downgraded Fortis to 'neutral' from 'buy', citing concern over its ability to raise capital…. Like other European banks, Fortis is raising capital to shore up finances damaged by the credit crisis, as well as funding for its acquisition of ABN AMRO's Dutch businesses last year. Fortis raised funds earlier this year through two non-dilutive perpetual bond issues -- one for €650 million ($1 billion) and another for $750M -- and will have to raise additional funds through 2008 and 2009 as it integrates ABN's operations.” (India Economic Times, June 10th)

Royal Bank Of Scotland Says Rights Issue 95 Percent Subscribed. “Royal Bank of Scotland Group PLC said on Monday that Europe's biggest rights issue was undersubscribed, with the bank's shareholders putting up around 95 percent of the cash it called for to bolster its finances after losses from the U.S. subprime crisis. RBS, the first British bank to announce a rights issue after being hit by the global credit squeeze, said that shareholders bought £11.6 billion (US$22.9B) of stock at 200 pence (US$3.95)/share. That leaves the underwriters with an overhang of just under 5% of the shares on offer in the £12B (US$23.7B) issue.” (Int’l Herald Tribune, June 9th)

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Comments

[helplessobs...:]

Judy,
Keep up the good work. Your posts are very useful, much better than the sheer speculation we encounter in other posts.

2008 Jun 12 07:32 PM

[fatcat:]

Judy,I say it again,you make it easy to keep up with this important issue..thanks

2008 Jun 12 09:49 PM

[SA Editor J...:]

Thanks!

2008 Jun 13 08:24 AM