Global Subprime Update [Housing Tracker]

 |  Includes: RBS, UB
by: Judy Weil

Quote Of The Day 

“The other central banks looked at us and said, ‘This is just silly.’” - Luis Angel Rojo, 74, the former Bank of Spain governor who, in 1999, began requiring banks to boost reserves in anticipation of future write-offs for bad loans. The rules forced Spanish lenders to build provisions that were as much as five times greater than those in the U.K. or Italy before the credit crunch, according to the International Monetary Fund.  (Bloomberg, Aug. 7)

Global Subprime Fallout

Japan's MUFG Seeks Rest Of Unionbancal For $3 Bln. “Mitsubishi UFJ Financial Group, Japan's largest bank, said it would bid $3 billion to buy the rest of UnionBanCal Corp.’s (UB) California bank it already owns two-thirds of, as it seeks growth beyond Japanese shores. Saddled with a tepid home market and unburdened by heavy subprime losses, Japan's large financial firms are increasingly looking overseas, although a fund manager questioned whether the subprime-affected U.S. market was the place to go shopping now.” (Reuters, Aug. 12)

Report Flags UK Subprime Arrears. “Moody’s: The proportion of UK subprime mortgages falling into arrears has jumped to 10%. The latest data underlines the pressure building on UK homeowners as the economy starts to worsen and borrowers struggle to repay their mortgage loans. Moody’s monitored the performance of 87 UK securitisation transactions containing home loans made to subprime borrowers and found that the number of mortgages in arrears jumped from 7.3% in Q2’07 to 10.2% in Q2’08 - far higher than the industry average for mortgage arrears, which is 1.33% of all home loans, according to the Council of Mortgage Lenders.” (Financial Times, Aug. 12)

Government Must Give Lead On Economy. “Irish people were initially unaware of the effects of the subprime crisis which started in America and has resulted in a very significant decline in liquidity for Irish financial institutions over the past year. This has been compounded by aggressive short selling of Irish equities by select hedge funds, which has contributed to the unprecedented performance of the Irish stock market over the last 12 months. The Irish market has now suffered the worst decline, in a single year, in the history of public markets.” (Irish Times, Aug. 12)

Cost-Cutting in New York and London, a Boom in India. “Wall Street’s losses are fast becoming India’s gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties… In addition to moving some lower-level banking and research positions to support bankers and analysts in New York and London, firms are shipping some of their top bankers from those cities to faster-growing developing markets to handle clients there.” (NY Times, Aug. 12)

Babcock Says Profit to Drop 40% as Investments Slump. Babcock & Brown Ltd., the worst- performing stock on the MSCI Asia-Pacific Index, said first-half profit dropped as much as 40% as share and real estate prices tumbled, eroding the value of investments. The Australian fund manager's group net income fell between 25%-40% in H1’08, from A$250 million ($222M) a year earlier. Babcock shares extended a 78% slump.. The U.S. subprime collapse has ravaged the value of securities and real estate-linked investments at the nation's financial firms, with Australia & New Zealand Banking Group Ltd. forecasting its biggest profit drop since 1992 and National Australia Bank Ltd. raising provisions fivefold.” (Bloomberg, Aug. 11)

Financial Turmoil Hits Institutions. “French bank BNP Paribas last week saw its second quarter profit fall by 34% as a result of write-downs related to the global credit crunch. The firm said Q2 net income dropped to €1.5 billion ($2.3B), from €2.3B a year earlier. Profits at its investment banking arm more than halved to €523 million after it took an asset write-down of €542M. Nevertheless, the bank had not been as badly affected by the credit problems as its peers.” (Ghana Daily Guide, Aug. 11)

British Bank RBS To Sell $8bln Of Loans: Report. “Financial Times: The Royal Bank of Scotland (NYSE:RBS) is selling loans worth up to $8.0 billion (€5.3B) to private equity firms after it suffered huge write-downs linked to the global credit crunch... RBS is selling to Apollo, GSO Capital, Blackstone's debt investing arm, and TPG… On Friday, the bank had revealed an $11.4B hit from the US subprime crisis and credit squeeze, and a resulting half-year loss among the biggest in British banking history. RBS, the second-biggest British bank, admitted being humbled by exposure to the subprime crisis and reported a first-half net loss of £802 million.” (AFP, Aug. 11)

Asset-Backed Sales May Drop to 10-Year Low in Europe. “Deutsche Bank: Sales of asset-backed bonds, which finance everything from home loans to offices, water companies and pubs, may fall 83% in Europe this year to €65B ($98B), the lowest since 1998. A year after the start of the credit crisis, the asset- backed debt market remains stagnant as investors stung by subprime losses demand record-high yields, damping sales… Banks created about €253B of asset-backed bonds so far this year, compared with €378B in all of last year and a peak of €470B in 2006. Of the securities issued in 2008, less than €30B were sold to investors.” (Bloomberg, Aug. 11)

The Real Superpower Threat: Luxembourg.  “Every financial institution in Lichtenstein rushed into the subprime and CDO businesses. Executives pocketed eye-popping bonuses as they bought mortgages and sold CDOs. Government ministers hailed the triumphs of financial deregulation that allowed everyone to buy a home. Editorialists proclaimed the glories of the free market system. Luxembourg quietly sold its banking and mortgage businesses before the Ponzi scheme collapsed, wrecking Lichtenstein's economy. Of course, this scheme could never work in the U.S. Our financial institutions are too well regulated, our rating agencies are independent and incorruptible, and our banking executives allow neither short-term profits nor annual bonuses nor herd instincts to cloud their vision.” (Crosscut, Aug. 11) [Humor column – Ed.]

Taiwan's Chinatrust Fin revises down H1 net profit. “Chinatrust Financial, Taiwan's top credit card issuer, said on Friday its net profit in H1 was 4% lower than previously reported, due to more fallout from the U.S. subprime crisis. Chinatrust Financial made an additional $21 million write-down against the mortgage loans its U.S. banking branch had made to around 700 clients, bringing its first-half profit down to T$8.91 billion ($287M).” (Reuters, Aug. 8) 

Dutch Aegon's Quarterly Profit Drops On Impairments. “Dutch insurer Aegon NV reported a 58% drop in quarterly profit on Thursday, hurt by impairments on U.S. credit and subprime mortgage investments. Net profit was €276M ($428M), compared with €655M a year earlier. The result came in at the lower end of market expectations.” (Guardian UK, Aug. 7) 

KBC Drops After Net Misses Estimates on Loan Losses. “KBC Group NV, Belgium's second-biggest financial-services company by assets, [reported] Q2 net income dropped 47% to €493M ($761M) from €936M a year earlier. Earnings excluding one-time items fell 42% to €510M, missing the €556M median analyst estimate. Loan losses more than doubled to €143M, the most in more than four years, as the collapse of the U.S. subprime- mortgage market last year spilled over to other credit markets. The turmoil in stock and bond markets forced KBC to mark down its structured investments by €161M after taxes and to write down the value of other investments… by €138M.” (Bloomberg, Aug. 7) 

Dexia Falls After Adding Funds to FSA, Profit Drop. Dexia SA, the world's largest lender to local governments, fell 10% in Brussels trading after agreeing to provide $300 million to its U.S. bond insurance unit and reporting a slump in profit. Dexia shares are down 48% so far this year. Dexia agreed to add the funds after writedowns tied to the subprime contagion led to a loss at Financial Security Assurance Inc., its New York-based bond insurance unit, and threatened the division's AAA credit rating. Dexia will stop insuring asset- backed securities and structured finance, scale back FSA's financial products division and take over its risks, CEO Axel Miller [said.]” (Bloomberg, Aug. 7) 

Commerzbank Earnings Rise Despite Subprime Losses. ”Germany's second biggest bank, Commerzbank, reported a higher-than-forecast 6.4% rise in second-quarter net profit despite fresh write-downs resulting from the global financial crisis… The rise in net quarterly profit to 817M ($1.3B) was helped along by a tax gain. However, the bank, which has been weighing up a merger with rival Dresdner, also went on to warn that tough market conditions could make mean that 2008 earnings could come in lower than last year… Commerzbank second-quarter write-downs totaled €420M, including €170M as a result of the US subprime mortgage market crisis.” (Deutsche Welle, Aug. 6)


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