U.S. Co.'s, Not SWF's, Can Buy German Subprime Assets [Housing Tracker]

Quotes of the Day

"In these parts, the subprime crisis seems very remote, and fears of an autumn recession don't exist. The most worrying things for the new owners are the rise in the number of jellyfish and an odd decision by the mayor of Saint Tropez to forbid overflights by helicopters." – An Italian newspaper, which said the European superrich are immune to the worsening global economy. (Guardian UK, Aug. 15) 

 “The [Fannie Mae and Freddie Mac] bonds in which we have invested have not incurred losses but instead have made us more than a billion dollars in the last six months." - Russian Finance Minister Alexei Kudrin told news agency Ria Novosti. (AFP, Aug. 20)

Global Subprime Fallout

Germany Moves to Block Sovereign Wealth Funds. “German Economics Ministry: Chancellor Angela Merkel's cabinet approved a bill that would see acquisitions by foreign entitities [particularly sovereign wealth funds] not based in the EU of more than a 25% stake in German firms scrutinized. If such a purchase is deemed to pose a threat to public security or order, Berlin could prevent it from going through… Many large banks were forced to go cap-in-hand to sovereign wealth funds when the subprime mortgage crisis left them strapped for cash… But concerns that their motives may be political and not just economic have prompted a backlash, with many countries such as the U.S. bolstering their defenses against the funds' advances.” (Industry Week, Aug. 21) 

China's ICBC Q2 Jumps; World's Top-Earning Bank. “Industrial & Commercial Bank of China Ltd (ICBC), the world's biggest bank with a market value of $235 billion, posted a 41% increase in second-quarter profit... Non-performing loans at ICBC and other Chinese banks are expected to rise in H2. Like most Asian banks, ICBC's subprime-related holdings… are small relative to its size: The nominal value of its Alt-A residential mortgage-backed securities, U.S. subprime residential mortgage-backed securities and structured investment vehicles totaled $1.92B, and it had made cumulative allowances of $702 million for impairment losses… [It] held bonds related to Fannie Mae and Freddie Mac… totaling $2.7B, or a fifth of 1% of its total assets.” (Guardian UK, Aug. 21) 

Lone Star To Buy IKB, The German Subprime Casualty. “Lone Star Funds, the Dallas-based private equity firm, has agreed to buy IKB Deutsche Industriebank… Lone Star will acquire 90.8% of IKB from KfW Group, Germany's state-owned development bank, for an undisclosed price, KfW said… Lone Star beat a competing offer from RHJ International, the investment firm run by Timothy Collins. The sale will close a painful chapter in German banking history and ends an 11-month search for a buyer after KfW led a €10 billion bailout. IKB collapsed after a unit that bought subprime mortgages ran out of funding in July last year as the credit crunch began.” (IHT, Aug. 21)

Temasek May Lift Stake in Merrill, Betting on Rebound. “Temasek Holdings Pte, the biggest shareholder in Merrill Lynch & Co., may acquire a larger stake in a bet the U.S. securities firm will rebound… Merrill's shares have fallen 55% since Dec. 24, when Temasek first paid $5 billion for about 5% of the third- biggest U.S. securities firm… Sovereign wealth funds… have helped banks such as UBS AG and Citigroup Inc. replenish more than $200B of capital after losses and writedowns from the U.S. subprime meltdown. Temasek: [Fund] assets rose 13% to S$185B ($131B) in the year ended March from S$164B a year earlier.” (Bloomberg, Aug. 21)

Foreigners Don't Own That Much Subprime. Maybe. “Federal Reserve study out seemingly showing that non-U.S. exposure to subprime is a little less than some of us expected: “In a hypothetical scenario with a 20% default rate on nonconforming mortgages and a 10% default rate on other types of underlying loans (with a 50% recovery rate for each), we predict that foreigners would ultimately lose $75 billion on their holdings of ABS backed by U.S. assets. Then again, the mark-to-market losses stemming from a price markdown in all foreign-held ABS can be as much as six times larger using a 20% price markdown.” So, it's either $75-billion in foreign losses or a half-trillion -- which is reassuring, or not.” (Paul Kedrosky in Seeking Alpha, Aug. 20)

Northern Ireland Fund Makes A Bold Move. “The £3.1 billion ($4.56 billion) Northern Ireland Local Government Officers' Superannuation Committee [public sector employee] pension fund… has taken co-lead plaintiff status in a case against Lehman Brothers filed… last month… The Northern Ireland fund… alleges the prices it paid [for] Lehman shares between Sept. 13, 2006-March 31 2008… were artificially inflated by directors not revealing the true extent of the bank's exposure to the U.S. subprime-mortgage crisis. The Northern Ireland fund is joined in the complaint by three U.S.-based pension funds -- the Alameda County Employees' Retirement Association, the Government of Guam Retirement Fund and the Operating Engineers Local Union No. 3 Trust Fund -- as well as the U.K.'s Lothian Pension Fund, a £3 billion pension plan for Edinburgh public sector workers.” (WSJ, Aug. 20)

British Families, Drowning in Debt. “Between March and June alone, 37,740 British homeowners had to turn their property back over to the banks. By the end of the year it's likely to be 75,000. More than a million people in Britain will have difficulties paying off their debt. After 15 years of economic boom, a word is on their lips again that the country thought it had struck from its vocabulary entirely: recession.” (BusinessWeek, Aug. 20)

For India's Tech Titans, Growth Is Waning. “A host of Indian companies… [have grown] 40% a year or more since 1998… helping build a global tech-outsourcing industry that has changed how the world does business and how it views India. Now, the credit crunch and spending slowdown in the U.S. are hurting the companies' biggest market, while a cheaper dollar shrinks their profits. Longer-term problems are surfacing. Competition is rising from other low-cost nations, ranging from Eastern Europe to the Philippines and Vietnam. And India's own success has raised labor expenses, cutting into the companies' low-cost advantage just as their revenue growth is slowing.” (WSJ, Aug. 20)

 

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