Global Subprime Update [Housing Tracker]

Includes: BK, LEH, MCO, MS, SPG
by: Judy Weil

Quote of the Day 

"The financial service industry is one we believe in. It's a proxy to the economic growth." - Manish Kejriwal, Temasek's senior managing director for investment, International and India, on Temasek's determination to continue investing in U.S. financials, despite $500 billion in credit market losses. (Reuters, Aug. 26) 

Global Subprime Fallout

Credit Crunch Hammers Commercial Real Estate. "Canada's commercial real state sector is the latest victim to be beaten back by the global crunch in capital markets, according to a report yesterday from CB Richard Ellis Ltd. Investment in the Canadian commercial real estate market, which includes office towers, shopping centres and industrial properties, fell 24% in H1’08, according to the report.”  (Ottawa Citizen, Aug. 27)

China's Banks Churn Out Profits. “Industrial & Commercial Bank of China’s… net profit rose 57.25% to 64.53 billion yuan (US$9.4B) in H1… China Construction Bank, first-half net profit gained 71.4% from a year earlier to 58.67B yuan. Smaller banks also reporting over the past few days came in with even faster growth. Net income at sixth-largest China Merchants Bank, jumped 116% to 13.2B yuan, while Citigroup could take some satisfaction from the 150% gain at partly owned Shanghai Pudong Development Bank, which reported profit of 6.37B yuan… ICBC said it held bonds related to Fannie Mae and Freddie Mac totaling US$2.7B, or about 0.15% of its 9.4 trillion yuan of total assets.”  (Asia Times, Aug. 27) 

Is It Deal Time in Europe?  “Liberty International PLC, a London-based property company, appears to be the target of a looming takeover bid [between Australia’s Westfield Group and U.S.’s Simon Property Group (NYSE:SPG)], fueling speculation that a deal could spark a wave of acquisitions of undervalued European real-estate firms… Westfield is currently building the U.K.'s two largest malls... Simon operates 323 U.S. properties and 51 in France, Italy and Poland… The move on Liberty could mark a turning point and herald a wave of deals. Overall, U.K. REITs are trading at significant discounts to the value of the property portfolios, or net asset value.” (WSJ, Aug. 27) 

Another Japanese Property Developer Bites The Dust “The global credit crunch claimed another victim in Japan's crumbling real estate sector as property developer Sebon Corp. collapsed with debts of ¥62.1 billion ($565 million).Sebon, which filed for bankruptcy protection with the Tokyo District Court late Monday, said in a statement that the financial crisis had resulted in many sales contracts going sour while hampering its access to credit. A wholly owned subsidiary, hotel operator Vanilla, also went bust with debts of about ¥16.4B.” (AFP, Aug. 26)

Singapore's Temasek Doubles Profit, Fears Contagion. “Singapore wealth fund Temasek warned of further contagion from the global credit crisis after it doubled its full-year profit by selling billions of dollars of assets. The fund, which poured more than $5 billion into Merrill Lynch in December, said it saw value in the banking industry, despite the U.S. subprime disaster… Temasek sees opportunities in financials and said it would not cap its investments in that sector, which grew to 40% of its portfolio in the year to end-March from 38% previously.” (Reuters, Aug. 26)

Abu Dhabi Bank Sues Morgan Stanley, BoNY And Rating Agencies Over Leaky SIV. “A United Arab Emirates bank said on Tuesday it expected other Gulf Arab investors to back a lawsuit it has filed against major U.S. financial institutions over a fund that collapsed in the U.S. credit crisis. Abu Dhabi Commercial Bank, which is majority owned by the Abu Dhabi government, filed a suit against Morgan Stanley (NYSE:MS), the Bank of New York Mellon (NYSE:BK) and ratings agencies Moody’s (NYSE:MCO) and S&P on Monday, accusing them of fraud… The lawsuit, filed in Manhattan… said a complex deal known as the Cheyne Structured Investment Vehicle was marketed by the defendants as highly rated and reliable.” (Financial Week, Aug. 26)

Centro Plummets On Debt Extension TalksAustralia: “Centro Properties revealed it has been forced to go back to its bankers seeking another extension to its deadline to repay a mountain of debt. Although Centro has been meeting its interest repayments, as its shopping centres remain very busy, sentiment surrounding the stock has hit rock bottom. Centro warned it could give no assurance that it would be able to win further debt extensions. Investors said the fate of the country's second largest shopping centre owner and manager, was now firmly back in the hands of its bankers and creditors.” (Sydney Morning Herald, Aug. 25)

KDB Warned Against Buying Lehman. “South Korea’s top financial regulator on Monday said it was “cautious” on Korea Development Bank’s interest in taking over a bank such as Lehman Brothers (LEH) stressing that such a deal would be better led by private lenders. Jun Kwang-woo, chairman of the Financial Services Commission, [said] he was aware that KDB was considering the possibility of buying a global investment bank… KDB had spoken to Lehman about buying a 50% stake but failed to reach an agreement.” (Financial Times, Aug. 25)

Leumi To Write NIS 82m Off Synthetic CDOs. Israel: “Bank Leumi will make a pretax write off of NIS 82 million against synthetic collaterized debt obligations. The net provision after tax will total NIS 52 million. Bank Leumi will post the write-off in its Q2 financial report which will be released on Wednesday. The bank said in its announcement to the Tel Aviv Stock Exchange (TASE) today that the sum was ‘immaterial.’” (Globes Online, Aug. 25)

Hapoalim to Post Profit After Subprime Writeoff. Bank Hapoalim Ltd., which took the biggest writedown on subprime-linked holdings of any Israeli bank, will probably report a second-quarter profit after it cleaned house by selling off the assets. Hapoalim will report net income dropped almost 2 percent to 703 million shekels ($201 million) from 716 million shekels a year earlier, according to the median analyst estimates. It posted a 1.6 billion-shekel loss in Q1 after selling mortgage-backed securities and writing down the value of other assets. The Tel Aviv-based lender, Israel's biggest by assets, reports quarterly earnings on Aug. 28.” (Bloomberg, Aug. 24)


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