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Quotes of the Day

"Our experience of the downturn in the U.S. housing market has enabled us to recognize the early signs of market weakness in the U.K. and act swiftly to position our U.K. housing business for a difficult trading environment." - Taylor Wimpey's CEO Peter Redfern. (Big Builder Online, Aug. 28)

"We are no longer overly concerned for [Canadian banks] in terms of writedowns.” – Dundee Securities analyst John Aiken. (Financial Post, Aug. 28)

Global Subprime Fallout

Lehman Brothers Faces Korean Takeover Bid. “The government-backed Korea Development Bank today… declared that it was assembling a bidding consortium to negotiate a possible investment in Lehman Brothers (LEH). The announcement… could enable the struggling investment bank to taken over by an “all-Korea” consortium that would give managerial control to KDB. KDB admitted that the talks were stalled over the price, which sources close to the deal say have caused the bid negotiations to reach deadlock several times in the past few weeks.” (Times Online, Sept. 2)

Brown to Pledge 1 Billion Pounds to Spur U.K. Housing. “Prime Minister Gordon Brown will today propose spending £1 billion ($1.8B) sooner than planned to help reverse Britain's worst housing slump in at least 18 years, according to people with knowledge of the plan. Brown will spend more quickly the £6.5B earmarked for social-housing programs over the next three years so that more of it is used in the next 12 months... The money will be used to help people buy new homes and support those struggling to pay their mortgages.” (Bloomberg, Sept. 2)

Japan Wants to Attract $927 Million From State Funds. “Japan has begun talks with sovereign wealth funds in the Middle East to raise as much as ¥100B ($927 million) to boost foreign investment that is less than a quarter that of the U.S. Officials have met with state funds, including Saudi Arabian Investment Co… to create a ¥200B fund… Japan aims to attract some of the $3.3 trillion in assets held by sovereign wealth funds that want to expand investments beyond the U.S. and Europe after the U.S. subprime mortgage crisis. Organization for Economic Cooperation and Development: Japan ranked last among major economies as a destination for foreign direct investment between 1997-2006.” (Bloomberg, Sept. 2)

The Problem Commerzbank-Dresdner Can't Solve. “The subprime crisis has reaffirmed that [German] public-sector banks can count on government support. North Rhine-Westphalia is committing $3B to prop up its local landesbank, WestLB. Despite change at the margins the system is still intact… Germany has too many banks for the number of customers. As a result Commerzbank and Dresdner will have to close branches, combine back-office operations and lay off workers to make the takeover pay. But the Sparkassen are the banks that could most benefit from an efficiency program. In effect, the people who must suffer the consequences of their inefficiency are Commerzbank and Dresdner employees.” (BusinessWeek, Sept. 1)

One Year After: RP Largely Unscathed From US Subprime Mess. “More than a year after the US sneezed from its subprime mortgage troubles, the Philippines, unlike other Asian countries, did not catch a cold, local financial experts said. Two factors explain why the twin impact of collapsing real estate and banking sector did not reach our shores: Our overseas workers, and to an extent, the outsourcing companies, kept buying or leasing real estate products no matter what. With the real estate market still vibrant, the local banks, already equipped with lessons during the hubris lending in the nineties, have remained healthy and liquid.” (ABS-CBN News, Sept. 1)

Home-Sales Data In Spain Spell More Gloomy News. “Spanish home sales and new mortgage approvals fell sharply again in June, signaling continued pressure on Spain's once-flourishing home-building industry that fed the country's decadelong economic boom. Home sales fell at an annual rate of 29.6% in June, while the number of new mortgages fell 37.7%, data released Thursday by Spain's National Statistics Institute showed. In May, annual home sales plunged 34.3%, and the number of new mortgages fell 36.2%.” (WSJ, Aug. 29)

Popular Will Sell Subprime Assets to Goldman Sachs Affiliates. Popular Inc., the Puerto Rico-based bank, agreed to sell loan and servicing assets of its U.S. mortgage subsidiary to affiliates of Goldman Sachs Group Inc. (GS), reducing its holdings of subprime home loans. The sale will result in a loss of about $450M and increase liquidity by $700M, the company said… About $1.17B in loans and mortgage servicing assets are included in the deal, scheduled to close in Q4.” (Bloomberg, Aug. 29)

Sub-Prime Borrowers Face Another Sharp Rise In Mortgage Payments. UK: “Moneyfacts survey: Subprime mortgage holder repayment rates [rose] by 2.55 percentage points this year. Many of these mortgages… are set to come to the end of their fixed, low rate period, leaving many homeowners looking to remortgage through fresh sub-prime deals, or move into the mainstream market rather than take on the standard rate of their existing deal. Moneyfacts: “The average sub-prime mortgage now costs £245 a month more than in June 2007. The repayment rate has risen from 5.75% to 8.3%...With the standard residential rate currently standing at 9.43%, this may prove costly." (UK Independent, Aug. 29)

Banks Will Soon Put Subprime Behind Them: Analyst. Canada: “Dundee Securities analyst John Aiken: With Royal Bank, TD and National all posting strong third quarter-earnings with only limited losses from investments linked to subprime home loans, the worst of the structured credit debacle is probably over for the sector… For the three months ended July 31, Canada's largest bank had a profit of C$1.26-billion, or C$0.92/share, down nearly 10% from last year. The results included a $498-million in writedowns related to structured credit investments… As the bank with the lowest exposure to subprime mortgages, TD also reported a strong performance, though offset by loan losses in its U.S. Subsidiary Commerce Bancorp (CBH).” (Financial Post, Aug. 28)

Bank Of China Profit Up; Overseas Holdings Weigh. “Bank of China posted a forecast-beating 15% rise in second-quarter profit as rising fee income helped offset its exposure to overseas holdings including subprime U.S. mortgage assets. Bank of China's first-half profit growth was the weakest among its peers due to its heavy overseas presence as U.S. rate cuts compressed its foreign currency lending spreads. Other Chinese banks have feasted on growing interest margins, although domestic margins are expected to narrow in H2.” (Reuters, Aug. 28)

Vinci CEO Says Construction Safe From Subprime. “The head of the world's largest public works and transport concessions group, Vinci, said on Wednesday the global construction sector will weather currency swings and the subprime crisis as prospects remain in emerging markets… The French construction group's head said countries like Qatar and the BRIC nations (Brazil, Russia, India, China) will remain opportunities for investment despite slowdowns in the United States and euro zone.” (Guardian UK, Aug. 27)

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Source: Japan Wants A Piece Of Former American Pie [Housing Tracker]