Housing Market Tracker - The Subprime Shot Heard 'Round the World

by: Judy Weil

Quote of the Day

"There will not be any surprises."- Financial Supervisory Commission (NYSE:FSC) Chairman Hu Sheng-cheng. Hu indicated that the worst of the subprime crisis had passed for Taiwanese banks. (Reuters, Feb. 20th)

Global Subprime Fallout

Dresdner Rescues $19 Billion SIV, Follows Citigroup. "Dresdner Bank AG, Germany's third largest bank, agreed to rescue its $18.8 billion K2 structured investment vehicle... putting capital at risk to bail out investment funds crippled by the collapse of the subprime mortgage market. Dresdner, a unit of Munich-based Allianz SE, will provide a credit line to enable K2 repay all of its senior debt, the bank said. Dresdner will cut the size of the fund, which has been reduced from $31.2 billion since July. Banks including Citigroup, HSBC, Bank of Montreal and WestLB AG have disclosed plans to support their SIVs with $140 billion of assets." (Bloomberg, Feb. 21st)

MetLife, BlackRock Are Sued Over Account. "Israel Discount Bank of New York is suing MetLife Inc. and BlackRock Inc. over losses on subprime investments... IDB, a New York commercial bank and a subsidiary of financial-services company Israel Discount Bank Ltd., of Tel Aviv, filed the lawsuit in New York State Supreme Court late last month... The complaint alleges the defendants were in breach of contract and fiduciary duty by investing a certain separate account in subprime mortgage-backed securities that have declined in value. The complaint also alleges that MetLife didn't subsequently transfer the money out of the account despite IDB's repeated requests to do so." (Wall St. Journal, Feb. 21st)

Bank Posts $253m Gains Despite Subprime Losses. "Gulf Investment Corporation [GIC] is the latest regional bank to be hit by the subprime crisis when it revealed it had to make a $246 million provision against losses... The Kuwait-based bank still managed to make a profit of $253m for the year. CEO Hisham A Al Razzuqi: GIC made provisions for the impairment in the value of its portfolio of structured credits and structured investment vehicles: "These SIV's did not suffer from the quality of its underlying assets but [from] the lack of liquidity internationally, which affected the way and the cost of financing these funds." (Gulf Daily News, Feb. 21st)

BNP Says Subprime Provisions Complete. BNP Paribas Wednesday tried to distance itself from other banks hit by the US subprime crisis, saying it had no need for further provisions as it presented a confident outlook for 2008. Baudouin Prot, CEO: The group’s investment banking arm in 2008 aimed to match the record €8.3bn ($12.2bn) revenues achieved in 2007... BNP, which was one of the first to sound alarm bells over the risk posed by subprime last August." (Financial Times, Feb. 20th)

BNP Paribas Profit Declines 42%, Hurt By Writedowns. BNP Paribas SA, France's largest bank, reported a 42% decline in fourth-quarter profit after writing down the value of securities hurt by worsening credit markets. Net income fell to €1.01 billion ($1.47B) from €1.72B a year earlier... BNP Paribas took €589M of writedowns on loans to finance leveraged buyouts and debt backed by bond insurers, and set aside an additional €309M linked to U.S. loans and securities. The bank's costs related to the U.S. subprime crash were... less than those of French rivals Societe Generale SA and Credit Agricole SA." (Bloomberg, Feb. 20th)

Taiwan Firms' Subprime Losses Rising: Regulator. "Taiwan's Financial Supervisory Commission (FSC) Chairman Hu Sheng-cheng: Taiwan banks' and insurers' losses and provisions against their U.S. subprime investments rose in January compared with the previous month as turmoil in the U.S. credit market worsens. The losses will be manageable, however, since most Taiwan firms have set aside enough provisions against potential losses... Twenty-one Taiwan banks and 12 insurance firms [including Cathay Financial and Sinopac Financial] reported combined losses, realized and unrealized, of T$23.7 billion (US$750 million) related to U.S. subprime investments as of the end of December, on total such investments of T$97.2 billion, the FSC said recently." (Reuters, Feb. 20th)

German Finmin Says IKB Stable, Plans Fast Sale. "German Finance Minister Peer Steinbrueck said on Wednesday the government was hoping for a quick sale of subprime-stricken lender IKB but that rescue measures had helped bring stability to the firm. IKB unveiled details over the weekend of a third bail-out package hammered out with its state owners that would see a six-fold increase in the number of its shares and an emergency €600 million ($883 million) cash injection that may have to be paid for out of future profits." (Reuters, Feb. 20th)

ING Profit Up 18% As Gains Outweigh Subprime. "Dutch financial services company ING Groep NV said Wednesday that fourth-quarter net profit rose 18% as investment gains outweighed a €194 million pretax subprime related write-down. Q4 net profit rose to €2.48 billion from €2.10B a year earlier... Analysts had forecast fourth-quarter net profit of €2.60B. ING [said] it has taken no impairments on its €27.5B Alt-A RMBS portfolio, a class of securities of slightly better quality than subprime. However it said it made a "negative revaluation" of €751M on subprime, Alt-A, and CDOs through its shareholder equity in Q4." (MarketWatch, Feb. 20th)

Reuters Summit-EMF Sees No Euro Subprime Crisis, Regulation Need. "Annik Lambert, secretary general of the European Mortgage Federation: Europe does not risk a U.S.-style subprime mortgage crisis... The EMF has so far noted little fallout on the €5.7 trillion ($8.4T) European mortgage market as a result of the problems in the U.S. The fallout to date had mainly impacted European demand for mortgage debt -- rather than supply... The UK, Spain, Ireland -- were seeing the biggest slowdowns, with only Ireland firmly in the red. There was some reluctance on the part of prospective homebuyers in France and Spain to take on new mortgage debt because of concerns over the housing outlook." (Guardian UK, Feb. 20th)

Ripplewood Interested In Germany's IKB: Report. "Financial Times Deutschland: U.S. private equity firm Ripplewood Holdings is interested in acquiring a stake or all of subprime-stricken German lender IKB... Ripplewood was mulling a first indicative offer, the paper said... The private equity firm was sounding out the purchase of the entire bank or only its risky securities... adding this would depend on the amount [it] would have to pay for the two parts. IKB, principally a lender to Germany's medium-sized companies, gained notoriety last year as one of Europe's first banks to unveil huge financial problems linked to its investments in the market for risky subprime mortgages in the U.S." (Reuters, Feb. 19th)

Bank Of China Reassures Over Debt Exposure. "Bank of China, in which Royal Bank of Scotland has a 4.2% stake, yesterday sought to reassure investors about the impact on profits of its exposure to the US sub-prime mortgage crisis. BoC, which among Chinese banks has been hit hardest by the sub-prime debacle, said that it had made sufficient provisions to cover associated losses and promised it would report "marked" growth in profit for 2007... Royal Bank... has joined forces with BoC in the credit card, wealth management and corporate banking markets in the burgeoning communist economy." (UK Herald, Feb. 19th)

DJ Bk Of Italy Exec Urges Greater Financial Mkt Transparency. "A top executive at the Bank of Italy Tuesday called for greater transparency in financial markets, warning that the turmoil stemming from the U.S. loan crisis may still hurt the structured finance segment. "The recent market turbulence may impact the structured finance sector, both because of liquidity factors and due to the deteriorating quality of underlying activities," Bank of Italy director general Fabrizio Saccomanni said at an international banking conference." (Insurance News Net, Feb. 19th)

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