Islamic Sukuk Bonds Suffer Global Subprime [Housing Tracker]

by: Judy Weil

Quote of the Day

“I'm an old-school banker. I don't think you should do something you don't understand, hoping there's somebody at the bottom of the organization who does.'' - Canadian Toronto-Dominion Bank CEO Edmund Clark, who sold off the bank’s subprime debt holdings three years ago because he couldn’t understand it. Toronto-Dominion reports FQ2 results on May 28th. (Bloomberg, May 26th)

Global Subprime Fallout

UBS Warns Of Losses Tied To Real Estate. “UBS AG warned it may have to record losses on non-U.S. real estate as it seeks nearly $16 billion from shareholders to repair a dented balance sheet… UBS plans to sell $22B of U.S. residential-mortgage-backed securities to BlackRock Inc. for $15B, with UBS providing an $11.25B loan to BlackRock… UBS's exposure to auction-rate securities, used mostly in municipal financing, increased to SFR11B ($10.7B) from SFR6B during Q1. UBS said… that its unprofitable positions in real-estate markets outside the U.S. "could increase." UBS has taken about $19.2B in write-downs and losses for an $82.6B portfolio of securities tied mostly to the U.S. housing market.” (Wall St. Journal, May 27th)

Subprime May Hit Bond Sales. “Gulf Islamic bond sales are likely to be [somewhat] subdued this year… but sales may still top last year's record of $12 billion. Before [the] global credit crunch, bankers had been expecting a bumper 2007 for Islamic bond sales and even better for this year. Reuters: Now many planned sales are on hold as borrowing costs have risen… Five of 13 bankers polled said sales of Islamic bonds, or sukuk, could range between $15B-$18B. Four bankers expected sales at between $12B-$15B... Moody's Investors Service: Gulf sales of sukuk were about $12B last year. Reuters: Gulf investors have raised about $4.3B in sukuk so far this year.” (Gulf Daily News, May 27th)

ESPC Revives 100% Mortgage In Deal With Bank Of Ireland. “First-time buyers will be able to take advantage of the only 100% mortgage available in the UK… The Edinburgh Solicitors Property Centre has linked up with Bank of Ireland to offer low-cost access to the bank’s 1st Start deal, a guarantor mortgage. Under the scheme, a parent or a relative agrees to guarantee the mortgage in the event of failure to make the repayments. As soon as 5% equity is secured, the guarantors can come off the mortgage. The new deal is being offered in the wake of a dramatic decline in the mortgage market this year.” (, May 27th)

Australia Mortgage Bond Arrears at 11-Month High, S&P Says. “S&P's Prime Australian Mortgage Performance Index: Australia's delinquencies on mortgages to people with good credit histories rose in February to the highest in 11 months. Payments on prime loans more than 30 days late increased to 1.28% of mortgages used to secure bonds, from 1.24% in January. This is the highest since March 2007 and equals the rate of delinquencies in February last year… Delinquent subprime loans rose to 13.99% in February from 13.38% in January. Borrowers with loans that are more than 90 days in arrears reached 7.42%, which is the highest since November 2000.” (Bloomberg, May 27th)

Banks Restrict Number And Type Of Mortgages On Sale Through Brokers. “Millions of homeowners who use mortgage brokers are being denied access to the best deals, after a decision by some of the UK's biggest lenders to offer their top rates only to customers who approach them directly. The banks' decision to deprive brokers of their best rates has dealt a hammer blow to the mortgage broking industry, which has lost 15% of its members since the start of the credit crunch last year… from about 30,000 to 26,000, according to the Association of Mortgage Intermediaries. The [new] banks' policy… is expected to shrink broker numbers by a further 10%.” (Times Online, May 26th)

Toronto-Dominion Avoids Subprime Woes as Rival Writedowns Rise. “In May 2005, Toronto-Dominion exited structured products, which included collateralized debt obligations and interest rate derivatives… It cost Toronto-Dominion about C$200 million over four quarters to exit the securities business, including expenses for job cuts… [Now,] Royal Bank of Canada will write down C$855M on its debt investments, adding to C$430M from Q1… Bank of Nova Scotia and Bank of Montreal may post writedowns of about C$200M in Q1. Merrill Lynch: Canadian Imperial Bank of Commerce may record costs of as much as C$2 billion on May 29. Canadian Imperial has reported more writedowns than any other Canadian bank, including C$3.38B in the period ended Jan. 31.” (Bloomberg, May 26th)

CIBC Likely To Face More Writedowns As Canadian Banks Cleanup From Subprime. “Last week, Moody's downgraded monoline CIFG by seven notches, potentially leaving CIBC open for an additional writeoff worth $617 million before tax on its fair-value exposure. CIBC has said it has $628-million of notional subprime mortgage-related exposure to CIFG, and $1.5-billion of non-subprime insurance at the insurer.” (Canadian Press, May 26th)

Riddles Lie Behind Subprime Crisis, Aftermath. “The Fed's Herculean efforts apparently eased the financial strains in the markets and the crisis subsided, at least for the moment. Some Japanese experts scorned the bold actions… saying the Fed itself may go bankrupt... If the Fed collapsed in the process of… stabilizing the U.S. economy, the federal government would run to its rescue without hesitation. It was this determination on the part of the government and of the central bank that was absent in the period right after the collapse of the bubble economy in Japan. The Fed's actions vis-a-vis the subprime crisis proved the U.S. is superior to other countries in terms of troubleshooting.” (Yomiuri Shimbun, May 25th)

GMAC-RFC Sells Australia's First Subprime-Backed Debt. “GMAC-RFC Australia Ltd., a unit of U.S. auto and home-loan lender GMAC LLC, raised A$302.8 million ($290M) from the first subprime mortgage-backed bonds in Australia this year. The placement highlights the resilience of Australia's securitization market and shows investors have an appetite for mortgage-backed bonds that are well structured, GMAC-RFC Capital Markets Director Andrew Greenslade said... The seizing up of global credit market has forced Citigroup Inc. to pay nine times the rate it paid on deals in May last year for A$500 million of mortgage-backed securities it sold last week.” (Bloomberg, May 23rd)

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