B&B Troubles Revive Global Subprime Fears [Housing Tracker]

by: Judy Weil

Quote of the Day

"You and the rest of the board have caused misery to millions of people and yet you are there with your hands out taking everything you can … how much is enough?" – A shareholder to HSBC Chairman Stephen Green. One in five shareholders opposed a controversial executive pay scheme proposal, under which HSBCs top six executives could pocket up to £120 million ($249M) over three years. This, despite multi-billion dollar write-downs and a big drop in share value this past year. The measure passed, however. (Sydney Morning Herald, June 2nd)

Global Subprime Fallout

Deutsche Bank Private Wealth Management Wins New Clients Due To Crisis. “Deutsche Bank AG.'s (NYSE:DB) private wealth management is winning new clients in the aftermath of the financial crisis and is on track to meet its full year profit target of €500 million, segment head Pierre de Weck said. Deutsche Bank performed much better than some of its competitors in the turmoil, de Weck said: “As a consequence we won new clients in Europe and the U.S. that were not satisfied with their previous suppliers of private wealth management.” The manager stressed that Deutsche Bank's client portfolios did not comprise collateralised debt obligations or subprime-related investments.” (Hemscott, June 3rd)

United Arab Emirates Consumer Confidence Index Rises. “MasterCard Worldwide Index of Consumer Confidence: The UAE is the only Gulf country to witness an increase in consumer confidence for [H2’08]. Overall consumer confidence across the Middle East and Levant has slightly decreased, likely influenced by the global economic slowdown, sub-prime crisis, increasing oil prices and rising inflation. The current UAE score of 85.4 out of a possible 100 increased from 78.5 six months ago. Indications for the UAE showed that overall consumer sentiment is positive and optimistic. However, the UAE's consumer confidence index is still under the… 92.9 points achieved during H2’05, the highest since the index started in 2004.” (Emirates Business 24/7, June 3rd)

German Govt Paid Extra Money In IKB Rescue-Sources. “Germany's government had paid a previously unknown €500 million for the rescue of stricken subprime lender IKB last year in addition to the €1.2 billion it has made public, parliamentary sources say. IKB, Germany's most high-profile casualty of the global financial markets crisis, has had to be propped up by a series of rescue packages that have cost about €8.5B. The federal government has said it picked up €1.2B of the total and state-owned KfW, which holds a 45% stake, covered most of the rest. But parliamentary sources said Monday the federal government's debt management arm had already paid €500M to IKB in August 2007.” (Reuters, June 3rd)

TPG Is Wise To Take Long View On Its New Investment In B&B. “U.S. buyout firm TPG is purchasing a 23% stake in Bradford & Bingley at a 72% discount to book value, and gaining two board seats. B&B doesn't look likely to become the next Northern Rock -- it has an untapped £2 billion ($3.96B) borrowing facility over the next two years and a comfortable Tier 1 ratio even before it raised capital. Even so, TPG is taking a big gamble.” (Wall St. Journal, June 2nd)

Europe Shares Fall As B&B Rekindles Bank Fears. “British mortgage lender Bradford & Bingley [has] reignited fears about the impact of the credit crunch on the broader economy. Shares in B&B, Britain's largest buy-to-let lender, sank nearly 25% after it said it had replaced its CEO and slashed the price of its emergency fundraising to secure a private-equity lifeline. The company's warning about the state of the UK mortgage market, the starkest yet from a British lender, coincided with the release of data showing approval for new home loans fell to a record low in April. Despite B&B's status as a midcap company, it sent shivers through global banking stocks.” (Guardian UK, June 2nd)

Nomura Launches $3.3 Bln Distressed Europe Fund. “Nomura Holdings Inc., Japan's largest brokerage firm, said it had started a €2.1 billion ($3.3B) fund to buy distressed European assets, positioning itself for the end of the credit crunch... Nomura shares jumped 5% on Monday, with investors also encouraged by news it would replace Fidelity as the investment manager for an independent U.S. fund focusing on Japan, marking its full-scale entry into the U.S. retail mutual fund market. The brokerage pulled out of U.S. residential mortgage-backed securities and almost halved its U.S. workforce amid losses from the subprime housing loans mess that helped push it to a $1.5B loss in Q1’08.” (Guardian UK, June 2nd)

Aegon To Sell Assets, Diversify To Boost Growth. “Dutch insurer Aegon NV will overhaul its business to become less dependent on U.S. income, sell underperforming assets and seek growth via new products and acquisitions. [New] CEO Alex Wynaendts… will aim to deliver underlying earnings growth of at least 10% per year over the next five years, an acceleration from 4% growth in 2007… Analysts said the new profit target was much higher than they had expected, reflecting earnings that would be 13%-17% higher than expected by the market by 2012. Aegon said it would target return on equity of 15% by 2012, up from 11.9% at the end of 2007.” (Reuters, June 2nd)

BCE Gets New Court Date to Press for Leveraged Buyout. “BCE Inc., the Canadian phone company fighting to go private in a C$52 billion ($51.8B) leveraged buyout, won the right to [a supreme court hearing.] Canada’s Supreme Court agreed to decide whether to allow the acquisition to proceed, after a group of bondholders sought to derail the deal because BCE didn't take their interests into account. The decision gives BCE and Ontario Teachers' Pension Plan, leader of the buyout team, another chance to revive the purchase, the biggest LBO on record… Firms have abandoned more than 60 buyouts announced last year, worth a combined $174B, after borrowing costs more than tripled.” (Bloomberg, June 2nd)

Japan's Top Insurers Take CDO, U.S. Subprime Hit. “Japan's nine biggest life insurers made losses on sales of collateralized debt obligations [CDOs] and products related to the U.S. subprime mortgage loans in the year ended in March… Mitsui Life Insurance Co, Japan's No.5 insurer, [had] a net loss of ¥9.6 billion, compared to a net profit of ¥25.8B the previous year… No.1 Nippon Life said they booked losses of ¥11.7B... No.3 Meiji Yasuda said they had limited exposure to the U.S. subprime loans... Sumitomo said that of its ¥20.7 trillion ($196.1B) assets it had ¥1.6B in CDOs, on which it posted a profit of ¥800 million in 2007/2008, by selling some in the six months after April 2007.” (Reuters UK, May 30th)

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