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The US subprime crisis isn’t over; more
pain is likely on the way in 2008
Losses likely less than market has
assumed for most banks…stick to
fundamentals
60-50-80: The subprime meltdown has seen Citigroup,
Morgan Stanley, Merrill Lynch and UBS book around
USD60bn write-downs in their FY07 results. To compensate
for the associated capital losses, they have raised USD50bn
through capital infusions. Nevertheless, the USD80bn in
subprime related exposures remain on their books, a
reminder of the continuing subprime threat.
Yes, these are challenging times: Falling property prices,
rising delinquency rates, more adjustable rate mortgage
(ARM) resets and a US economy that is setting off alarm
bells all paint a bleak picture. At some US banks, we have
seen higher credit provisions for other asset classes as a
result of the weakness in housing and financial markets.
Slashing the Fed fund rate might help to ease the liquidity
constraints but risk preference has changed and capital
market dislocation remains powerful. People also question
whether President Bush’s fiscal stimulus worth c1% of GDP
will be able to keep the train on the tracks.
But things are different in Asia: Losses due to subprime
have surfaced in some Asian banks under our coverage. But
it is the magnitude that matters. In this updated study, we
estimate the aggregate loss in our coverage universe to be
USD5.1bn which represents 1.9% of combined equities,
0.1% of aggregate assets, and c41% of aggregate subprime
linked investments. In order of magnitude, this loss is likely
less than the market has assumed based on share prices.
The greater risks for subprime could be under-provisioning
at BOC and Mega, or losses at SinoPac from its’ SIV
investments, or the increasing reliance on wholesale funding
in tightening credit markets of Korean banks. Otherwise,
banks in our coverage universe are likely to weather the
storm without significant disruption to earnings and India is
likely the least affected market in Asia, x-Japan.
There may be more subprime headwinds ahead, so tighten
your seatbelt and stay calm. With full-year results and more
clarity ahead, it is time to get back to the fundamentals.
目录
Summary 3
The worst is yet to come 3
Prudence pays 3
The numbers and the outlook 4
The exceptions 4
Direct losses to subprime 6
Update on subprime exposure 7
Subprime loss estimates 7
Is there sufficient “kitchen sinking”? 9
The spillover effects 11
How about the SIVs? 11
ABCP conduits 12
Other investments holdings 14
A quantitative study on the impacts of subprime spillover 15
The myth on USD assets addiction 17
USD investments of Asian banks 18
Indian banks – in the comfort
zone 20
Insignificant subprime exposure in the sector 20
Minimal impact at micro level 21
How Pandora’s Box was
opened 22
Securitisation: the angel and the devil 22
The deteriorating picture 23
How bad would it be? 26
Market perception 28
The financial contagion 29
Crunch time or what? 34
Tightening…what tightening? 34
Solid economic outlooks 35
Growth in money supply and credits in Asian economies 36
Taking advantage of the subprime turmoil 37
Contents
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