Housing Market Tracker - Asia Hurting From Subprime, But Surviving

Quote of the Day

"Harry's Bar of Venice, in an effort to make the American victims of subprime loans happier, has decided to give them a special 20% discount on all items of the menu during the short term of their recovery." – A sign hanging on the door of Harry's Bar, the famed Venice watering hole where Ernest Hemingway frequented. The discount underscores the growing concern about America’s financial troubles on European tourism. (Reuters, Apr. 7th)

Link of the Day

Reuters features an interesting chronology of the subprime crisis as it has affected global financial institutions.

Global Subprime Fallout

German Bank’s Chief Leaving. “The KfW Group of Germany said Monday that its CEO, Ingrid Matthaeus-Maier, was stepping down, and it set aside €1.8 billion more ($2.8B) in reserves for the bailout of a German lender, IKB Deutsche Industriebank... KfW, Germany’s government-owned development bank, made additional provisions to cover first-quarter write-downs at Rhineland Funding, a finance affiliate it took over from IKB. KfW has now put aside a total of €6.8B to prop up IKB, which was the first German casualty of the subprime mortgage crisis in the US. The value of its stake in IKB has fallen by €400 million.” (NY Times, Apr. 8th)

Japan Hopes to Lure Sovereign Investors. “Two of Japan's top brokerage firms, Nomura Securities and Daiwa Securities SMBC, have recently set up special teams dedicated to attracting more investments into Japanese companies from investment firms owned by foreign governments. More Japanese companies are flying to the Middle East, Russia and other areas to visit state-owned investors that have ample funds thanks to high prices of natural resources. Sovereign-wealth funds have attracted attention in Japan over the past several months after their investments in several large Western investment banks, including Citigroup and Merrill Lynch, that were hit by the subprime-mortgage crisis.” (Wall St. Journal, Apr. 8th)

BNP Paribas Sticks With Investment Banking Target. “BNP Paribas SA, France's largest bank, will stick to its revenue target this year for its investment banking unit, CEO Baudouin Prot said. Even so, it will be “very challenging'' to match the 8.3 billion euros ($13.1 billion) that the corporate and investment banking business took in last year due to current market volatility. The U.S. subprime mortgage crisis and a global tightening of credit threatens economic growth and corporate borrowing, pressuring banking profits. BNP Paribas said it plans to increase its headcount in China, seeking to grow revenue in an economy where gross domestic product is expanding at 11.2%.” (Bloomberg, Apr. 8th)

Taiwan's Cathay Fin Faces Q1 Loss, Outlook Brighter. “Cathay Financial, Taiwan's top financial holding firm, is expected to post its worst quarterly loss in two years as it takes a double hit from stronger Taiwan dollar and the U.S. subprime debt meltdown. But Cathay's prospects for the rest of the year look more solid on hopes that the Chinese market could become a major earnings driver if ties between Taiwan and China improve.” (Reuters, Apr. 8th)

Eastern Europe Cools Off, But May Get Soft Landing. “Analysts say risks in Eastern Europe are lower than those that triggered last year's home-loan shock in the US.... Growth is forecast to slow this year in most countries from the Baltics to Bulgaria under the impact of tighter credit, central-bank moves to fight surging inflation and the ripple effect of a weaker global economy… Estonia's expansion slowed to 7% last year from more than 11% in 2006… Hungary’s government has engineer a drastic slowdown with austerity measures… Romania and Bulgaria’s… economies risk overheating. If foreigners decide that lending in those nations is getting too risky, an economic crunch could result.” (Earthtimes.org, Apr. 8th)

Banking Risk Continue to Rise: Fitch. “Fitch Ratings semi-annual report on systemic banking risk: Banks worldwide face an increasingly challenging operating environment. Bank systemic risk continues to rise… and a sharp fall in global credit growth is underway. Fitch: “Large, global banks in several major developed countries have been hardest hit by the U.S. subprime crisis, marking this crisis out from more familiar, country-specific banking crises. The U.S. and Swiss banking systems have been toppled from their top, ‘very strong’ ranking based on Fitch’s Banking System Indicator. But this still leaves them on a par with most developed country banking systems which remain ‘strong’.” (Investment Executive, Apr. 7th)

Subprime Wave Sweeps Over Iceland. “Iceland’s currency has plunged a startling 22% against the Euro this year…Their currency, the krona, which once offered high-yield, higher risk opportunities, has suffered as willingness to take risks on smaller countries' markets has dwindled. One Euro bought 116 krona and one dollar bought 74 krona Sunday, compared with 92 krona to the euro and 63 to the dollar Jan. 1… Bank of Iceland raisef interest rates last week by…1.25% to a sky-high 15%, hoping both to shore up the krona's value and to battlie inflation, which is running at 6.8% annually… The krona's drop has raised worries about the health of the banking system.” (AP via Int’l Herald Tribune, Apr. 7th)

UBS Plans to Cut 2,000 Jobs in U.K. and U.S, Sunday Times Says. “UK Sunday Times: UBS AG, the Swiss bank with subprime losses and writedowns of more than £18 billion ($35.8B), is getting ready to cut at least 2,000 jobs. The job cuts, mainly in New York and London, would more than halve the bank's fixed-income and proprietary trading divisions. A smaller group of proprietary traders will be left to support UBS's wealth management operations… Discussions with employees are expected to begin in the next few weeks, according to the newspaper.” (Bloomberg, Apr. 6th)

Japan's Six Big Banks Posted 40 Percent Decline In FY Net Profit – Report. “Nikkei newspaper: Combined group net profit at Japan's six major banks is estimated to have plunged more than 40% to around ¥1.5 trillion ($14.8 billion) for the year ended March, hit by losses related to U.S. subprime mortgages. The six banks -- Mitsubishi UFJ Financial Group Inc. (MUFG), Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc. (SMFG), Resona Holdings Inc., Sumitomo Trust & Banking Co. and Chuo Mitsui Trust Holdings Inc. -- had projected a net profit totaling slightly more than ¥2.5T at the beginning of the last fiscal year… But their subprime losses have expanded and are likely to hit ¥700-800B.” (Forbes, Apr. 6th)

Intesa Could Miss REIT Status For Property Fund. “Italian bank Intesa Sanpaolo said on Friday it plans to list its $1.5 billion IMMIT property fund this year, implicitly confirming it might miss a deadline to benefit from real estate investment trust status. IMMIT "confirms its aim to obtain a listing ... in 2008," the bank said. Intesa Sanpaolo had planned to list the fund, which has about €1B of assets, by April 30… Industry sources had said the listing could be postponed beyond the end-April deadline [and] cited turbulence in financial markets.” (Reuters, Apr. 4th)

Subprime Fallout: RBI Wants Lenders To Play Counselor. “While Indian banks are more careful on home loans, aggressive marketing of products such as personal loans and credit cards to vulnerable borrowers could give way to over-indebtedness and result in these loans turning bad. To avoid this, the Reserve Bank of India has asked banks to set up credit counseling centers either individually or collectively. Two of the main conditions for setting up these centres are that they should provide ‘free’ advice and should not try to sell products by providing investment advice. Also, they should be outside a branch and maintain an arms length relation with the bank.” (India Times, Apr. 4th)

Subprime Spells Gloom, Not Doom, For Asia Banks. “[Subprime] Investments… have cost global financial institutions as much as $215 billion as of December, but less than 7% of that has come in Asia, according to Japan's regulatory Financial Services Agency… Mizuho Financial Group, Japan's second-largest lender, [reported] $3.4B in losses… a sliver of the $37.4B written down by UBS… Mizuho expects to report a net profit of $4.7B for the year that ended in March… Graeme Knowd, banking analyst for CLSA Asia-Pacific Markets: Some banks, such as Tokyo's Mizuho have been aggressive about marking down their holdings, while others, such as Mitsubishi UFJ Financial Group Inc are taking a wait-and-see approach.” (The Guardian, Apr. 4th)

Wavin Eastern Europe Sales May Slow on Credit Costs. “Wavin NV, Europe's biggest maker of plastic pipes for sewers, predicted sales growth may slow in central and eastern Europe as banks become less willing to finance construction of homes, offices and shopping centers. CEO Philip Houben: “People will be less willing to take risks, and risks in that region are higher.'' Houben is relying on growth in Poland and the Czech Republic as construction in western Europe falters. Last year, revenue from central and eastern Europe soared 19% after Wavin sold more pipes for heating and drainage systems. A slowdown may hamper Wavin's long-term forecast for sales growth of at least 10% for the region, he said.” (Bloomberg, Apr. 4th)

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Comments

[user 136721]

Having been to Harry's Bar in Venice I can tell you 20% off is being damned with faint praise. It took me a month to recover from their high prices when I had lots of money. At 20% off, now it will only take 6 months to recover from the shock.

[indigo-alien]

"KfW has now put aside a total of €6.8B to prop up IKB, which was the first German casualty of the subprime mortgage crisis..."

I know you're only quoting, but that's not accurate. SachsenLB was the first German casualty. The casualties will soon be persons sitting in high political offices in this country.

[vrspace]

Howard Milstein* on Paul Volcker's comments and his own ideas for a solution to the housing challenge (continue teaser rates of 2% for 15 years with a Govn't guarantee on the principle)

mms://media2.bloomberg...

*co-chairman, president and CEO of Emigrant Savings Bank and its holding company, New York Private Bank and Trust, and managing partner of Milstein Properties