| Latest Forum Topics / Others |
 Post Reply
|
|
Banks that are exposed to CDOs.
|
|
|
mirage
Veteran |
29-Aug-2007 09:11
|
|
x 0
x 0 Alert Admin |
DBS is down to a low of $19.00 today, probably it will break below $19.00 today. |
| Useful To Me Not Useful To Me | |
|
soloman
Master |
28-Aug-2007 20:26
|
|
x 0
x 0 Alert Admin |
Big deal lah - DBS already mentioned in news - still no big loss lah |
| Useful To Me Not Useful To Me | |
|
|
|
|
mirage
Veteran |
28-Aug-2007 17:40
|
|
x 0
x 0 Alert Admin |
Quotes: Asian banks are being forced into fresh disclosures about their exposure to collateralized debt obligations (CDOs), but the risk for the region's lenders remains contained even as the total mounts, analysts and rating agencies said Tuesday. In the past few weeks, Asian banks have provided regular updates about their exposure to CDOs, some of which may be tied to the troubled US subprime market. CDOs are securities that are backed by a range of assets including bonds, loans and their derivatives, including corporate loans, high-grade mortgages, sub-prime mortgages, car loans and credit card debt. The disclosures have come as banks try to calm investors who are worried that the crisis in the US could spread to banks in the region. Subprime loans are those made to borrowers with poor credit history, who have been defaulting on repayments in huge numbers. So far, it appears Bank of China, the second-biggest Chinese lender, has the biggest CDO exposure among Asian banks, at some 9.6 billion US dollars worth of CDOs. Singapore's DBS Group Holdings takes second place with 1.6 billion US dollars and India's ICICI Bank is third with 1.45 billion US dollars. The disclosures are expected to keep coming because the subprime problems are affecting other asset classes and as banks incur accounting losses when the debt securities are marked to market. Irrational fears "We keep on seeing contagion in other asset classes," said Deborah Schuler, senior vice president for Asian financial institutions at Moody's. The main reason is an "irrational" market reaction to the unravelling of the US subprime market but Schuler believes there is nothing wrong with many of the CDOs owned by Asian banks, most of which are based on AAA-rated securities. Schuler said she is comfortable with the CDO exposure of Asian banks. "We haven't had to downgrade our ratings for any of the banks in Asia," she said. Moody's has downgraded ratings for banks outside of Asia. "Liquidity is not going to be a problem. We are not seeing solvency issues like in Germany," she said. German banks IKB Deutsche Industriebank AG and SachsenLB had to be bailed out after encountering difficulties financing their conduits because of the conduits' investments in the US subprime mortgage market. A pool of banks led by state-owned development bank Kreditanstalt fuer Wiederaufbau has provided IKB a financing guarantee totaling 8.1 bln euros while the savings banks association extended a liquidity line of 17.3 bln euros to SachsenLB. Even though most CDOs held by Asian banks are high-grade securitized debt instruments, some of the banks have needed to provide back-up liquidity for CDOs such as asset-backed commercial paper (ABCPs) following recent volatility in global credit markets. That's what happened in the case of some 720 million US dollars, or 1.1 billion Singapore dollars, worth of ABCP DBS Group was holding under the conduit Red Orchid Secured Assets (ROSA). DBS surprised the market on Friday when it said that its total CDO exposure is almost double what it had previously disclosed. The bank said its full exposure is 1.6 billion US dollars because it did not previously include the CDOs held under ROSA, based on the assumption that ROSA would continue to be funded by investors. But some ABCP conduits, including ROSA , have had to draw on liquidity facilities provided by banks, including DBS, after they were unable to sell maturing paper in the open market. No systemic risk Asset-backed securities are typically low risk for the banks issuing them to investors but in some cases banks need to step in and provide liquidity to protect their reputation as an issuer,said David Marshall, managing director for financial institutions at Fitch Ratings in Asia. But while such cases are expected to increase as long as investors shun even the short-term commercial paper market, Marshall said the situation looks manageable. "It (the potential CDO losses) does not pose a systemic risk for Asia," Marshall said. Asian banks are better equipped to weather any potential liquidity crisis arising from the US situation 10 years after the region was roiled by its own financial crisis, he said. "We expect limited impact from the fallout (in the US subprime credit market)," Marshall said. "There will be some concern as temporary accounting losses come about but in general banks in Asia can easily absorb the losses arising from their CDO exposure," he said. The entire 9.6 billion US dollar CDO investment of Bank of China is only equivalent to about 17 percent of the Chinese bank's capital and equal to about one-year of operating profit, he said. Bank of China can afford to write off the entire investment, although Marshall said its unlikely that the bank will need to do so. So far, Bank of China has set aside provisions of 1.1 billion yuan, or about 145 million US dollars for potential CDO losses. Singapore's United Overseas Bank, which has one of the smallest CDO exposures among Asian banks at 260 million US dollars, had provisions of 22 million US dollars for potential losses as of end-June and has said it could incur further mark-to-market losses of 9.9 million US dollars for the month of July. The losses are only expected to materialize if banks are forced to sell the securities before maturity but its unlikely that there will be a fire sale of CDOs in Asia given that Asian banks have substantial liquidity. "With the exception of Korea, deposits are well above bank credit across all the countries in the region... Most banks in smaller Asian economies are flush with excess liquidity that is invested in government securities and central bank bills," Credit Suisse said in a recent note to clients. Foreign exchange reserves also exceed external debt for most of Asia's economies with the exception of Indonesia, Korea, the Philippines and Vietnam, said the bank. More intervention ahead Efforts by central banks around the world to pump additional liquidity to their financial markets have helped to calm jittery markets and more intervention is expected. After it cut its discount rate by 50 basis points on Aug 17, the Federal Reserve is now widely expected to cut its key fed funds rate at its Sept 18 meeting. The Bank of Japan will likely hold off raising ultra-low interest rates until the market volatility subsides. Other central banks also say they are prepared to provide additional liquidity. The Reserve Bank of Australia (RBA) can provide more liquidity to the banking system if needed though there are some signs that the recent credit squeeze is easing both in Australia and overseas, deputy governor Ric Battellino said Tuesday. Battellino said the steps taken by the central bank to ease upward pressure on interest rates had helped stabilise market conditions somewhat. "In recent days, there have been some encouraging signs of improvement in markets, both here in Australia and overseas," Battellino said in a speech at a finance conference. The RBA has been injecting extra cash into Australia's banking system since Aug 10, when problems in US subprime mortgages spilled over into money markets, affecting liquidity. "The bank will continue to monitor the situation carefully. If market developments warrant, the bank has scope to further expand the provision of liquidity," Battellino said. "Despite the fact that Australian banks are in very sound condition and have been experiencing minimal credit losses, they were nonetheless affected by the spread of the global money market turmoil," he said. Battellino said the market for ABCP extended well beyond the US, as banks in most countries had set up conduit vehicles to finance mortgages off their balance sheets. Many of the securities issued by these vehicles were in international markets with the funds swapped back into the relevant domestic currency. "When investor attitudes to credit risk changed abruptly in early August, these links quickly spread the problems worldwide," Battellino said. He said the operations of central banks have restored some degree of calm to markets but conditions have not yet returned to normal. "Notably, yields on asset-backed commercial paper as yet have not fallen, indicating a continuing high degree of nervousness among investors," he said. Nomura Australia head of investment strategy Eric Betts said the credit market crisis has ramifications for certain sectors of the Australian economy rather than the overall economy. Betts said the biggest negative impact has been on non-bank home lenders who regularly tap the credit markets. "Reduced funding ability and rising finance costs have had a negative impact on non-bank home-loan lenders such as RAMS Home Loans," Betts said. RAMS warned early this month that its fiscal 2008 financial performance will be affected by exposure to volatile international credit markets where it sources funds for its home loan operations. |
| Useful To Me Not Useful To Me | |