Sub-Prime crisis
Sub-Prime News
2008.05.10. More Harbingers of Tighter Credit Policy in Eurozone
The quarterly poll conducted by the ECB shows that banks continued to tighten their lending policies in Q1 2008. The poll confirmed that 49% of banks imposed more stringent conditions to lend to companies, 33% tightened housing mortgage requirements, while 19% used more rigid requirements for consumer loans. At the same time, banks revealed that the demand for mortgage products was declining.
The poll covered 113 banks from the Eurozone and a period from January 1 to April 8, 2008.
Source: Financial Times.
2008.05.08. Anxieties Rise as 40-Year Mortgages Become More Popular in Canada
Mr. Jim Flaherty, Finance Minister of Canada, expressed anxieties relating to the future stability of the mortgage market due to a rising demand for 40-year mortgage loans and, simultaneously, declining downpayments provided by consumers. A similar opinion was presented by the head of the Bank of Canada a week earlier.
Source: National Post, The Toronto Star.
2008.05.07. The ECB: Crisis Can Cost Even Euro 320 billion
The European Central Bank estimates that the subprime crunch can lead to total losses of Euro 320 billion. Previously, the International Monetary Fund projected possible losses at Euro 945 billion.
Source: Gazeta Wyborcza.
2008.05.03. One More Intervention by Central Banks in the Money Market
The ECB, Fed and Swiss National Bank joined their efforts again to improve the liquidity situation in the financial system. This time, the banks decided to pour US$82 billion into the market.
Source: Financial Times.
2008.04.08. U.K. Market - Last Offer with LTV=100% Disappears from the Market
Abbey, a U.K. bank and member of Santander Group, has withdrawn the last loan offer available in the British market with LTV=100%. New borrowers will have to deposit at least a 5% downpayment. The withdrawn product was offered in the market for 20 years.
Source: Daily Telegraph.
2008.04.02. Low Growth in the Global Economy - according to the IMF
The International Monetary Fund downgraded its global growth forecast for 2008 to 3.7% (from 4.1% projected in January 2008). The U.S. economy growth rate is now estimated at about 0.5% in 2008 and 0.6% in 2009. The Eurozone should grow by 1.3% in 2008.
2008.04.01. Investment Banking - the Worst Crisis in the Last 30 Years.
Morgan Stanley and Mercer Oliver Wyman published a report that states that investment bankers are now in the middle of the most severe crisis in the last 30 years. In 2008, revenues of investment banks can be lower even by 45% - the deepest decline is expected in the credit sector (60%).
Source: Financial Times.
2008.03.27. More Expensive Mortgages in the U.K.
The financial crisis has compelled top 3 lenders in the U.K. to increase prices for mortgage loans. Nationwide, the second largest British lender, has raised the price of variable-rate loans by 0.57 p.p., while fixed-rate loans now cost extra 0.2 p.p. HBOS (the leader in the U.K.) and Lloyds TSB have increased the price of variable-rate loans by 0.3 p.p.
Source: Financial Times.
2008.03.24. Subprime Crunch - Loss Account
Currently, the losses on subprime loans are estimated at US$400 billion. The biggest losers in the U.S. are: Citigroup - US$24.1 billion, Merrill Lynch - US$22.5 billion, and in Europe: UBS (Switzerland) - US$19 billion, Credit Agricole (France) - US$5 billion, and Deutsche Bank (Germany) - over US$3 billion.
Source: Gazeta Wyborcza
2008.03.20. The ECB Injects Euro 15 Billion into the Market
To improve liquidity in the European money market, the ECB decided to pump Euro 15 billion more into the European money market. This was to improve the liquidity situation for the next 5 days.
Source: Financial Times.
2008.03.18. JP Morgan Takes Over Bear Sterns
Bear Sterns, an investment bank with a serious insolvency problem, has been taken over by its rival, JP Morgan Chase. The price was only US$236 million. After the deal was announced, JP Morgan stocks gained nearly 10%.
Source: Handelsblatt.
2008.03.12. FED Is Lending Again
In order to clear debt securities markets, Fed injected US$200 billion (via medium term T-Notes) into the market. This is another attempt to improve liquidity in the marketplace.
Source: Financial Times.
2008.02.08. Senate Tries to Stop Recession
In the U.S., Senate has passed an act that is to revive the U.S. economy. The act sets forth that U.S. taxpayers with annual income not exceeding US$75,000 will receive a one-off tax credit of US$600. Married couples earning US$150,000 a year will get a double credit of US$1,200. The cost of the operation is estimated at US$167 billion.
Source: Bloomberg.
2008.05.02. Will Moody's Change its Rating Criteria?
Moody's, a rating agency, is considering a change in its rating methodology for CDOs and other structured instruments so that to differentiate them from T-bonds and corporate debt. A new 21-grade rating scale is to be adopted for CDOs. Corporate bonds and T?bonds will continue to be assessed using the old scheme (AAA to C-).
The other leading rating agencies, Standard & Poor?s and Fitch, are examining similar steps.
Source: Wall Street Journal.
2008.02.05. Recession in the Services Sector
In January, the U.S. economy had the first recession in the services sector for 5 years. Wall Street responded with a mass sale-off to the recession message - as a result Dow Jones slid down by 370 points, the deepest slump recorded this year.
Source: Bloomberg.
2008.02.03. Corporate Finance Problems
European and U.S. companies have more problems to refinance their debts. Until recently, European companies used risky high-yield bonds and leveraged debt as a large source of capital - now these markets are stagnant - loans of US$64 billion in Europe and US$74 billion in the U.S. are waiting for syndication.
Source: Financial Times.
2008.01.30. Interest Rate Cuts in the U.S.
Fed reduces interest rates again - this time by 50 p.b. - and suggests more cuts are possible. The 50 p.b. reduction together with the last-week reduction by 75 p.b. mark the biggest softening of the U.S. monetary policy by Fed since 1980s.
Source: Financial Times.
2008.01.24. Mercer Oliver Wyman Expects a "Turbulent Year"
Mercer Oliver Wyman is forecasting a turbulent year for the financial sector and more subprime losses (US$300 billion). The key reasons of tensions will include: slowdown in European real estate markets, declining U.S. dollar, cheaper commodities and a worse climate on stock exchanges in China and India. The economy of Western Europe can slow down, while Latin America, Singapore, Taiwan, Indonesia and South Korea have good development prospects.
Source: Bloomberg.
2008.01.24. Regulators Are Trying to Save Bond Underwriters
Market regulators have called financial institutions to provide help to bond underwriters, in particular MBIA and Ambac. It is estimated that bond underwriters, which underwrote bond issues of US$2.4 trillion, can receive a financial support totaling US$15 billion.
Source: Bloomberg.
2008.01.22. Fed Cuts Again
Fed cut the reference and discount rates by 75 basis points. This was the first intervention between scheduled meetings of the FOMC since September 17, 2007. After the cut, the interest rates in the U.S. are 3.5%, while inflation exceeds 4%.
Source: Puls Biznesu
2008.01.21. Nothing New in Mortgage Lending
Banking experts believe that the subprime crunch will not hinder access to housing loans in Poland. However, the crisis in the U.S. has lifted the cost of capital in the market, which makes the financing of mortgage portfolios more challenging. In addition, banks expect that the market price of funds will go up and, as a result, housing mortgages in PLN can cost as much as 7.3% in the end of 2008.
Source: Gazeta Prawna
2008.01.21. Rising Underwriting Costs for Debt Securities
iTraxx Europe index, which covers 125 companies with an investment rating from Europe, and which issue bonds that are traded in a liquid CDS market, rose 10% to a new high.
Source: Financial Times
2008.01.17. Bond Underwriters in Trouble
Shares of two bond underwriters, Ambac Financial and MBIA, dropped by 52% and 31%, respectively, after Moody's suggested that those two companies can lose their AAA ratings. And the top rating is a foundation of their business ? a lower rating could trigger declines of underwritten debt securities, which total US$ 2,400 trillion. The difficulties of both companies result from their high exposure to underwriting of ABS that are based on, inter alia , subprime loans.
S&P believes that losses of bond underwriters can be even higher by 20% than originally expected.
Source: Financial Times, Bloomberg.
2008.01.15. Banks Pay More for Capital
According to data presented by Merrill Lynch, the subprime crunch has lifted spreads on banking debt securities. In Europe, the hike has been so big that spreads currently exceed risk premiums for securities from the non-financial sector. This means that the usual trend is reversed, as it is financial institutions which usually set a reference point for yields on corporate debentures (typically priced above that level).
Source: Financial Times
2008.01.15. Troubles in the CEE region?
Mr. Varel Freeman, Vice-President of the EBRD, is warning that the U.S. crisis will also affect Central and Eastern Europe countries. The highest risk is in Bulgaria and Baltic States, while the situation in the Czech Republic is stable and Hungary are entering a slowdown phase in the mortgage lending market. So far, the biggest shock occurred in Kazakhstan, where the government started an assistance program for banks that had problems to get refinancing capital in the international markets.
Analysts point out in unison that credit problems in CEE, if any, will not develop up to the U.S. scale.
Source: Financial Times
2008.01.11. Polish Bonds Attractive for Foreign Investors
The Polish bonds market was rising during the last week. This is an effect of a positive assessment of the Polish market, which is immune to the global real estate crisis. In addition, forecasts for Poland still confirm a high growth rate, further interest rate hikes and declining inflation.
Source: Puls Biznesu
2008.01.04. Problems in Global Commercial Real Estate Markets
The subprime crisis affects the global commercial real estate markets, which until recently were able to finance their rapid development with low-cost loans. Cenrto Properties Group (an Australian real estate company and owner of 700 shopping malls in the U.S.) is in big trouble as it owes banks over US$1.15 billion. Spain has similar problems - it is estimated that as many as 60,000 small developers can collapse by the end of 2008.
Source: Financial Times
2007.12.19. Another Intervention of the ECB
The ECB announced unlimited access to funding at a cost below interest rates for financial markets - it is aimed at overcoming the stubborn liquidity crisis. What is more important the ECB?s proposal covers not overnights (as during the intervention in August), but 2-week borrowings. This move confirms a limited effectiveness of the last concerted action initiated by central banks.
Source: Puls Biznesu
2007.12.13. Emerging Markets Hit the Top Again
Interest rate cuts by Fed have shifted investors focus onto emerging market again, as U.S. Treasuries have become less attractive.
However, unlike two months ago, investors now prefer not China, but Russia and other emerging markets. In the first week of December, emerging markets funds received US$2.5 billion (net). About US$409 million were channeled to BRIC products, i.e. those dedicated to Brazil, Russia, India and China.
Source: Puls Biznesu.
2007.12.12. Central Banks Intervene Again
Five central banks (Fed, ECB, Bank of Canada, Bank of England, and Swiss National Bank) decided to inject at least US$64 billion into the market. This is to ensure the liquidity of the financial markets. In addition, central banks from Japan and Sweden are on standby to enter when needed.
Source: Financial Times.
2007.12.11. Markets Deem Fed's Decision a Disappointment
Fed's decision to cut the discount and federal funds rates by 25 basis points was not welcomed by the financial markets. Analysts expected a deeper reduction by 50 basis points - especially for the discount rate, which would mitigate liquidity problems in the marketplace.
After Fed's decision was announced, Dow Jones fell 2.5% and DJIA - 2.1%. Financial and construction companies were hit most painfully.
Source: Financial Times.
2007.11.30. White House Wants to Support Insolvent Customers
The White House is working on a plan to freeze interest rates on some subprime loans. The goal is to stop a further deterioration of the market situation when part of the loans (which total about US$400 billion) start to bear significantly higher interest rates after the grace period will end next year.
This emergency plan would be based on a decision to freeze some interest rates for subprime borrowers who meet certain requirements. First, these are to be consumers who will be able to repay their debts at frozen interest rates - both customers who are able to repay their loans even at higher interest rates and those who will not be able to pay at all, even at a frozen rate, are to be excluded. Governmental aid will be available to borrowers who are in arrears for the last 60 days.
Source: Financial Times.
2007.11.28. U.S. Real Estate Market Will Slump
Representatives of U.S. construction companies believe that sentiments in the real estate market will deteriorate next year. The key reasons are still declining prices of homes and demand, as a result of more stringent mortgage lending conditions that are applied at present. In addition, it is estimated that about 20% of the previous purchasers of real estate were speculating investors who first fled the market in face of the crunch. Another adverse factor is the fact that even consumers with a sufficient potential to borrow are waiting as they believe they can buy a home for a lower price.
Source: Financial Times.
2007.11.23. OECD: New Comprehensive Estimates of Subprime Crisis Outcomes
As projected by the OECD, losses from the subprime crunch will total US$300 billion. They will hit mainly banks and hedge funds. The OECD also confirms that it is too soon to assess the impact of the crisis on long-term strategies of banks. As the key outcome of the crunch is a higher cost of funds in the interbank market, it is expected that total costs of that trend will be visible no sooner than in a few months.
In accordance with the OECD forecast, about 14% of all subprime loans should be reclassified as unrecoverable during the next year. An average consumer would feel the main effects of the crisis in the middle of 2008.
Source: Financial Times, Reuters.
2007.11.16. Banks pay more than companies for their issues of debt securities.
For the first time for over 10 years, banks need to pay higher prices than manufacturers for funds borrowed in the debt securities markets.
Debt securities issued by banks and insurance companies now pay 1.49 percentage points over Treasury bills; while debentures issued by companies can be issued at a lower premium: 1.34 percentage point over T-bills.
Source: Bloomberg.
2007.11.14. The sub-prime crisis hits Japanese banks too.
Three of the largest banks in Japan disclose a significant slump of earnings for the first six months of 2007 and revise downwards their earnings forecasts for the entire 2007. All of them confirm that this is an outcome of the sub-prime crisis.
These banks are: Mizuho Financial Group (net income down by 17%), Shinsei Bank (net income down by 40%) and Aozora Bank (net income down by 31%).
Source: Financial Times.
2007.11.13. Loss estimates for banks may exceed $100 billion.
According to Deutsche Bank's assessments, the sub-prime losses of financial institutions may reach as much as $300-400 billion, of which banks will have to swallow a total loss of $100-130 billion.
As for now, the loss leaders are: Citigroup ($11 billion), Merril Lynch ($8.4 billion), UBS ($2.4 billion) and Bank of America ($1.3 billion).
Source: Rzeczpospolita.
2007.11.09. Australian banks earn most on the sub-prime crisis.
National Australia Bank Ltd. has earned record profits in last 6 months. As of the end of September 2007, its net income increased by 1.8% (A$2.44 billion = $2.26 billion) as compared with the end of September 2006.
National Australia is the third bank in Australia that has announced record earnings in last 2 weeks. On the one hand, Australian banks earn on increasing borrowings, as a result of the excellent situation in the labor market.
On the other hand, it should be noticed that the sub-prime crisis have not even scratched Australian banks - mainly due to a low exposure to the sub-prime sector and a low percentage of bad debts in their portfolios. That is why Australian banks can endure the rising refinancing costs in the interbank market.
Source: Bloomberg.
2007.11.09. The Japanese yen goes up.
More bad news about the sub-prime crisis weakens the US dollar to most major currencies.
These trends are most visible for the Japanese yen, which has recorded the highest increase to the dollar in 18 months (reaching JPY/USD 111). As the general retreat of investors from more risky assets is in full swing, the yen is also rising in relation to other currencies (e.g. Norwegian krone or New Zealand dollar).
Source: Bloomberg.
2007.11.05. The difficult situation in the money market still on.
The sub-prime crisis keeps the demand high for refinancing funds, which is reflected by tensions in the money market.
The problem is best depicted by the 3-month OIS (overnight index swap) , which measures the relation between the expected 3-month rate for federal funds (FED) and the 3-month Libor. At the beginning of November, the OIS swap exceeded 50 basis points again. In this context, it should be noted that before the outbreak of the sub-prime crisis, the average OIS level had been only 9 basis points. As for now, the highest OIS was recorded in September, when the swap reached 95 basis points.
Various forecasts also indicate the continued growth of the 3-month rates in the next 3 months, which suggests that the current liquidity problems in the market are rather persistent.
Source: Financial Times.
2007.10.18. The governor of the Bank of Japan comments on the sub-prime crisis.
Mr. Toshihiko Fukui, the governor of the Bank of Japan, admits that the problems created by the sub-prime crisis in the U.S. market persist and have lead to an increased uncertainty in the financial markets. Currently, the global markets are reassessing the prices and risk.
Mr. Fukui also added that the markets still believed that the U.S. economy would recover gradually and return on the growth path in the second half of 2008.
Source: Bloomberg
2007.10.18. More restrictions in the U.K. mortgage market?
News from the U.K. point out steps taken to limit borrowings in the mortgage market. The cuts cover all the segments, in particular sub-prime and buy-to-let. Both Paragon and Bradford & Bingley, whose share in the buy-to-let market is estimated at 30%, have withdrawn some products from their offers, and replaced them with "classic" mortgages, which bear higher interest rates.
Interest rates for sub-prime loans increased from about 7% in July to 9.25% in October. Some sub-prime loans now cost as much as over 11%. It is estimated that buy-to-let and sub-prime loans accounts for about 20% of new liabilities in the U.K. mortgage market in the last years.
The shock does not spare the "brick & mortar" mortgages. The largest British mortgage borrower (HBOS) is going to reduce the borrowing level this year.
Source: Financial Times.
2007.10.14. A fund will be created to improve market liquidity.
The three largest banks of America, Citigroup, Bank of America and JPMorgan, intend to establish a $75-billion fund to enhance liquidity in the interbank market. The fund would achieve this by purchases of bonds from companies investing in the mortgage markets. The fund (which will operate as Single-Master Liquidity Enhancement Conduit) is to be a temporary venture with a limited capital. The fund will enjoy no federal guarantee.
Source: Financial Times.
2007.10.10. Reforms in the euro zone are possible.
The finance ministers of the euro zone members announce reforms to improve the transparency of the financial markets and to avoid turbulences triggered by credit difficulties in the future. Recommended changes include, first of all, more detailed disclosures about special investing vehicles and schemes used by banks.
However, the government of France opts for additional regulations. Ms. Christine Lagarde (French finance minister) demands a full standardization of securitized transactions and more precise regulations for off-balance sheet investment instruments. An option to ensure that rating agencies are supervised by financial market regulators should also be considered.
Source: Financial Times, Gazeta Wyborcza.
2007.10.04. Globalization Institute: the sub-prime crisis should not harm Poland.
Experts from the Globalization Institute are of the opinion that the sub-prime crisis will not directly affect Poland. The profile of the mortgage portfolio in Poland is significantly different as compared with the U.S. Estimates show that only 1.5% of the mortgages in Poland bear a higher risk of repayment.
In addition, as Poland has no consumer bankruptcy act, there is no fear that a mass sell-off of real estate comes, which could lead to the market breakdown.
Source: Puls Biznesu.
2007.09.20. Will the sub-prime crisis trigger a recession?
Assessments of how the crisis in the U.S. could affect the global economy point out two conclusions. First, there is a question if more difficult access to loans severely harms the manufacturing sectors of the economy and consumers. If so, the crisis could turn into a recession. However, it is still possible that the difficulties in the U.S. would not deteriorate the global economy. We should remember that the U.S. lost its leading importer position in relationships with Europe a long time ago, mainly due to the rising power of China.
However, there is another real threat in connection with the rising costs of borrowed funds, especially in the interbank context, which ultimately translates into liquidity problems to be faced by financial institutions and the entire sector.
Source: The Economist.
2007.09.19. Interest rate cuts in the United States spur the emerging markets.
The recent reductions of interest rates in the United States trigger a strong increase in the stock market indexes in the emerging markets. The interest rate cuts are expected to exert a positive impact on those markets that are particularly sensitive to the interest rate level, i.e. Turkey, Brazil and Indonesia.
In response to the interest rate changes, IKMB-100 (primary stock exchange index in Turkey) rose 6.7%, the Russian RTS increased by 4% and the PX index in the Czech Republic rose 1.7%. Significant increases were also recorded in India (Sensem up by 4.2%) and Brazil (Bovespa up by 1.7%).
At the same time, analysts suggest that a more conservative approach should be adopted in those markets that are most sensitive to credit tightening, i.e. Baltic states, Bulgaria, Rumania, Turkey and South Africa.
Source: Financial Times.
2007.09.18. FED cuts interest rates again.
The U.S. central bank announced another cut in interest rates by 50 basis points. The current discount rate is 4.75% and the federal funds rate: 5.25%.
The reductions led to the immediate growth of stock exchange indexes: FTSE gained 2%, Xetra Dax: 1.7% and CAC-40: 1.9%.
Source: Financial Times.
2007.09.13. Bank of England attempts to save Northern Rock.
The Bank of England wants to start a special fund on September 14, 2007, which will be dedicated to provide additional financing to Northern Rock, a leading mortgage lender in the U.K., which fell a victim to the sub-prime crisis.
Source: Financial Times.
2007.09.12. ECB lends another 75 billion Euro to commercial banks.
The European Central Bank decided to lend additional 75 billion Euro ($104 billion) to commercial banks for 3 months. Last month (on August 22, 2007), the ECB injected 40 billion Euro into the market in the same way.
Source: Financial Times.
2007.09.12. The sub-prime crisis costs at least 100,000 jobs.
It is estimated that the sub-prime crisis will kill about 100,000 jobs in the next few months. The U.S. Department of Labor revealed that in July 2007 the total headcount in the mortgage segments was 457,000 (an increase by 174,000 as compared with July 2000). However, some experts believe that the number of jobs affected by the mortgage market situation is significantly higher.
Source: Financial Times.
2007.09.11. The crisis will not end soon?
Mr. Hank Paulson, U.S. Treasury Secretary, has warned that in his opinion the sub-prime crisis will last longer than other large crisis situations in the last two decades (the crisis in Asia and Russia in the 1990s and in Latin America in the 1980s). The prolonged duration of the crisis is probable because of the complexity of securitized products and the globalization of the financial markets. It is estimated that the market turbulences prompted by the sub-prime crisis can last as long as 2 years.
Source: Financial Times.
2007.09.07. The U.K. is the next link of the crisis?
The belief that Great Britain can be the next country affected by the sub-prime crisis gains popularity in the markets. As in the United States, real estate prices and consumption has sharply increased in the U.K. over the past decade. Additionally, the British economy is more financing-addicted than its U.S. counterpart. It is estimated that more than a half of the British growth in the past 18 months has been generated by financial services, which is significantly above the U.S. rate.
As in the U.S., consumer demand is the second key driver of the economic growth in the U.K. The current debt of the British consumers totals about $2.7 trillion, i.e. above the GDP level. The proportion of mortgage debt to gross disposable income is 166% (as compared with 127% in the U.S.). Last year the British banks wrote off $18 billion as bad debts.
Despite the fact that the sub-prime debts in the U.K. account for about 10% of the market (25% in the U.S.), the increasing popularity of loans without the check of the borrower?s income (so-called self-cert loans ) should sound a warning. It is estimated that self-cert loans accounted for one third of mortgages granted in 2006, which may lead to a deterioration of the quality of the portfolio and the stability of the market.
Source: Der Spiegel.
2007.09.04. FED reacts to dropping prices of houses.
Mr. Frederick Mishkin, a Member of the Federal Reserve Board of Governors, reacted sharply to the news on dropping prices of residential real estate. Mr. Mishkin believes that the politicians should not wait and a reaction is needed before the declining prices of houses translated into a decrease in GDP. Sooner and deeper reductions of interest rates, as compared with a standard situation, are strongly desired.
Source: Gazeta Prawna.
2007.09.03. The EU will investigate the role of rating agencies in the sub-prime crisis.
The European Commission will intensify its investigation to establish the role of the rating agencies in the sub-prime crisis. The EU believes that they reacted to the crisis with an undue delay and did not warn the investors of the increasing risk relating to securitized instruments linked with the sub-prime portfolio.
Standard&Poor's and Moody's did not start to lower their ratings until the spring of 2007. The European Commission is of the opinion that the sub-prime market would not have inflated to its current size without positive ratings issued by the rating agencies.
Charlie McCreevy, the commissioner in charge of the EU internal market, emphasized that in the context of the rating agencies he would focus the proceeding on the possible conflict of interests, assessment standards and quick reaction ability when the market is changing. He pointed out that "the position of the rating agencies cannot be a result of their links with issuers", highlighting by this that the rating agencies are paid by issuers, and not by the actual users of their ratings.
Source: Financial Times, Gazeta Wyborcza.
2007.08.17. FED cuts interest rates.
The U.S. central bank has reduced the discount interest rate by 50 basis points to 5.75%. In the justification, FED pointed out the continued deterioration in the financial markets and the resulting risk of a significant slowdown in the entire economy.
FED decision has improved the climate in the global markets; the stock market indexes soared at once: FTSE by 4 percent, CAC 40 by 2 percent and WIG20 by 1.6 percent.
Source: Gazeta Wyborcza.
2007.08.16. The mortgage crisis is not a threat to Poland?
A report published by "Gazeta Prawna" concludes that there is no risk that a crisis similar to that in the U.S. will occur in Poland. The primary factor is that Poland in fact has no sub-prime market.
Even if some lending criteria are loosened, the lending process includes additional requirements (documented assets in excess of the loan, a borrower?s downpayment, a borrower's association with a prestigious professional group, etc.).
The main controversies are an extended lending time, even up to 50 years, and LTV ratios above 100%. However, banks assure that even for such loans the creditworthiness of their customers is determined using the same rigorous criteria.
The National Bank of Poland is of the opinion that the Polish banking sector could be at risk if at the same time the Polish zloty weakens permanently, the economy slows downs, the prices of residential real estate decline significantly and interest rates increase. As for now, such a scenario is not deemed probable for Poland.
Source: Gazeta Prawna.
2007.08.09 ? 2007.08.15. The ECB injects 100 billion Euro into the market.
In order to resolve the liquidity problem in the European market, the ECB pumped 100 billion Euro into the market in several tranches.
As a result, the O/N rate returned to 4% (on August 15, 2007).
2007.08.09. Liquidity problems in the European interbank market.
The sub-prime crisis has pushed up the price of funds in the interbank market. On August 9, the O/N rate in the European market reached 4.7%, i.e. 70 basis points above the reference rate quoted by the ECB.
2007.08.02. More victims of the sub-prime crisis.
Various signals that the sub-prime crisis is expanding into higher quality segments of the portfolio triggered a sell-off in the credit and capital markets.
The strongest hit was received by the Alt-A, which also covers entities that search for loans on the basis of less rigorous criteria, but with a better score as compared with sub-prime borrowers. The most recent data shows that the default rate in the Alt-A sector jumped to a level that is four times higher than the historic average.
IndyMac Bancorp, one of the largest Alt-A lenders in the U.S., disclosed a 57-percent drop in earnings in the second quarter of 2007. The company was forced to write-off extra $17 million (as compared with $2 million in 2006).
The Alt-A segment accounts for 5% of the U.S. residential mortgage market.
Presentations / Studies prepared by the Foundation
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Fitch Ratings - "European Bank exposure to Sub-prime Risk" - 09/2007 The report presents the exposure of Western European banks to the sub-prime crisis in the U.S. market. |
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Fitch Ratings - "Changing Lost Mitigation Strategies for U.S. RMBS" - 06/2007 |
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Datamonitor - "An Overview to Sub-prime Lending in Western Europe 2007" This report presents the status and development forecasts for the sub-prime market in some Western European countries. The survey is based on a questionnaire poll carried out in September - November 2006, which covered 500 entities. The survey examines opinions on sub-prime lending and lending criteria, among other things. The report presents the growth drivers in the sub-prime market, with a particular emphasis on new sub-prime markets. The analysis provides a very interesting coverage of the sub-prime market before the crisis of 2007. |
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Moody's Investors Service - "Sub-Prime Mortgages: An Integrated Look into Credit Issues Today and hat to Expect" - 03/2007 The record of the teleconference arranged by Moody?s on March 9, 2007; the first conclusions concerning the decline in real estate prices in the U.S. and its impact on the credit market. |
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"The Impact of the Sub-Prime Crisis on the Financial Markets" - a presentation from the meeting of the Working Group - Mortgage Portfolio Refinancing, October 10, 2007 |
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