Global Subprime Fallout

Sale Of German Subprime Victim IKB Nears.  “The saga of Germany's highest-profile casualty of the subprime crisis, IKB, is drawing to a close with a private equity firm emerging as front runner to buy the bank. IKB has been up for sale since the start of the year. The German government, through state bank KfW [has] shouldered the lion's share of rescue efforts that have cost €8.5 billion ($13.5B) in all. Sources: U.S.-based Ripplewood Holdings had made the most attractive offer for the bank, whose market capitalization is around €270 million. Swedish bank SEB and U.S. group Lone Star are also in the running.”  (Reuters, July 2^nd)

Iceland Pays The Price For Financial Excess.  “Iceland's gross domestic product shrank by almost 4% in Q1’08 compared with Q4’07, when growth was barely positive. The stock market and the currency have both fallen by about a third… this year… The external deficit was 25% of GDP in 2006 and 17% in 2007. Gross short-term foreign debt amounted to 15 times the value of the central bank's foreign exchange reserves at the end of 2007, or roughly 200% of GDP. Gross long-term foreign debt amounted to another 350% of GDP. Bank assets swelled to 10 times GDP by the end of 2007… Now Iceland's external liabilities swamp the central bank's ability to act as lender of last resort.”  (Financial Times, July 2^nd)

Taylor Wimpey Drops After Failing to Secure Funding.  “Taylor Wimpey Plc slumped 42% in London trading after the U.K.'s largest homebuilder failed to raise funds from investors, scrapped its first-half dividend and Finance Director Peter Johnson resigned… Taylor Wimpey will close a third of its U.K. offices and cut 900 jobs, CEO Peter Redfern said. Taylor Wimpey, formed by a 4.3 billion-pound ($8.6 billion) merger last year, said that without investment the company may default on the terms of its £1.7 billion of debt. Second-quarter orders fell as much as 60% as mortgage approvals dropped… Shares of Barratt Developments Plc and Redrow Plc lost more than 30% today.”   (Bloomberg, July 2^nd)

Australia Commercial Property Sales Value Falls 60% in 1st Half.  “Property consultant CB Richard Ellis survey: The value of commercial property sales in Australia fell by 60% in H1’08 after buyers grew concerned that prices and occupant demand may fall. Transactions for office, retail and industrial properties with a value of more than A$5 million ($4.8M) fell to A$3B in H1’08, from A$7.5 billion a year earlier, Pty Ltd. said.  A tightening in credit has reduced the buying power of Australian REITs, CBRE said. The nation's interest rates, which are at their highest in 12 years, have also stoked concern among investors that economic growth may weaken.”  (Bloomberg, July 2^nd)

Japan Land Prices Gain For A Third Year.  “Japanese land prices rose for a third year as developers and real estate funds sought to profit from a market that's recovering after more than a decade-long slump. Nationwide average prices increased 10% to 143,000 yen ($1,346) a square meter, or about $792/sf, in 2007 from the previous year, when the gain was 8.6%, the National Tax Agency said… Growth in values may slow as the U.S. subprime mortgage collapse makes it more difficult for lenders worldwide to finance real estate purchases.”  (Int’l Herald Tribune, July 1^st)

UBS In CDO Dispute With Hedge Fund.  “Banks are still having a hard time figuring out the total amount by which they will have to write down [in CDO] debt. UBS asked hedge fund Paramax Capital International to sell it protection on $1.3bn of the most highly rated slices of a CDO made up of subprime residential mortgages that the UBS investment bank underwrote. In general, [through] credit derivatives, banks can remove such exposures from their balance sheets and do not have to set aside capital…  The meltdown in the value of such securities is triggering an avalanche of litigation between parties in the $63,000B gross market for credit default swaps.”  (Financial Times, July 1^st)

Subprime Hurts Sumitomo's Asset Management.  “The balance of assets managed by Sumitomo Corp has fallen by 38% over the past year after investors were forced to sell surging commodities to make up for subprime-related losses, a senior official said. But Sumitomo, the country's third-largest trading company, expects the outstanding balance in hedge funds to improve since Japan's financial system has been less affected by the subprime problem than the U.S. and Europe…Sumitomo: “We have ¥100 billion ($941.8 million) assets under our management, which was much bigger before the subprime of last year.”  (Reuters UK, July 1^st)

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