SUBPRIME CRISIS金融危机

1、SUBPRIME CRISISRoad MapIntroductionRaunakJapans economic crisis . JanhaviSubprime & Prime loan.MihirCauses of subprime crisis .VishalAffected companies .Raunak & Suchit Steps to overcome crisis .Viral & KunalImpact on world economy .PankajImpact on Indian economy.ApurvaCurrency Valuation and its eff

2、ect on IT Sector.KuntiEffect on commodities, concept of marked to market & coupling & decoupling .Alok Forex Exchange Reserve.Ashish Lessons learnt from Subprime Crisis.GauravConclusionAlok Japans history holds lessons for the U.SJapan faced a similar economic crisis as the U.S in 1990Factors respon

3、sible for the economic crisis in Japan:Deflating stock-market bubbleDeflating property bubbleBorrowers failure in repayment of debtsLong period of lackluster economic growthRefusal to own up to the problemsFinancial sector is far large than it should beGovernments role to overcome crisis in Japan:It

4、 spent public funds to replenish the capital of debt-laden banksExpanded definition of collateral to corporate bondsBought Japanese shares to free up cash at banksAfter effects:Bank of Japan lost its influence on marketsForeign banks were reluctant to deposit money at bank of JapanMoney rate fell be

5、low bank of Japans target Reasons why Japan was hesitant to deal with problems:Quickly shrinking the financial sector could have a social costPutting tens of thousands of people out of workQuick exit could seize up the credit marketPRIME LOAN A loan offered to borrowers with good credit history & go

6、od earning capacity.(Also called A loans) Prime loans generally are priced lower and cost the borrower lessCRITERIACredit ScoreDebt to Income ratioEarning Capacity Down paymentSUBPRIME LOAN A Subprime loan is a loan made to customers who typically have low credit scores and histories of payment defa

7、ults. Also called B loan, near prime, non prime or second chance loan. Subprime offers the opportunity for borrowers with less than ideal credit standing to gain access to funds. CRITERIACredit ScoreDebt to Income ratioEarning Capacity Down paymentWhy do Lenders Make Subprime Loans?Benefits to the S

8、ubprime borrowersRisk to this kind of lending and borrowing arrangement?V/sSUBPRIME LOANHigher risk of defaultHigher interest rateLending to borrower of low or nil credit recordConsumer is “sold” the product Lesser Down Payment Earning capacity doesnt matterPRIME LOANLower risk of defaultLower inter

9、est rateLending to borrower of high credit recordConsumer is “buying” the product Down Payment Earning capacity Play a roleCAUSES OF SUBPRIME CRISISOrigin point of the crisis marking the end of the largest speculative surge of real housing prices in the U.S. in the last 50 years Notice the prolonged

10、 exponential growth!REAL ESTATE BOOMFixed rate mortgage loans were at the lowest level in last 40 yearsSpeculationMean reversion CausesReasons for downturnINVESTORHOW SUBPRIME CRISIS SPREADIraq war2003Washington started war in Iraq in 2003Channeled $500 billion of short-term borrowings, which was ei

11、ght times more than expectedWar would be too short and too cheapNo realistic time-table for warU.S treasury chose to issue short-term T-bills, say every quarter, instead of long-term 10 year notes and 30 years bonds20032006Federal fund rate1.25 4.50T-Bills (short term)1.044.85T-bills (10 years avg.)

12、4.004.7914 3THE VICIOUS PATHSUBPRIME CRISISDelinquency Rate and resulting in a surge of loan delinquencies in the residential mortgage loan market THE COMPANIES AFFECTED IN THIS TURMOILAMERICAN INTERNATIONAL GROUP (AIG)HISTORYFOUNDED:1919 in Shanghai, China By Cornelus Vander StarrHead Office: Ameri

13、can International Building, New York City, New YorkBusiness: Insurance & Financial servicesAchievement: 18th Largest Company Of The WorldWHO BAILED THEM OUT?WHO BAILED THEM OUT?US FEDERAL GOVERNMENT:SEPTEMBER 16TH 2008DEAL WORTH:$85bnPOST ACQUISATION MARKETS IMPROVEDJP AND GS BACKED OUTFEDRAL NATION

14、AL MORTGAGE ASSOCIATIONHISTORYFOUNDED: 1938Founder: BY Franklin Delano LOCATION: Washington DC, U.SBUSINESS OPERATION: Housing Loan MortgageFEDERAL HOME LOAN MORTGAGE CORP.HISTORYFOUNDED: In 1970LOCATION: Melean Virginia, U.SBUSINESS OPERATION: Mortgage, loansWHO TOOK THEM OVER?WHO TOOK OVER THE CON

15、TROL?US FEDERAL GOVERNMENT: SEPTEMBER 8TH 2008APPOR. MARKET SHARE:$5tnBEAR STEARNSHISTORYFOUNDERS:JOSEPH AND ROBERTLOCATIONBUSINESS AREASPRESENCE ACROSS THE GLOBEWHO BAILED THEM OUT?WHO BAILED THEM OUT?J.P.MORGAN:MAY 30TH 2008DEAL WORTH:$2.2bnCOUNTRYWIDE FINANACIALHISTORYFOUNDERS:DAVID LEBLOCATION:C

16、ALABASAS, CA, USBUSINESS AREASRETURN ON INVESTMENTWHO BAILED THEM OUT?WHO BAILED THEM OUT?BANK OF AMERICA: JULY 1ST 2008DEAL WORTH:$4bnMERRIL LYNCHHISTORYFOUNDERS:CHARLES AND EDMUNDLOCATIONBUSINESS AREASWHO BAILED THEM OUT?WHO BAILED THEM OUT?BANK OF AMERICA:SEPTEMBER 14TH 2008DEAL WORTH:$50bnGOT TH

17、E MARKET SHARE AROUND THE GLOBELEHMAN BROTHERSHISTORYFOUNDERS:HENRY, EMANUEL AND MAYERLOCATIONBUSINESS AREASBANKRUPTCYLEHMAN HOLDINGS FILED ON SEPTEMBER 15TH 2008BANKRUPTCY WORTH:$616bnHAPPENEND AFTER 18 YEARSS&P DROPED BY 59 POINTS OR 4.71%DOW JOINES DROPED BY 504.48 POINTS OR 4.42%NASDAQ DROPED BY

18、 81.3 POINTS OR 3.6%LOST HALF ITS MARKET VALUE IN 2 DAYSCONTD.BARCLAYS ACQUIRED NORTH AMERICAN REGION:SEPTEMBER 17TH 2008DEAL WORTH:1.75bnOTHER BANKSCITIBANK WRITES OFF $50bnGS PROFIT REDUCES TO 70%MS DIVEST 20% STAKE FOR $8.4bnNOMURA BUYS LB ASIAN OPEATIONTOTAL GROSS LOSSUS MAKES TOTAL LOSS OF $1.8

19、tnLOSS IN TERMS OF GDPUSJPNGERUKFRNITAIND134154657086180BIGGER THE SIZE, GREATER THE LOSSNet income in mn $Apr-jun 08Q2 20082007200620052004Freddie-821-151-3094232721132937Fannie-2300-2186-2050405963474967AIG-5357-7805620014048104779839LB-3927-27744192400732602393ML-4654-1962-7777749951164436THE STE

20、PS TAKEN TO OVERCOME CRISISTUESDAY 16TH OF SEPTEMBERUS Federal Reserve pumping $50bn 20bn from the Bank of England 70bn Euros ($100bn; 56bn) from the European Central Bank. THURSDAY 18 SEPTEMBERUK as Lloyds TSB revealed details of its 12bn takeover of Halifax Bank of ScotlandUS Federal Reserve also

21、announced it was releasing $180bn FRIDAY 19 SEPTEMBERBy close of markets on Thursday, billions of dollars had been wiped off stock markets worldwide. US government plan to buy billions of dollars of US banks bad mortgage-related loans. Bank of Japan (BoJ) Kept interest rates unchanged at 0.5%Injecte

22、d more than 5 trillion yen ($47 billion) into money markets in the wake of Lehman Brothers Holdings Inc.s collapseEuropean Central Bank (ECB) European Central Bank added 30 billion euros ($42.5 billion) in a one-day money-market auction on Sept 15US FEDERAL RESERVE Agreed to an $85bn loan to AIG at

23、an interest rate of 3-month LIBOR plus 8.5%. The government will get a 79.9% equity interest in the company. Fed injected $70bn of temporary reserves, the most since the Sept01 terrorist attacks as the overnight dollar rate soared from 3.33% to 6.44% BANK OF AMERICABailed out Countrywide Financial a

24、nd Merrill LynchBOA got market share of 20-25% of Home LoanWhy Kenneth Lewis went for the deal?Deal occurred at 2/3rd of its market price a year agoJP MORGANBailed out Bear StearnsRenamed as JP Morgan EquityGave pink slips to 14000 employeesTwo hedge fund managers of Bear Stearns chargedRestrict sho

25、rt sellingShort-selling occurs when a trader borrows shares from another to sell them with the hope of buying them back at a lower price, thereby profiting from the difference. It has been blamed for the recent sharp falls in some banking shares. IMPACT ON WORLD ECONOMYImpact of Sub-prime Crisis on

26、various factors of World Economy: Interest sensitive sectors Stock Market Inflation GDP Unemployment Mergers & acquisitionsJapans GDP MarchJuneSeptDec20081.200.70-20073.201.801.701.6020063.002.302.002.40 MYrJanFebMarAprMayJunJulAugSepOctNovDec087.108.708.308.507.707.106.304.90-072.202.703.303.003.40

27、4.405.606.506.206.506.906.50061.901.900.801.201.401.501.001.301.501.402.901.80China Inflation RateUS Unemployment RateJanFebMarAprMayJunJulAugSepOctNovDec084.904.805.105.005.505.505.706.10-074.604.504.404.504.504.604.704.704.704.804.705.00064.704.704.704.704.704.604.704.704.504.404.504.40Impact on S

28、tock MarketAverage 30% decline in the share index of the countrysLow confidence in the investorsLondon Stock Exchange(UK) FTSE 100 Index Impact on Banking SectorSome of the major impacts include Investment Bank transformed to the commercial BankLiquidity concernINDIA INC./ INDIA SINK?How India was s

29、aved from the Crisis?RBIARCILBlack MoneyHow will it affect India?Liquidity CrunchIPOProject financingFII OutflowsPossible measuresECBSLRInterest RatesSECTORS AFFECTEDReal Estate & InfrastructureHigh Interest RatesDrying up of fundsUnitechSlowdown in Real EstateCapacity Utilisation down by 8% to 86%.

30、 Companies Affected : ACC, Guj Ambuja, Grasim.Banking and insuranceMTM Losses Decreased LiquidityICICIOpportunity for Investment BankingBrokeragesLow VolumesAutoInterest Rate SensitiveIncreasing Input CostsTravel &TourismAirlinesHotelsOther SectorsMetalsDiamond IndustryInformation TechnologyTATA-AIG

31、TATA76%AIG24%Lehman IndiaWorli & Powai2200 EmployeesInterested PartiesWhere to Invest?Fixed Maturity Plans, FDGoldArtCURRENCY VALUATION (DOLLAR VS RUPEE)THE FALL OF RUPEE IN FY08STEPS IN TO SUPPORT RUPEESUPPLIES CASH IN MONEY MARKETTEMPORARILY ALLOWED BANKS TO BORROW FROM IT EVEN IF THEY DONT HAVE I

32、DLE GOVERNMENT SECURITIES RBI-TO THE RESCUEBANKING,FINANCIAL SERVICES,INSURANCE AND TELECOM SECTORS MAKE UP MOST OF I.T. FIRMS REVENUE“IT SECTOR IS BULLETPROOF”WELL PREPARED TO TIDE OVER WALL STREET CRISISTOP I.T FIRMS HAVE DEEPENED THEIR SALES CHANNEL S IN EUROPEEFFECT ON IT INDUSTRYDESPITE DEPENDENCE ON BFSI REVENUE GROWTH IN 20-27% RANGEEXPORTS GREW 25.7% IN FY08.IMPACT ON COMMODITIESMARKED TO MARKE