Group 5
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Subprime Loans in US •The more than $600 billion of subprime mortgages that were issued in the US proved riskier than anticipated •Subprime loans accounted for 15% of total loans in 2006 compared to 3% in 2002
The trail of events……
Domino Effect around the World Ø The UK lender Northern Rock Bank was nationalised in February 2008 due to its troubled finances Ø The UK banking group, Lloyds TSB Group Plc agrees to take over rival HBOS Plc, (UK’s largest mortgage lender) UK's largest mortgager in an share swap deal giving a valuation of £12 billion (US$22.3 billion) to HBOS Ø In September 2008, Bradford & Bingley was taken over by the Britan government, effectively taking control over the bank's £50bn mortgages and loans. The saving division and branch operations were subsequently sold to Spain's Santander
Domino Effect around the World Ø Credit Crisis – The fall of Lehman caused a loss of confidence in the global banking space leading to a severe credit crunch. Ø Trillions of Investor money got written off in the mad rush of flight for safety. Severe deflationary tendencies have been observed in every asset class.
Ø Bailouts, the fad of season – To get is financial institutions out of trouble, central banks across the world announced its own form of a bailout package. Ø Job Losses – Massive deleveraging led to millions of job losses in the global economy
Europe European banks were more leveraged than the American banks • In UK : • •
• • • •
RBS recapitalized by the government HBOs and Lloyds TSB merged and capital infused by the government
In Germany Hypo Real Estate bailed out by government In France, Fortis was sold and nationalized European Governments taking radical steps Government guaranteeing safety of capital
Impact on Global Capital Markets The following chart shows the market capitalization of various global markets indicating a fall of 20% since March 2007 and approximately 31% from December 2007.
Emerging Markets Regions and countries with major fiscal imbalances have been hit hard
India •India in past years had huge capital inflows which boosted GDP growth •However now it is expected to come down •The outflow dollars sent the Indian Rupee into a tailspin leading to massive depreciation in the Indian Rupee
China • Trade will be affected • Foreign Investments will come slow • However, it is hoped rising domestic demand should offset the decline in exports
The trail of events……
Domino Effect around the World Ø The UK lender Northern Rock Bank was nationalised in February 2008 due to its troubled finances Ø The UK banking group, Lloyds TSB Group Plc agrees to take over rival HBOS Plc, (UK’s largest mortgage lender) UK's largest mortgager in an share swap deal giving a valuation of £12 billion (US$22.3 billion) to HBOS Ø In September 2008, Bradford & Bingley was taken over by the Britan government, effectively taking control over the bank's £50bn mortgages and loans. The saving division and branch operations were subsequently sold to Spain's Santander
Domino Effect around the World Ø Credit Crisis – The fall of Lehman caused a loss of confidence in the global banking space leading to a severe credit crunch. Ø Trillions of Investor money got written off in the mad rush of flight for safety. Severe deflationary tendencies have been observed in every asset class.
Ø Bailouts, the fad of season – To get is financial institutions out of trouble, central banks across the world announced its own form of a bailout package. Ø Job Losses – Massive deleveraging led to millions of job losses in the global economy
Europe European banks were more leveraged than the American banks • In UK : • •
• • • •
RBS recapitalized by the government HBOs and Lloyds TSB merged and capital infused by the government
In Germany Hypo Real Estate bailed out by government In France, Fortis was sold and nationalized European Governments taking radical steps Government guaranteeing safety of capital
Impact on Global Capital Markets The following chart shows the market capitalization of various global markets indicating a fall of 20% since March 2007 and approximately 31% from December 2007.
Emerging Markets Regions and countries with major fiscal imbalances have been hit hard
India •India in past years had huge capital inflows which boosted GDP growth •However now it is expected to come down •The outflow dollars sent the Indian Rupee into a tailspin leading to massive depreciation in the Indian Rupee
China • Trade will be affected • Foreign Investments will come slow • However, it is hoped rising domestic demand should offset the decline in exports
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