Annex A
News articles related to the impact of the US sub-prime mortgage crisis
- (A.1) High foreclosure rates hurt broad economy: Bernanke
Federal Reserve Chairman Ben Bernanke warned that the rise in late mortgage payments and home foreclosures poses considerable dangers to the US economy and wants congress to take action.
Some 1.5 million US homes entered into the foreclosure process last year, up 53% from 2006 and the rate of new foreclosures looks likely to be even higher this year.
The current housing crisis has left them with mortgages that are bigger than the value of their home. When that's the primary problem, Mr Bernanke said the best solution may be reducing the amount that the borrower owes on the loan or some other permanent modification to the loan.
- (A.2) Citi to sell up to $550b worth of assets
Citigroup has planned to offload US$400 billion (S$550 billion) of assets – 20% of its total - over the next two to three years for the sake of efficiency and profitability as a result of the credit crunch.
Its CEO, Vikram Pandit says that it will trim its US$500 billion of 'legacy assets' which includes real estate, leveraged commitments, sub-prime collateralised debt obligations and structured investment vehicles to less than US$100 billion within two to three years. He adds that it will be in an orderly fashion and expects to see US$15 billion in 're-engineering benefits' from the restructuring.
Since December last year, Citi has embarked on active restructuring and downsizing of the company and all these sales could raise billions of dollars for Citi at a time when the bank is feverishly raising capital. However, this process is spooking many analysts who looked on with scepticism that they sell-off might be a sign that more losses are to be revealed.
- (A.3) UBS is laying off to cut costs
Swiss bank UBS had announced in early May that it would reduce a further 5,500 jobs on top of the 1,500 staff it already planned to get rid of by the end of last year, these lay-offs will mainly be in Britain and the US.
Of the planned cuts, up to 2,600 will be at its investment banking arm, which was the culprit behind the cumulative write-downs of US$37.4 billion (S$51.1 billion) the bank has made since last July.
- (A.4) US project hit by pullout of many Singapore buyers
The decline in the local property market sentiment is now affecting overseas investment targets as well.
Two-thirds of Singapore buyers have backed out of their purchases of units in the much-hyped Chicago Spire in the United States. When it was launched in Singapore in early March, almost 40 buyers have placed their reservation but more than 20 changed their minds after the US sub-prime crisis threatened to take a turn for the worse in the weeks following the launch.
An analyst quipped that it doesn't make sense to buy and hold on to US properties when there are still sub-prime problems.
The 150-storey Chicago Spire is touted as the world's tallest condo, and boasts a unique spiral-shaped design.
As there is a cooling-off period which is a standard practice in US home sales, those buyers who backed out from the deal actually got a full refund of their reservation fee.
- (A.5) US Banks camouflaged $48b in write-downs
The US regulatory authority has found out that banks and securities firms, suffering from unprecedented losses from the collapse of the mortgage securities market, are camouflaging at least US$35 billion (S$48.3 billion) of additional write-downs in their balance sheets.
Citigroup and ING have been found to be under-declaring their losses in their quarterly report to the Securities and Exchange Commission.
Adding the US$35 billion leaves the banks with a US$116 billion mountain of losses to climb.
The balance sheet adjustments are in addition to US$344 billion of write-downs and credit losses already reported on the income statements of more than 100 banks.
These firms have raised US$263 billion from sovereign wealth funds, their own governments and public investors to shore up capital. The balance sheet write-downs also reduce equity, which needs to be replenished.
Taking losses on a balance sheet instead of an income statement is acceptable under accounting rules, which make a distinction between so-called trading books and long-term investments.
But observers say that keeping those markdowns off income statements just delays the realization of the losses.
|
