sub prime mortgage crisis

18
Sub Prime Mortgage Crisis Hae Jin, Eun Joo & Philipp

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Page 1: sub prime mortgage crisis

Sub Prime Mortgage Crisis

Hae Jin, Eun Joo & Philipp

Page 2: sub prime mortgage crisis

Sub Prime Mortgage?

FICO

Payment History

Amount Owed

Length of Credit History

New Credit

Types of Credit Use

Page 3: sub prime mortgage crisis

PRIME (more than 680) : about 6%

Sub Prime Mortgage (620 Down) : 9~10%

Alt – A (620 ~680) : 7~8%

FICO

Fixed rate -> Adjustable rate after 2 YEARS

Page 4: sub prime mortgage crisis

S & LA

Bankruptcy

LTCM Bankruptcy

Asian Financial Crisis

Terrorist

Attacks

Low Rates + House Price up = Sub. Mortgage UP

Why It Happened?

Page 5: sub prime mortgage crisis

Crisis Goes Global

BorrowerLow credit

Sub prime mortgage

LenderHigher Rates

Sell Mortgages

Repayment

Loan

Financial Firms

Mortgage-based Securities

Sell Mort.

Invest.

Hedge Funds

Private Funds

Sell

Securities

InvestorsIndividual

Corporate

Sell

Securities

Invest.

Page 6: sub prime mortgage crisis

Crisis Goes Global To.. (as of

8.31)

* New Century Financial Bankruptcy

* Bear Sterns 3 funds in trouble * American Home Mortgage Filed for Bankruptcy

* BNP PARIBAS 3 funds in trouble

* Basis Capital 2 funds in trouble

* Fortress Investment 25% loss in hedge funds

* Absolute Capital 2 funds in trouble

* Commerzbank 1.2 billion euro loss

* IKB 1.3 billion dollar loss

* NIBC 200 million dollar loss

Page 7: sub prime mortgage crisis

Reasons: Who to blame?

Borrowers? Lenders? Technology?

Nescience

Info Source: Lenders advise

Risky lending

practices

Complex security system

90% banks use FICO

Model works with given data

Page 8: sub prime mortgage crisis

Case 1 - Germany

1995-2007: $26.6 billion

Rhineland Fund (US sub-prime mortgage market)

Mid-sized enterprises in real estate

IKB

Principal Shareholder: KfW Bank Group

Page 9: sub prime mortgage crisis

Impacts and Effects

Enormous value drop!

Loss of investors

$1.040 M Loss + - 71.36% in Stock Value

Page 10: sub prime mortgage crisis

So, Now..

Recovery Package of $5.18 B

KfW: Under Pressure from Government

Rhineland Fund risk precaution up to $ 7.1 B

Page 12: sub prime mortgage crisis

Hang Seng KOSPI

Asian Stock index hitting its lowest mark

Case 2 - ASIA

Nikkei 225

-13.1%

-16.4% -18.3%

Page 13: sub prime mortgage crisis

Limited impact on Asia

1. Abundant cash in the region's banking systems

2. Few funds directly invested into the US S.M.

Page 14: sub prime mortgage crisis

NegativeNegative"The

Two different scenario

PositivePositive

Market volatilityAsian bank: locally

focused & conservative

Mortgage-backed securities

(CHINA)Credit Crunch

Hits Asia debt issuance

Uncoupling Asia

Thanks to China

Dropped CR US: ASIA

Page 15: sub prime mortgage crisis

Prospects

Another crisis coming -> Next year Spring

(those in the late half of 2005)

Believe in China’s Power

But, already prepared &

Financial tech. improvement

Europe Asia

Conservative banking &

Decoupling with the US

Page 16: sub prime mortgage crisis

Prospects…

Thanks to China and India

Page 17: sub prime mortgage crisis

Prospects…

Strong momentu

m

Page 18: sub prime mortgage crisis

Thanks for your patience ^^

Hae Jin, Eun Joo & Philipp