Sub-Prime Mortgage Crisis
S. Ghon Rhee K. J. Luke Distinguished Professor of Finance Shidler College of Business University of Hawai‘I
UH Asia-Pacific Financial Markets Research Center
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Write-Offs by Financial Institutions
Unit:Billion Dollars Merrill Lynch Citigroup UBS Morgan Stanley HSBC Credit Agricole Deutsche Bank Bank of America CIBC Wachovia AIG Barclays Royal Bank of Scotland Credit Suisse Bear Stearns JP Morgan Chase Countrywide Others Total $22.4 19.9 14.4 9.4 7.5 3.6 3.2 3.0 3.0 2.7 2.7 2.7 2.5 1.9 1.9 1.4 1.0 4.6 $107.8
UH Asia-Pacific Financial Markets Research Center
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Capital Injections from …..
Citigroup $14.5 billion GIC (Singapore) Kuwait Investment Authority Several Investment Groups Korea Investment Corp. Kuwait Investment Authority Mizuho Financial Group Inc. Other Investment Groups GIC (Singapore) China Investment Corporation China Development Bank Temasek Holdings (Singapore)
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Merrill Lynch
$6.6 billion
UBS Morgan Stanley Barclays
$11.9 billion $5 billion $5 billion
UH Asia-Pacific Financial Markets Research Center
What is the Magnitude of Exposure?
Level 1 Assets:
Value is determined by quoted prices in active market
Level 2 Assets:
Value is determined by quoted prices in inactive market or model input prices that are observable
Level 3 Assets:
No reference prices are available and strictly based on valuation models
UH Asia-Pacific Financial Markets Research Center
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Size of Level 2 and 3 Assets
Level 3 Assets:
Level 3 Assets
$330 billion
Shareholder Equity Book Market (1/18/08)
Goldman Sachs Lehman Brothers Bear Stearns JP Morgan Chase
$72 $22 $20 $60
$35.8 21.4 11.8 123.0
$74.5 28.3 9.8 133.3
Level 2 Assets:
$4.1 trillion
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UH Asia-Pacific Financial Markets Research Center
Risk of Systemic Proportion is Brewing….
Further write-offs spell disaster for the stock market MBIA Inc. and Ambac Financial Group Inc. , leading bond insurers, will lose their AAA rating Both guarantee payments on $2 trillion worth of bonds Each lost more than $8 billion in their market value since the beginning of 2007
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Foreign Exchange Reserves
(As of December 2007)
China US$1,530.0 billion Japan 973.4 Russia 474.0 India 276.3 Taiwan 270.3 Korea 262.2 Singapore 163.0 (Preliminary) Hong Kong 152.7 Germany 125.6 ------------------------------------------------------------------------------------Malaysia 101.3 Thailand 85.0 Philippines 33.7 ------------------------------------------------------------------------------------Total ( 9 East Asian Economies) $2,919.5
Asia-Pacific Financial Markets Research Center, University of Hawaii
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Sovereign Wealth Funds
(As of December 2007)
Government Investment Corp (Singapore) US$330 billion China Investment Corporation 200 Temasek Holdings (Singapore) 150 Brunei Investment Agency 30 Korea Investment Corporation 20 Khazanah Nasional (Malaysia) 18.3 National Stabilization Fund (Taiwan) 15 ------------------------------------------------------------------------------------Abu Dhabi Investment Authority (UAE) 1,300 Saudi Arabia (Various) 300 Kuwait Investment Auority 250 Stabilization Fund of the Russian Federation 158 ---------------------------------------------------------------------------------Total ( 6 East Asian Economies) $763.3
Asia-Pacific Financial Markets Research Center, University of Hawaii
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