The casualties of the Lehman collapse are popping up, one by one.
First, the Philippine economy. Socioeconomic Planning Secretary Ralph Recto now has a worst-case scenario forecast of 4.7 percent to 5.5 percent for gross domestic product for the year, down from an already revised 5.5 percent to 6.4 percent.
You know already that two of the nation’s biggest lenders, Metropolitan Bank & Trust Co. and Banco De Oro have hits on their portfolio. Rizal Commercial Banking Corp. (RCBC) today also revealed its exposure to Lehman. Together, the three banks have set aside $120 million in provisions—meaning there’s cash made available for any write down in the future.
All in all, the central bank says the total exposure of the banking system is 0.3 percent to 0.4 percent of the banking system’s total assets. That’s around P15 billion, but one industry estimate says the exposure could go up to as high as P23 billion. Not worrisome, says the central bank. The amount may look huge, but it will not drive banks to suffer any liquidity problems, it says. Worst thing that can happen is some erosion in net incomes. We can only wait for reality to unfold–and hold our breaths.
Are depositors panicking? I don’t see any lines, thank heavens. Whether that’s because Filipinos are not worried or they don’t understand what is happening, I don’t know. In this case, ignorance can bring about bliss.
Those who do not have exposures and are confident enough to come out and say it are: Sun Life’s Philippine unit (it’s the mother company that has exposure), Bank of the Philippine Islands, Union Bank of the Philippines, Government Service Insurance System and Social Security System.
Those who would like to know how the subprime crisis began might want to read Reyna Elena’s blog here.
And if you are wondering what the ultra rich are doing these days, they are paying $970,000 for a contemporary oil painting of kitchenware by Indian artist Subodh Gupta. Sigh. Wouldn’t you like to be filthy rich in this day and age?
September 21st, 2008 at 7:30 pm
“Together, the three banks have set aside $120 million in provisions—meaning there’s cash made available for any write down in the future.”
No sir. That’s not correct. No cash is actually involved in setting aside a reserve for losses. Simply, there’s an accounting entry made in the books.
September 19th, 2008 at 12:09 am
I wrote a two post on the subprime mortgage crises. Watch the funny youtube videos that let’s you understand the subprime mortgage crises more easily at the same time find yourself laughing to your heart’s content.
http://www.zdiaz.com/index.php/2008/09/18/subprime-mortgage-bloopers/
I wrote a two post on the subprime mortgage crises. Watch the funny youtube videos that let’s you understand the subprime mortgage crises more easily at the same time find yourself laughing to your heart’s content.
http://www.zdiaz.com/index.php/2008/09/18/subprime-mortgage-bloopers/
September 18th, 2008 at 4:25 pm
so we might ask how could all those trillions be lost in such a short time? well, the answer is the number represents $4 trillion in capitalization, and based on assets are not necessarily what we might visualize as “concrete” you-can-hold-in-your-hand stuff with stable underlying value — such as gold.
if all that were gold, that would be equivalent to 4.7 BILLION onces of gold or equal to the entire world production of gold for 60 years at current prices!
clearly, it’s NOT the case that an equivalent of 60 years of world gold production had just gone down the drain. that’s because those assets were mostly based on securities that were overvalued in the first place.
sure, there might be a good portion of that $4 trillion representing actual layman-appreciable value, but this credit mess clearly shows us that what corporations might proclaim as very stable asset could very well be worthless if examined close enough.
the point is, we should not take at face value any declaration that something will be trouble-free JUST because it’s backed by “solid” assets, or that it’s “well-capitalized”. vigilance is our duty.
September 18th, 2008 at 2:42 pm
sorry, a correction on my figures. the estimated loss for the US market is $4 trillion overall. for just the financial sector, it’s approximately $1 trillion.
September 18th, 2008 at 2:22 pm
indeed, the bailout/takeover of AIG probably prevented the immediate panic and instability of unprecedented proportions in recent financial memory. however, it is not a cure for the problems of the financial sector and the economy at large. the entertaining slideshow explains nicely how the current troubles can be traced back to very bad decisions by almost everybody involved in the subprime market.
now, the world is left with the problem of sorting out the real extent of this mess and its implications. this nice graphic presentation show how much value has been lost so far — a staggering $4 TRILLION (http://www.nytimes.com/interactive/2008/09/15/business/20080916-treemap-graphic.html).
and that’s just in the financial sector. $4 trillion down the drain is not an event that will pass us by without leaving a lot of real nasty sting in a lot of people’s behinds.
September 18th, 2008 at 11:33 am
Mommy Banker: hehehehe loved the power point on subprime mortgage for dummies. I’ve got the youtube video of that. Check out http://www.zdiaz.com/index.php/2008/06/20/idiots-guide-to-the-subprime-mortgage-crises/
September 18th, 2008 at 5:18 am
Good thing Philippine banks have learned from the US experience. It is better to show their exposure and allot money that could cover possible losses now than try to hide it in their balance sheet.
September 18th, 2008 at 1:23 am
There’s also a great stick-figure powerpoint presentation illustrating the root case of the subprime crisis:
http://mommybanker.wordpress.com/2008/02/20/sub-prime-crisis-for-dummies/
AIG is largely perceived to be “too big to be allowed to fail”. If it did, the impact would be immediately felt on Main Streets around the world. AIG is the world’s largest insurer, doing business with thousands of companies around the world.
I get the sinking feeling that we haven’t seen the bottom yet and we are up for more turbulent times ahead.
September 17th, 2008 at 10:46 pm
what about the mutual funds, esp. alfm - should they also come out & divulge their exposure not only to Lehmans but to Merrill Lynch & AIG as well?
I have some amounts with alfm, do you think I have to get out @ this time?
thanks.
September 17th, 2008 at 10:36 pm
I think whats happening today is just a scenario for a bigger event. First the oil now the money and then the shortage of food. If this 3 comes together in the near future, there will be chaos all over the globe. And if there is chaos, military rule will prevail just to prevent people for demonstrating their grivances. And what next? New world order.
September 17th, 2008 at 10:31 pm
In a nutshell, I believe that Lehman, AIG and ML were able to be off radar screens for quite awhile because they were waiting for the US real estate market to pick-up. Unfortunately, we are still in the doldrums.
Question becomes: how many AIG and ML’s are still out there?
You really cannot expect these investment companies to police themselves and I don’t think they will because they were in a way a victim of the subprime as well, although, they should have done some bloody deep due diligence when they bought their investments. But then again, how could you when most of these MBS are so intricately woven into fancy named “funds” that you can no longer find which is which until you realize that your investment receivables are useless.
It’s a tough job for US regulators to catch them before they fly the white flag. I’m sure, there are still investment companies our there, hiding in the dark, with all their useless MBS.
Thank you for the mention friendship! Hahaha!