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.