sub-prime Fallout
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Sub-prime fallout weighs on firms
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US credit card and banking firm Capital One has said it will cut 1,900 jobs and shut down a wholesale mortgage unit as worries over sub-prime loans continue. found at news.bbc.co.uk Tuesday, 21 August 2007,
Capital One will also take a $860m (£435m) charge in closing recently-bought GreenPoint Mortgage. Elsewhere, UK and German banks and other investment funds have been hit by fears that the US sub-prime bad debts could cause a wider financial crisis. A number of US home loan providers have had to act to bolster confidence. The US mortgage sector has been hit by defaults on sub-prime loans as higher interest rates have hit consumers. The problems from the sub-prime sector have rippled around the world, hitting stock markets and lenders. Confidence fall On Tuesday major German WestLB said the upheaval in US sub-prime mortgages was making it difficult for German banks to get credit lines from their foreign partners. Chief executive Alexander Stuhlmann said that German banks were in a "not uncritical situation" overall. WestLB has said it has over 1.2bn euros ($1.62bn; £0.82bn) in overall exposure to the US sub-prime sector. The news came as an index of German investors' confidence by the ZEW Institute fell to -6.9 points in August from 10.4 in July. Last week Germany's IKB and Sachsen LB both had to raise emergency credit facilities because of difficulties in funding off-balance sheet investment vehicles. Reports said German savings banks had extended a credit line of 17.3bn euros to maintain the liquidity of an investment vehicle of Leipzig-based bank Sachsen, which has large investments linked to US sub-prime mortgages. Hedge fund In the UK, Northern Rock quantified its exposure to US sub-prime mortgages, with £200m invested in US collateralised debt obligations (CDOs) and £75m in US home equity mortgage-backed securities (MBS). These investments represented just 0.24% of its total assets, Northern Rock said. However, a vehicle run by UK hedge fund Solent Capital Partners LLP that invested in US residential mortgage-backed debt, found itself hit by the sub-prime crisis. The Mainsail II vehicle said it may be forced to sell assets, because it had been unable to raise short-term funding due to the volatile markets. Mortgage defaults On Monday, the largest US mortgage lender, Countrywide Financial, moved to assure customers it was safe to do business with it after media reports said it was cutting jobs to help cope with a credit crunch. The company took full-page advertisements newspapers to tell readers that mortgage market problems did not affect the safety of federally insured deposits at its Countrywide Bank unit, which it said was "well capitalised". Monday also saw US mortgage lender Thornburg sell $20.5bn of assets and reduce its borrowings amid the tough market for home loans. Meanwhile Luminent Capital, a West Coast-based real estate investment trust, said it was facing losses of $2.3bn on defaulted mortgage obligations, and that the market in secondary mortgage debt had "seized up". Luminent said it would sell a 51% stake at a deep discount to Arco Capital, a San Juan, Puerto Rico-based holding firm, to help shore up its finances. ----------
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