Fears Grow Over Asian Banks' Sub-Prime Exposure

Source : The Business Times, August 24, 2007

SINGAPORE - Investor uncertainty grew on Friday on concern the US economy could be heading for a recession and as three Asian banks reported multi-billion-dollar exposure to the US sub-prime mortgage crisis.

Asian stocks fell, led by financial firms and exporters, while Japanese government bonds edged up. Sentiment has improved compared with recent weeks but it remains vulnerable to fresh bad news.

Four of Asia’s biggest banks, including state-run giant Bank of China , revealed bigger-than-expected exposure to the US subprime mortgage crisis, sending their shares skidding on Friday.

The news raised fears that Asian banks, generally domestically focused and risk averse following the Asian financial crisis 10 years ago, were not as immune to the sub-prime crisis as investors had thought.

Singapore’s DBS Holdings Group Holdings, meanwhile, told Reuters it had US$1.6 billion in holdings of collateralised debt obligations (CDOs) — nearly double the exposure it initially declared.

Bank of China and its BOC Hong Kong arm reported a combined US$11.25 billion in subprime-related holdings, the largest potential exposure disclosed so far by an Asian company.

Cathay Financial , Taiwan’s largest financial holding firm, said that about T$3.3 billion (US$100 million) of its T$29 billion in CDOs were exposed to the subprime US market, but that it had not incurred any losses thus far.

Shares in Singapore's DBS Group Holdings, South-east Asia's biggest bank, state-controlled Bank of China and its Hong Kong subsidiary, BOC Hong Kong, all skidded on Friday.

Still, financial markets have been calmer and more stable this week after the recent turmoil that shook stocks and sent investors scurrying for the safety of government debt.

MSCI's measure of Asia Pacific stocks, excluding Japan, has rebounded 13 per cent since hitting a five-month low last Friday. -- REUTERS