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Mortgage Debacle in USA
KTM Metro Reporter
How deep the Mortgage debacle hole in USA? This is anyone's guess. Subprime investments has sent shivers down many investors reaching as far as other side of the globe. Many investors seeking higher returns, knowingly or unknowingly, invested in assets which seems more secure than stocks. However, these seemingly low risk assets turned out to be risker. As borrowers were not able to make the payment to their loan (mortgage) that they took out to buy homes, they defaulted on their mortgage. Such is the case in most of the foreclosure homes. However, banks and investors were not able to recuperate the loan money due to falling prices of house. Therefore, they had to write down the loans that they could not recuperate.
Western banks are in liquidity crunch due to write down. The liquidity crunch is exasperated by unwillingness of banks to lend to each others. There is a trust issue as nobody is sure how much write downs that have not been announced in banks book. This fear of unknown amount of bad loans has caused banks to be too cautious in their lending practices even so that they are even not lend each other.
Asian banks have been seen playing a life saving role to western banks who are in liquidity crisis. In the mean time, stock price of most of the western banks are low providing an opportunity for Asian banks to buy western banks at a bargain price. UBS became the latest Western bank to get bought from the cash-rich East. UBS is selling a stake of more than 10 percent to investors from Singapore and the Middle East as it wrote down $10 billion more in mortgage-related assets. The two investors — the Government of Singapore Investment Corporation and an unidentified Middle East investor — will inject $9.7 billion and $1.8 billion, respectively, into the troubled Swiss bank.
Other big US bank, Citigroup, has been recently bought a stake of $7.5 billion by the Abu Dhabi Investment Authority, after Citigroup announced a fresh write down of $8 billion to $11 billion related to bad subprime investments.
UBS’s big write-down comes on top of a $3.7 billion charge in October, making it by far the biggest casualty of the American home-mortgage crisis among banks outside the United States. The emergence of white knights from Asia and the Middle East underscores the growing financial might of these countries.
