Foreign exposure to subprime?

Discussion in 'Economics' started by kashirin, Aug 5, 2007.

  1. Is it big?
    I heard there are problems with Austalian and German hedge funds.

    It might be quite beneficial for US and $ if exposure is big enough
    So foreigners will pay with their oil money for our greed :D
    At least I see A$ is down 4% since meltdown has started
  2. Yea all those german oil wells are a cash cow.

  3. Here in Australia (Not that anyone gives a shit) we have a real problem with MBL:AX Macquarie Bank.

    Just this morning I've seen three (!) broking houses come out and give 'buy on the dip' recommendations on Macquarie Bank.

    This usually means they want the retail investor to support a stock which had a very good reason to sell down and will probably sell down more.
  4. Arnie


    Loan Woes Hit European Bond Fund
    August 3, 2007; Page C1

    Troubles in the U.S. mortgage market have forced bailouts of a European mutual fund and a German bank -- signaling the risk of the mortgage situation to lenders and insurers, not just fund investors.

    French insurer AXA SA's money-management unit has offered to cash out investors in a billion-dollar bond fund after the fund shrank in size by about 40% last month. Two of the AXA fund's subfunds had lost 13.5% and 12.6% of their value July 18 and 19, when credit markets around the world slid.

    AXA Investment Managers offered to buy shares of the funds from any customers -- most of whom are European institutions -- at current estimated values. By doing so, the fund isn't forced to conduct a rapid sale of securities to meet redemptions, which could push down the prices it gets. Yesterday, AXA shares rose 2.2% in Paris.

    Separately, a German state-owned development bank, KfW, said it assumed "expected possible losses" of as much as €1 billion ($1.37 billion) from German midsize lender IKB Deutsche Industriebank AG, which also has been hit by exposure to the U.S. subprime market.

    U.S. mutual-fund investors have been largely sheltered from the storm, in large part because most mutual funds are predominantly invested in high-grade mortgage-backed bonds backed by government agencies such as the Government National Mortgage Association, known as Ginnie Mae. The average U.S. mortgage fund is up 1.53% this year and up 0.6% over the past month, according to Lipper Inc.

    But there are exceptions. The $1.7 billion Fidelity Mortgage Securities Fund has lost 0.8% this year and is down 0.4% over the last month, making it the worst performing fund in Lipper's mortgage-fund category. The culprit was a small stake in subprime mortgage securities, which, according to Morningstar, amounted to 2.5% of the fund earlier this year.

    The fund "had a relatively small percentage of assets invested in the subprime sector," a spokeswoman for Fidelity said. "The vast majority of those investments have been in the highest quality issuers." But that was enough to hurt the fund's performance this year, the spokeswoman said.

    Still, the AXA and KfW bailouts are the latest evidence that losses in bonds backed by U.S. subprime mortgages have scared off investors around the globe. AXA noted that the collapse of hedge funds in the U.S. and other investment vehicles holding lower-quality securities has resulted in a "confidence crisis," according to July 20 and July 23 letters to shareholders.

    The bailouts follow the collapse of two hedge funds managed by Wall Street firm Bear Stearns Cos., and a $1.5 billion loss at U.S. hedge fund Sowood Capital Management. Bear Stearns's stock fell in recent weeks amid news of the trouble at its funds, even though the $1.6 billion secured loan it provided to the funds was relatively insignificant to the giant firm's bottom line.

    While AXA's precise exposure isn't known, the mutual funds involved are relatively small. AXA Investment Managers had €550 billion in assets under management as of March 31, and its parent is one of Europe's largest insurers. For last year, AXA posted net income of €5.1billion.

    French financial-services group Oddo Asset Management recently said it closed three of its funds amid global credit concerns, a consequence of problems in the U.S. subprime-mortgage market.

    How have traditional U.S. money-market funds been faring? The funds most commonly held by investors typically don't hold asset-backed securities with subprime collateral because of strict rules that regulate the funds. Money-market funds have occasionally held asset-backed securities like collateralized debt obligations, but they have tended to be less risky and higher-quality tranches. And enhanced money-market funds similar to the AXA mutual funds are more likely to own subprime-backed securities.

    Standard & Poor's Corp. rates more than 500 money-market funds globally, with more than $1.1 trillion in assets, some of which hold asset-backed securities with subprime collateral. However, the positions are "either so small or so senior" that "it would take an enormous amount" of further problems to affect them, said Peter Rizzo, a director for Standard & Poor's financial-services group.

    The funds mostly receive the highest triple-A ratings, and no downgrades have occurred because of subprime issues, he said. S&P doesn't rate the fund from AXA.

    The AXA funds' holdings were valued at about $1.2 billion at the start of July, according to a spokeswoman for AXA Investment Managers. Their reported asset value had fallen to $720 million by the end of the month.

    In its letters, AXA said it is cashing out investors to protect their interests and avoid forced selling that could distort bond prices further.

    The firm said it believes the fund -- AXA World Fund, which has two subfunds, US Libor Plus and AXA IM Fixed Income Investment Strategies -- has securities with intrinsic value that is greater than what they would fetch because of the shortage of buyers.

    Some clients have taken AXA up on the offer to redeem their shares, but there hasn't been a massive percentage of customers or assets, AXA said. AXA said it didn't own any of the subprime securities that have recently been downgraded by rating agencies.

    In Germany, the midsize bank IKB said yesterday that it has reserves that are strong enough to cover it for the next 12 months, "even taking into account new business. Furthermore, IKB's money-market lines with other banks are open and available to IKB".
  5. My feel is somehow Europe is in worse shape than the US. McGuire in Australia had very high marks for management albeit aggressive on the earnings side. I have been in and out of one of their infrastructure funds here in the states and it seemed like a good idea at the time. It's surprising to see them swept up into this and probably a big warning to the whole Australian market.

    In Germany they really seem to be living in a uberworld with their heads stuck up you know where. To have so little of a fund in sub prime and still feel big pain is akin to their US counterparts who are saying the same thing. If sub prime is a small part of these funds where are the losses coming from? We have been told their is no contagion or spill over to AA but is there? Probably not but these bankers would like you to believe so in order to get bailed out.

    No doubt there are unprecedented disruptions in housing loans but corporate....? What's really crazy is the fact that all of this dislocation in the corporate bond world appears to have come since THIS MONDAY! That's how fast this seize up is moving through the system truly unbelievable. ~ SI
  6. German hedge funds ??? Good joke !! You need a loupe or magnifying glass to find some "German" hedge funds ! Taxes and regulatory hurdles are so high, almost no hedge fund industry exists in Germany !

    Just some Managed Futures hedge funds - that´s it !
  7. All these foreign funds is nothing compare to Japan's pension funds; It has been 2years since people realize there is going to be a big problem inside Japan's social security; Since last year; Japan has began tight their interest rate; and after current ruling party fail to maintain its house in parliament; there is no doubt that easy credit will be the thing of past.

    Big freaking shock weaves will came out from Japan; if any of its pension funds blow up.