SUB-PRIME CRISIS

What is sub-prime lending? How basically we define subprime crisis? What this did to the $1.5 trillion US housing industry?

How and when did the subprime mortgage crisis begin? When did the slide begin? HOW SUB PRIME CRISIS SPREAD? Did it cause business failure?

HOW SUB PRIME CRISIS SPREAD?

FINANCIAL INSTITUTION RMBS CDO LOWEST RISK / HIGHEST RATING ( SENIOR ) MEDIUM RISK ( MEZZANINE ) HIGHEST RISK / ( EQUITY )
INVESTORS SUB-PRIME BORROWER BUYING HOME BANKS HEDGE FUNDS LOAN INSURANC E COS. PENSION FUNDS

SECURITISATION

PROCEEDS

SALE of LOAN

SUB-PRIME LENDER

What was the spillover effect of the slide?

When did the people realize the problem? Why did the crisis spread so far and wide?
Comparison between traditional and sub prime model.

Comparison between Traditional & Sub prime model.

What is Domino Effect?

Finally, you have broader considerations that might follow what you
would call the falling domino principle. You have a row of dominoes set up, you knock over the first one, and what will happen to the last one is the certainty that it will go over very quickly. So you could have a beginning of a disintegration that would have the most profound influences. -- Dwight D. Eisenhover, (former US President)

How many are affected by the problem on hand?

What is the action taken by rating agencies?

What is to be followed now?

 Lenders : The Biggest Culprits

Investment Banks Homeowners

Government and regulators

Investor Behavior Hedge Funds

Lenders : The Biggest Culprits

Investment Banks

GLOBAL MARKETS

16TH JULY(BEFORE)

17TH AUGUST(AFTER)

CHANGE

% FALL

DOW JONES NASDAQ BSE SENSEX HANG SENG KOSPI COMPOSITE NIKKIE 225 WEIGHTED INDEX SHANGHAI INDEX FTSE 100 DAX() CAC 40 () IBOVESPA()

13950.98 2697.34 15311.22 22953.94 1949.51 18217.27 9417.32 3896.19 6697.7 8105.69 6125.6 57374

13079.08 2505.03 14141.52 20387.13 1191.55 15273.68 8090.29 4656.57 6064.2 7387.29 5363.63 48558.76

-871.9 -192.31 -1169.7 -2566.81 -757.96 -2943.59 -1327.03 760.38 -633.5 -718.4 -761.97 -8815.24

6.249 7.129 7.639 11.182 38.879 16.158 14.091 19.515 9.458 8.862 12.439 15.364

 Liquidity crunch in the Economy Correction of Prices Rupee Appreciation & Slump in Economic activity

 Staff cuts Losses to Banks Short-term impact on the stock markets

 Sound banking practices Controlled derivatives market One of the wrong lessons that could be learnt from the sub-prime episode is about securitization.

 Limited investment by Indian companies abroad.

Quality inward investment. Reputation risk is as real as credit risk.

Financial institutions cant afford to be shortsighted Failure to anticipate impact