Sub-Prime Crisis

In the US, borrowers are rated either as "prime"

— indicating that they have good credit ratings
based on their track record — or as "subprime",
meaning their track record in repaying loans
has been below par. Loans given to subprime
borrowers — which banks would normally be
reluctant to — are categorised as subprime
loans. Typically, it is the poor and young who
form the bulk of subprime borrowers
 Group Members
 Punit Mehta (31)  Mayuri Patil (39)
 Nikhil Mendhe (32)  Prasad Patil (40)
 Aniruddha Mohitkar (33)  Vaishnavi Patil (41)
 Leena Nadkar (34)  Anuja Pavshe (42)
 Dnyaneshwar Naik (35)  Komal Pimple (43)
 Kunal Pandit (36)  Nikhil Potdar (44)
 Rohit Parnerkar (37)  Apoorva Ranade (45)
 Akshaya Parvatkar (38)
 What are Sub-Prime Loans?
 Rate of Interest is more than the
prime rate.

 Poor Credit History of Borrowers

 At-Par Mortgage loans

 Causes Of Sub-Prime Crisis
 Burst of Real-Estate Bubble

 Speculation in Real Estate

 Increase in Sub-Prime Defaulters

 Cycle of Crisis
Real-Estate Boom

Collateral Massive
(Property) Seized Supply
by bank Of Houses

Sub-Prime
Fall In
Defaulters
Prices
Increased
 Systemic Crisis
 Sub-prime Loans Sold to Investment
Banks.

 Investment Banks in turn sold loans

as CDOs and MBS

 Inaccurate Credit Ratings.

 CDOs and MBS lapped up by financial
institutions

 These institutions carried ordinary

investor’s money.
 IMPACT ON U.S.A.
 Dow Jones dropped sharply.

 Banks, Hedge funds, Mortgage

institutions suffered great losses.

 Resulted in take-overs & bankruptcy

 Impact on Financial Inst.
 Lehman Bros. went Bankrupt. Their
estimated losses on Sub-Prime loans
$613bn

 AIG suffered a loss upto

$81bn,eventually bailed out by U.S.
Govt.
 Contd.
 Wachovia Corp. taken over by Citi
Group

 Merrill Lynch taken over by Bank Of

America.

 Citi Group suffered upto $138bn on

unsecured loan from Lehman Bros.
 Contd.
 WaMu Inc. filed for bankruptcy sold
to JP Morgan Chase.

 Even FIs like Morgan Stanly, BOA, JP

Morgan have incurred a Huge Loss.

 Lack of Faith of Investors on US FI’s

 Global Impact

 Estimated losses for Germany– 70

Billion Euros

 German IKB – 1st European Bank to

declare financial trouble.

 Belgian Fortis Sold to BNP a

FrenchBK

 High Increase in job terminations

and employment attrition.
 Impact on India
 Stock Market slipped down.

 Foreign reserve came down to $283

Billion.
 New Regulation introduced by RBI
for banking Regulation.

 Liquidity crunch in Banks as lending

Between banks became costlier.