US

Subprime Crisis

v The global financial crisis of 2008 is a major financial crisis, the worst of its kind since 1987, and which is ongoing as of midNovember 2008. v It became prominently visible in September 2008 with the failure, merger or conservatorship of several large United States-based financial firms.

Part -1

What is SUBPRIME
vSUBPRIME is practice of lending in the form of mortgages for the purchase of residences. v Mortgage Loans issued to people who do not meet usual criteria for borrowing at the lowest prevailing market interest rate. vThis subprime lending system caused for world’s greatest ECONOMIC CRISIS.

What is MORTGAGE LOAN
vmortgage loan vA home buyer or builder can obtain loan either to purchase or secure against the property from a financial institution, such as a bank, either directly or indirectly through intermediaries. vAmount of loan, interest rates, maturity period, methods of repaying will be vary considerably.

Causes for US sub prime crisis
v Government policies and globalization competition pressures for several years encouraged Banks and financial institutions . v To lend difficult mortgage loans prior to financial crisis v Growing real estate, housing prices . v Banks believed in the prices will continuously grow. v Mortgage based securities, and loans available at low interest rates. v People started taking loans in short term. v More number of buyers and less number of sellers. v Demand for houses.

v Between 1997 and 2007 the price of typical American house increased by 124%. v USA home ownership rate is 64% in 1994 is increased to (About where it had been since 1980) an all time of 69% in 2004. v The rise in demand fueled rising house prices and consumer spending. v Once interest rates started to increase and housing prices began to drop. v Every one started selling their homes v Defaults and foreclosures started dramatically. v In 2007 1.3 million US properties subject to foreclosure activity.

Part-2
Ø936,439 USA residences completed foreclosure between August 2007 and October 2008. ØMajor banks and financial institutions went down. ØCrisis spread to EUROPE,ASIA,AFRICA and other continents.

Financial Tsunami @
v Crisis spread to world wide v Oil prices increased v FMCG, STEEL, INFRASTRUCTURE, IT companies effected v World wide stock market collapsed Stock exchanges collapsed v NASDAQ v NEWYORK STOCK EXCHANGE v DOWJONES INDUSTRIAL SCALE v NEKKEI the JAPAN stock exchange v BOMBAY STOCK EXCHANGE v NATIONAL STOCK EXCHANGE

2008

Banks & financial institutions losses
UBS AG

37.7 bln Citigroup $39.1 bln Merrill Lynch investment bank $29.1 bln Morgan Stanley investment bank $11.5 bln Crédit Agricole bank $4.8 bln

HSBC $20.4 bln Bank of America 7.95 bln [ CIBC bank $3.2 bln Deutsche Bank $7.7 bln Mizuho Financial Group $5.5 bln Barclays Capital investment bank 3.1 bln Bear Stearns bank $2.6 bln Royal Bank of Scotlan $15.2 bln

Impact of SUBPRIME crisis on INDIA
vSharp increase in inflation – food & oil the culprits vIncrease in fiscal deficit vDecline in Capital flows vSharp decline in stock market vcapitalization and bearish markets vRupee under pressure – feeds inflation

vDecline in Growth
1. Rising interest rates hurt consumption and investment 1. Rise in fiscal deficit and decline in corporate profits result in fall in savings

IT slow downs. Real estate Boom bubble blasted. Foreign Institutional Investors(FII) Impact . Rupee depreciation Decrease in Foreign exchange Job cuts ITES companies BPO’s Financial services co.’s Private banks Real estate companies

STOCK EXCHANGES
CONCLUSIO N

FINANCIALS EXPERTS SAYS THIS KIND OF CRISIS HAPPENS ONCE IN CENTURY

THANK YOU
NARESH JANAGAM MBA II YEAR

Sign up to vote on this title
UsefulNot useful