China Banks' Holdings of Lehman Brothers Securities
ICBC: 151.8 million USD
Of the 151.8 million USD, ICBC's overseas unit had about 139 million USD which are all of prime rating securities. Such securities when the issuer goes bankrupt, the holder has the priority over the rest of other types of securities and stock holders.
BOC: 75.62 million USD
Of the 75.62 million USD, BOC (Hong Kong) had about 69.21 million USD. BOC New York branch also provided loans to Lehman Brothers of about 50 million USD and to Lehman Brothers subsidiaries of about 3.2 million USD. The previous total adds up to be about BOC's total asset of about 0.01%, 0.19% of BOC net assets as of 30 June 2008.
China Industrial Bank: 33.6 million USD
The 33.6 million USD is with regards to investments and dealings with Lehman Brothers.
Bank of Communications: Limited impact
Bank of Communications says that the securities of Lehman Brothers held by Bank of Communications is relatively low in its investment portfolio and the risks are controllable and also the impact of Lehman Brothers bankruptcy has limited impact on Bank of Communications.
China Construction Bank: Still in verification
Currently no comment and says that they are still in the process of verification.
China Merchants Bank: 70 million USD
Of the 70 million USD, 60 million are of prime rated securities and the rest of the 10 million are of sub-prime rated securities.
Due to the news of the various China banks holdings of Lehman Brothers securities after Lehman Brothers went under, the share prices of the various Chinese banks plummets, with some even dropping to the lower allowed level for 2 consecutive days wiping out a big amount of their value.
China Export Industries Impacted
As the sub-prime crisis spreads in US, export industries in China with products exported to US are also affected. On a recent report, about 500 export industries in China FuJian (福建) were not paid in amount of up to about a billion USD by US companies.
Most of the Chinese export companies were mainly dealing in handicrafts, shoes, agricultural, electronics and other consumner products. Also, it is estimated that most of them are not insured against such defaults in payments and so there could be more cases not recorded.
Selling of China Properties by US Investment Banks
As the concern that the crisis in US may spread, various US investment banks are selling their assets in China. Morgan Stanley has plans to sell away part of its housing projects in ShangHai, including expensive rental properties in ShangHai XinTianDi (新天地) area and 100 plus service apartments. The property project in ShangHai XinTianDi (新天地) area was bought by Morgan Stanley in 2003 as one its important investment in ShangHai property market.
Other then Morgan Stanley, Citi and Goldman Sachs are also doing similar acts. Citi sold 上海永新广场 for about 105 million USD last year September. Citi bought it for about 50 million USD in November 2005. Note that the gains from rentals during the 2 years was about 50 million RMB. Goldman Sachs sold a office building (高腾大厦) for about 150 million USD last year end which they bought for about 107.6 million USD in 2005. This was also Goldman Sachs first big investment in China's property market.
Talking Down of China Property Market
On 12 September 2008, Morgan Stanley issued a report saying that the China propery market has declined significantly with a high possibility of collapsing and will impact banks' earnings. Almost at the same time, Goldman Sachs also issued a report saying that the risks of default in loan payments in China will show in 4Q 2008 and 1H 2009. The report by Goldman Sachs also says that the slowdown of the China property market has yet to impact the China banking industry and the worst is coming. With the decrease in home sales volume, confidence will drop for home buyers. Empty homes will increase and profit margins will decrease which will cause property developers to have liquidity problems and so China banking industry's risk for non-performing loans to the property developers will increase. Lehman Brothers followed soon after with another report saying that the China property market is under pressure. Supply is more than demand with surplus needing 3 to 4 years to digest. Situation will get worse in big cities and in the coming few months housing prices will continue to decline and may continue to 2H 2009.
Analysts says that the sales of China properties by the various big US investment banks may be to a move to sell still profitable assets in China to provide liquidity back in US.
However, the selling of properties by the big US investment banks will definitely have a big impact on the confidence level in the China property market.
Latest Updates
22 September 2008
- Seven listed Chinese banks report $721 mln in Lehman exposure
BEIJING, Sept. 22 (Xinhua) -- Seven Chinese listed banks have announced bond holdings of 721 million U.S. dollars in the bankrupt U.S. investment bank Lehman Brothers as of Monday, according to Securities Daily.The individual exposures included 191.4 million U.S. dollars at China Construction Bank (CCB), 151.8 million U.S. dollars at the Industrial and Commercial Bank of China (ICBC), 128.8 million U.S. dollars at the Bank of China (BOC), 76 million U.S. dollars at the CITIC Bank, 70 million U.S. dollars at the China Merchants Bank, 70.02 million U.S. dollars at the Bank of Communication and 33.6 million U.S. dollars at the Industrial Bank.
CCB, with the largest exposure, said earlier it would closely monitor developments, prudently assess potential losses, make sufficient provision for impairment losses and protect the bank's legal rights.
The Lehman Brothers bankruptcy would not have a significant impact on CCB's financial situation, the bank said.
ICBC also said it was considering making provisions for its Lehnman exposure.
- China's Wen warns of further world economic turmoil
(AFP )BEIJING: Chinese Premier Wen Jiabao has warned the global economic slowdown and financial turmoil may get worse, pledging more flexible policies to maintain the country's growth, state media said Monday.
"The international financial turmoil and the slowdown in the world's economy could worsen, and we cannot underestimate the impact of these changes on the national economy," Wen said, according to the Shanghai Securities News.
"We should improve the effectiveness, focus and flexibility of macro-control measures... to maintain the stability of the economy, the financial market and the securities market."
It is particularly important to "find the balance between maintaining steady and fast economic growth and curbing inflation", he told a meeting on Saturday with provincial and ministerial leaders.
China's economy expanded by 11.9 per cent last year, and cooling efforts have already seen growth slow to 10.1 per cent in the second quarter of this year.
The consumer price index dropped to 4.9 per cent in August, the fourth consecutive month of slowing inflation and well below the peak of 8.7 per cent in February, giving policy makers more room to focus on growth creating.
Both the central bank and the banking regulator issued statements earlier this month calling for more loans to boost the national economy, after Beijing in August raised this year's quota of new local-currency loans by five percent.
The finance ministry also unveiled 10 days ago a package of subsidies worth US$510 million to help small and medium-sized firms.
- 3 Chinese commercial banks hold Lehman-related bonds
BEIJING, Sept. 18 (Source: China Daily) -- At least three large Chinese commercial banks have disclosed their exposure to the worsening U.S. financial crisis through bonds issued by investment bank Lehman Brothers, which has filed for Chapter 11 protection.
China Merchants Bank Wednesday said in a statement to the Shanghai Stock Exchange that it holds 70 million U.S. dollars of Lehman Brothers bonds, of which 60 million dollars is senior debt and the rest subordinated debt.
The bank also said it has not made special provisions for the book losses on those bonds and will evaluate their potential risks and disclose further details at a later date.
Industrial and Commercial Bank of China (ICBC), the country's largest State-controlled commercial bank by assets, holds 152 million dollars in bonds issued by, or linked to, Lehman Brothers.
At press time, ICBC had not issued a statement to the Shanghai bourse to specify its exposure to Lehman Brothers.
Bank of China (BOC) was also affected by the failure of Lehman Brothers. BOC holds 75.62 million dollars in bonds issued by the ailing U.S. investment bank. It also loaned 53.2 million dollar to Lehman Brothers and its subsidiaries. BOC was reportedly listed as an unsecured creditor in documents filed by Lehman Brothers at the United States Bankruptcy Court of the Southern District of New York.
Lehman Brothers, the fourth largest investment bank in the United States, filed for Chapter 11 protection after efforts to find a buyer collapsed last Sunday.
Rising concern about the ripple effect of the deepening U.S. financial crisis plus the gloomy outlook for China's banking sector has pushed down the prices of Chinese commercial banks' shares in the past two trading days.
Shares in China Merchants Bank Wednesday dropped 9.96 percent to 14.47 yuan apiece. With its 11 percent plummet on Tuesday, China Merchants Bank has fallen a total 18.9 percent over the past two trading days.
Bank of China has dropped a total of 14.8 percent from last Friday to close at 2.97 yuan. Its Hong Kong-listed H shares also fell 4.6 percent yesterday to 2.9 Hong Kong dollars.
China Construction Bank Wednesday plunged 10.09 percent to end at 3.83 yuan, while its H shares also tumbled 8.15 percent to 4.73 Hong Kong dollars.
The latest 27-basis-point cut to the benchmark lending rate plus the unchanged deposit rate is expected to squeeze bank earnings by narrowing the interest spread.
Jing Ulrich, chairwoman of China equities at JPMorgan Securities, yesterday told China Daily: "As China's financial market is not fully opened yet, the problem of Lehman Brothers is expected to have only an indirect impact on China's financial sector. An individual Chinese bank's exposure to the U.S. financial crisis should be seen in the context of its total assets."
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