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SUB-PRIME CRISIS

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What is sub-prime lending?

How basically we define subprime crisis?

What this did to the $1.5 trillion US housing industry?

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How and when did the subprime mortgage crisis begin?

When did the slide begin?

HOW SUB PRIME CRISIS SPREAD?

Did it cause business failure?

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HOW SUB PRIME CRISIS SPREAD?FINANCIALINSTITUTION

RMBS

SECURITISATION

LOWEST RISK /HIGHESTRATING

( SENIOR )

MEDIUMRISK

( MEZZANINE )

HIGHESTRISK/

( EQUITY )

CDO

PROCEEDS SALE of LOAN

INVESTORS

BANKS

HEDGE FUNDSINSURANCE COS.PENSIONFUNDS

LOAN

SUB-PRIME BORROWER

BUYING HOME

SUB-PRIME LENDER

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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.

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Comparison between Traditional & Sub prime model.

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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 setup, 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)

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How many are affected by the problem on hand?

What is the action taken by rating agencies?

What is to be followed now?

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Lenders : The Biggest Culprits

Investment Banks

Homeowners

Government and regulators

Investor Behavior

Hedge Funds

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Lenders : The Biggest Culprits

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Investment Banks

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GLOBAL MARKETS 16TH JULY(BEFORE) 17TH AUGUST(AFTER) CHANGE % FALL

DOW JONES 13950.98 13079.08 -871.9 6.249

NASDAQ 2697.34 2505.03 -192.31 7.129

BSE SENSEX 15311.22 14141.52 -1169.7 7.639

HANG SENG 22953.94 20387.13 -2566.81 11.182

KOSPI COMPOSITE 1949.51 1191.55 -757.96 38.879

NIKKIE 225 18217.27 15273.68 -2943.59 16.158

WEIGHTED INDEX 9417.32 8090.29 -1327.03 14.091

SHANGHAI INDEX

3896.19

4656.57

760.38

19.515

FTSE 100 6697.7 6064.2 -633.5 9.458

DAX() 8105.69 7387.29 -718.4 8.862

CAC 40 () 6125.6 5363.63 -761.97 12.439

IBOVESPA() 57374 48558.76 -8815.24 15.364

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Liquidity crunch in the Economy

Correction of Prices

Rupee Appreciation & Slump in Economic activity

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Staff cuts

Losses to Banks

Short-term impact on the stock markets

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Sound banking practices

Controlled derivatives market

One of the wrong lessons that could be learnt from thesub-prime episode is about securitization.

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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

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