Subprime Loans in US

•The more than $600 billion of subprime

mortgages that were issued in the US proved
riskier than anticipated
•Subprime loans accounted for 15% of total loans
in 2006 compared to 3% in 2002
The trail of events……
Domino Effect around the World
Ø The UK lender Northern Rock Bank was
nationalised in February 2008 due to its
troubled finances
Ø The UK banking group, Lloyds TSB
Group Plc agrees to take over rival HBOS
Plc, (UK’s largest mortgage lender) UK's
largest mortgager in an share swap deal
giving a valuation of £12 billion (US$22.3
billion) to HBOS
Ø In September 2008, Bradford & Bingley
was taken over by the Britan government,
effectively taking control over the bank's
£50bn mortgages and loans. The saving
division and branch operations were
subsequently sold to Spain's Santander
Domino Effect around the World
Ø Credit Crisis – The fall of Lehman caused a
loss of confidence in the global banking
space leading to a severe credit crunch.

Ø Trillions of Investor money got written off in

the mad rush of flight for safety. Severe
deflationary tendencies have been observed
in every asset class.

Ø Bailouts, the fad of season – To get is financial institutions

out of trouble, central banks across the world announced
its own form of a bailout package.

Ø Job Losses – Massive deleveraging led to millions of

job losses in the global economy
Europe
European banks were more
leveraged than the American banks
• In UK :
• RBS recapitalized by the
government
• HBOs and Lloyds TSB merged
and capital infused by the
government
• In Germany Hypo Real Estate
bailed out by government
• In France, Fortis was sold and
nationalized
• European Governments taking
radical steps
• Government guaranteeing safety
of capital
Impact on Global Capital Markets
The following chart shows the market capitalization of various global
markets indicating a fall of 20% since March 2007 and approximately 31%
from December 2007.
Emerging Markets
Regions and countries with major fiscal
imbalances have been hit hard
India

•India in past years had

huge capital inflows
which boosted GDP
growth
•However now it is
expected to come down
•The outflow dollars sent the
Indian Rupee into a tailspin
leading to massive
depreciation in the Indian
Rupee
China

• Trade will be affected

• Foreign Investments will come slow
• However, it is hoped rising domestic
demand should offset the decline in
exports