By Jason Simpkins
The state-run Bank of China and its Hong Kong subsidiary last week stunned investors by revealing a combined $11.25 billion in holdings related to the U.S. subprime debt market, the largest potential exposure reported by an Asian company and further proof that the American mortgage crisis has evolved into a worldwide problem, the Reuters news service revealed.
The news surprised many investors who believed that the Asian markets – particularly China – were invulnerable to the growing credit crisis, which has already clipped several banks each in France and Germany.
Of the $11.25 billion in combined holdings, the BOC reportedly held $8.965 billion in U.S. subprime mortgage backed bonds and $682 million in collateralized debt obligations (CDOs) at the end of June. The company’s subprime bonds make up 3.5% of its securities portfolio, however it has set aside $151 million to account for potential losses.
Bank of China’s Hong Kong shares took a hit as a result of the news, falling as much as 8% before ending the day 5.4% lower.
Meanwhile, Singapore’s DBS Holdings told Reuters it had $1.6 billion in CDOs, approximately double the exposure it originally reported. Taiwan’s largest financial holding firm, Cathay Financial, said that roughly $100 million, slightly more than 10% of its total funds, are exposed to the U.S. subprime market, though it has yet to experience any losses.
Commercial Bank of China, the world’s largest lender by market value, said it holds $1.23 billion in mortgage-backed securities, which amount to approximately 4.3% of its foreign investment. The stock experienced declines, but rebounded enough to end the day with only a slight loss of 0.2% on the day.
While none of the banks appear to be in any real danger, it is now apparent that many Asian-based financial institutions and markets are more vulnerable to the U.S. subprime collapse than previously thought.