Wednesday, 24 September 2008

Sub-prime criris and how it started..

Thanks to www.rediff.com for having produced such a nice cover of subprime crisis.

  1. August 9, 2007
    The official date when the crisis is said to have hit global finances. But the rot had started much earlier.
  2. In 2006, the US housing market started to feel the pain of high interest rates -- which, between 2004 and 2006, had risen from one per cent to 5.35 per cent -- resulting in default rates on *sub-prime loans rising to record level.
  3. February 22, 2007: HSBC fires head of its US mortgage lending business as losses reach $10.5 billion.
  4. March 8, 2007: Biggest US house builder DR Horton warns of huge losses from sub-prime fall-out.
  5. March 12, 2007: Shares in New Century Financial, one of the biggest sub-prime lenders in the US, were suspended amid fears it might be heading for bankruptcy.
  6. March 13, 2007: Wall Street hit by sub-prime fears and on March 14, the sell-off on US and Asian markets saw the Sensex close with a loss of 453 points at 12,530.
  7. March 16: US-based sub-prime firm Accredited Home Lenders Holding said it would sell $2.7 billion of its sub-prime loan book -- at a heavy discount -- in order to generate some cash.
  8. April 2 2007: New Century Financial, which was once the second-largest originator of sub prime mortgages in United States files for Chapter 11 bankruptcy and lays off 3,299 people.
  9. May 3, 2007: GM finance unit loses heavily on sub-prime mortgages, and UBS closes its US sub-prime lending arm, Dillon Read Capital Management.
  10. June 22, 2007: Investment bank Bear Stearns revealed it had spent $3.2 billion bailing out two of its funds exposed to the sub-prime market. The bailout of the fund was the largest by a bank in almost a decade.
  11. July 18, 2007: Bear Stearns rings the warning bell. It tells investors that they will get little, if any, of the money invested in two of its hedge funds after rival banks refuse to help it bail them out.
  12. July 20, 2007: US Federal Reserve chairman Ben Bernanke warns that the US sub-prime crisis could cost up to $100 billion.
  13. July 27, 2007: Worries about the sub-prime crisis hammered global stock markets and the main US Dow Jones stock index slipped.
  14. July 31, 2007: Bear Stearns stopped clients from withdrawing cash from a third fund, saying it has been overwhelmed by redemption requests. The lender also filed for bankruptcy protection for the two funds it had to bail out earlier.
  15. August 6, 2007: American Home Mortgage, one of the largest US independent home loan providers, filed for bankruptcy after laying off the majority of its staff.
  16. August 9, 2007 French banking major, BNP Paribas announced that it could not fairly value the underlying assets in three funds -- Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia -- as a result of exposure to US subprime mortgage lending markets.
    Faced with potentially massive exposure, the European Central Bank immediately stepped in to ease market worries by opening lines of euro 96.8 billion (then $130 billion) in low-interest credit. The Federal Reserve, the Bank of Canada and the Bank of Japan also intervened.
  17. August 16, 2007: Largest mortgage lender Countrywide draws on its entire $11.5 billion credit line as liquidity crisis looms. Australian mortgage lender Rams also admits liquidity problems.
  18. August 17, 2007: The Fed cut the rate at which it lends to banks by half of a percentage point to 5.75 per cent, and once more warns of credit crunch.
  19. August 21, 2007: UK sub-prime lenders begin to withdraw mortgages.
  20. August 28, 2007: Leipzig, Germany based Sachsen LB Landesbank faced collapse after investing in the sub-prime market. Landesbank Baden-Wuerttemberg buys it for euro 250m. It was one of Europe's biggest victims of the credit crisis.
  21. September 3, 2007 German corporate lender IKB announces a a loss of $1bn on investments linked to the US sub-prime market.
  22. September 4, 2007: London Interbank Offered Rate or *Libor rate rises to 6.7975%, highest since December 1998. (*It is the rate of interest at which banks offer to lend money to one another).
    Bank of China reveals $9bn in sub-prime losses but Chinese government said its foreign exchange reserves will not be affected
  23. September 14, 2007: British bank, Northern Rock, which relied heavily on the markets, rather than savers' deposits to fund its mortgage lending asked for and was granted emergency financial support from the Bank of England. The bank is now owned by the UK government.
  24. September 18, 2007: The US Federal Reserve cut its main interest rate by half a percentage point for the first time in four years, to 4.75 per cent, a move that resulted in a strong rally across the globe.
  25. September 19, 2007: The Bank of England announces that it will auction pound 10 billion.
    October 1, 2007: Swiss bank UBS world's biggest bank announced losses of $3.4 billion from sub-prime related investments. Later investment bank chairman and chief executive officer Huw Jenkins stepped down.
    Citigroup unveils a sub-prime related loss of $3.1 billion. Two weeks later Citigroup is forced to write down a further $5.9 billion. Within six months, its losses stand at a whopping $40 billion. On November 5, its chief executive and chairman Charles Prince resigned.
  26. October 5, 2007: Investment bank Merrill Lynch reveals $5.6 billion sub-prime losses.
  27. October 30, Merrill Lynch chief Stan O'Neal resigned.
  28. November 9, 2007: US's fourth largest lender Wachovia revealed a $1.1 billion loss due to decline in value of its mortgage debt plus $600m to cover loan losses (total $1.7 billion).
  29. November 12, 2007: The three biggest US banking groups -- Citigroup, Bank of America and JPMorganChase -- agree to a $75 billion superfund to restore confidence to credit markets.
  30. November 13, 2007: Bank of America writes off $3 billion in sub-prime losses.
  31. November 14, 2007: Mizuho, Japan's second largest banking group, saw a 17 per cent drop in first-half net profits and cut its full-year operating profit forecast by 13 per cent, largely as a result of sub-prime-related losses at its securities arm.
  32. November 15, 2007: British banking major Barclays said it had written down $2.6 billion in sub-prime losses.
  33. November 20, 2007: US mortgage guarantor Freddie Mac sets aside $1.2bn to cover bad loans and reports a $2bn loss.
  34. December 4, 2007: US mortgage giant Fannie Mae issues $7 billion of shares to cover losses linked to the housing market.
  35. December 6, 2007: President George W Bush outlines plans to protect more than a million homeowners hit by the US housing slump. The Bank of England cut UK interest rates for the first time since 2005, amid signs that the economy is slowing.
  36. December 10, 2007: Swiss bank UBS reports a further $10-billion write-down caused by bad debts in the US housing market. Lloyds TSB reveals that bad debt linked to the US sub-prime mortgage crisis will cost it pound 200 million.
  37. December 11, 2007: Fed cut interest rates for a third time to 4.25 per cent to ease the credit crunch.
  38. December 13, 2007: World central banks agree coordinated action to inject at least $100 billion into short-term inter-bank credit markets to restore confidence.
  39. December 19, 2007: Morgan Stanley writes off $9.4bn in sub-prime losses and sells a 9.9 per cent stake in the company to the Chinese state investment company CIC for $5bn to rebuild its capital.
  40. January 7, 2008: President George W Bush admits that the credit crunch could slow the US economy in 2008, but says it is still fundamentally strong.
  41. January 9, 2008: Bear Stearns boss James Cayne steps down after the firm reveals $1.9 billion in sub-prime losses, the largest in its history.
  42. January 15, 2008: Citigroup, the largest bank in the US, reported a $9.8 billion loss for the fourth quarter and wrote down $18 billion in sub-prime losses.
  43. January 28, 2008: Belgian bank Fortis warned its losses connected to bad US mortgage debt could be as high as $1.47 billion.
  44. January 29, 2008: The US Federal Bureau of Investigation launched an investigation into 14 companies involved in the sub-prime mortgage crisis.
  45. January 30, 2008: The US Federal Reserve cut interest rates to 3% from 3.5%. It was the second cut in nine days. US economic growth slowed.
  46. February 5, 2008: US financial firm GMAC, which owns sub-prime lender Residential Capital, said it has made a $2.3 billion loss in 2007, compared with a $2.1 billion profit the year before.
  47. February 10, 2008: Leaders from the G7 group of industrialised nations said worldwide losses from the US mortgage crisis could reach $400 billion.
  48. February 12, 2008: Swiss bank Credit Suisse said losses on sub-prime investments were $1.8 billion.
  49. February 13, 2008: Britain's Bradford & Bingley cut the value of its sub-prime mortgage-related investments by $284.5 million. Japan's financial watchdog said Japanese banks suffered losses of $5.6 billion by the end of 2007.
  50. February 14, 2008: Commerzbank, Germany's second-biggest bank, cut $1.1 billion off the value of investments linked to the sub-prime mortgage crisis and warned its losses could worsen.
  51. March 7, 2008: The former bosses of Merrill Lynch and Citigroup were questioned by a Congressional panel over their bumper pay -- despite huge, sub-prime related bosses at their banks.
  52. March 11, 2008: Central banks made another coordinated attempt to ease conditions in the credit markets, by announcing $200 billion of new emergency lending for banks.
  53. March 14, 2008: Investment fund Carlyle Capital failed as the credit crisis spreads from sub-prime related products to other mortgage-backed investments.
    Bear Stearns received emergency funding, after its exposure to mortgage-backed investments undermined confidence in the bank.
  54. March 17, 2008: Wall Street investment bank Bear Stearns was acquired by JPMorgan Chase for $240m, a fraction of its share price, in deal backed by $30 billion in Fed loans.
  55. March 18, 2008: Wall Street investment banks Goldman Sachs and Lehman Brothers revealed that their first quarter profits have been halved by the credit crunch.
    March 31, 2008: US Treasury announced major package to reform regulation of US financial markets and prevent future financial crises.
  56. May 22, 2008: Swiss bank UBS, one of the worst affected by the credit crunch, launches a $15.5bn rights issue to cover some of the $37bn it lost on assets linked to US mortgage debt.
  57. June 19, 2008: The FBI arrests 406 people, including brokers and housing developers, as part of a crackdown on alleged mortgage frauds worth $1 billion.
    Separately, two former Bear Stearns workers faced criminal charges related to the collapse of two hedge funds linked to sub-prime mortgages. It is alleged they knew of the funds' problems but did not disclose them to investors, who lost a total of $1.4 billion.
  58. July 13, 2008: US mortgage lender IndyMac collapsed -- the second-biggest bank in US history to fail.
  59. July 14, 2008: Financial authorities step in to assist America's two largest lenders, Fannie Mae and Freddie Mac. As guarantors of $5 trillion worth of home loans, they are crucial to the US housing market and authorities agreed they could not be allowed to fail.
  60. September 7, 2008: Mortgage lenders Fannie Mae and Freddie Mac -- which account for nearly half of the outstanding mortgages in the US -- were rescued by the US government in one of the largest bailouts in US history.
  61. September 10, 2008: Wall Street bank Lehman Brothers posted a loss of $3.9 billion (?2.2 billion) for the three months to August.
  62. September 15, 2008: After days of searching frantically for a buyer, Lehman Brothers filed for Chapter 11 bankruptcy protection, becoming the first major bank to collapse since the start of the credit crisis.
    US bank Merrill Lynch agreed to be taken over by Bank of America for $50 billion.
  63. September 17, 2008: Insurer American International Group apparently was too big to fail. The mammoth insurer, which had been pushed to the brink of bankruptcy by problems originating in the US mortgage crisis, is being bailed out by the Federal Reserve.
    The Fed will extend a 24-month bridge loan of $85.0 billion to the insurer, in return for an unprecedented acquisition of a 79.9 per cent stake in the firm by the central bank.
    Barclays announces that it will buy Lehman US units for $1.75 billion.
  64. September 19, 2008: The US government proposed to create a $700-billion rescue fund for the American financial sector.
    The fund will be used to buy back bad debt from ailing US banks and other financial institutions.
    President George W Bush urged the Congress to endorse his plan as soon as possible. Congress is expected to take a decision in the coming days.
    The move increased the US public debt to $11.3 trillion.
    The President said: "This is a big package because it was a big problem." He argued that the drastic measures were necessary to keep the economy going. The president admitted that the plan would be funded with tax money, but added that "over time, we're going to get a lot of the money back."
  65. Story continues...Climax is yet to come.....

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