Asian Banks Weigh Lehman Exposure

By Guneet Singh Sahni - Asian Markets:

Lehman Brothers is now history, but its shock wave reverberates as a number of banks in Asia continue to announce their exposure to the failed investment bank.

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Japan's subprime exposure amounts to $9 billion

As per the Financial Services Agency (FSA), Japanese banks hold ¥958 billion ($9 billion) of subprime-related products, and the aggregate of their realized and valuation losses amounts to ¥896 billion ($8.5 billion). Lehman Brothers related exposure in terms of bonds and loans is approximately ¥310 billion ($3 billion), of which about ¥140 billion (44%) is unsecured. However, S&P has stated that the exposure is "manageable" and will not affect credit rating. Sumitomo Mitsui Financial Group (OTC: SMFJY), Japan's third largest bank by assets, is the worst hit with ¥103.4 billion ($990 million) in exposure. Aozora Bank, Ltd (TYO: 8304) has exposure of $463 million and expects losses of $25 million. Shinsei Bank Ltd (TYO: 8303) sees exposure of no more than 38 billion yen ($364 million). Mitsubishi UFJ Financial Group (NYSE: MTU) has about $235 million in exposure. Mizuho Financial Group (NYSE:MFG) has announced total exposure of ¥20 billion ($190 million).

China's Exposure Uncertain

While the full extent of Chinese bank exposure to the U.S. financial crisis remains uncertain, the financial regulators (China Banking Regulatory Commission, China Insurance Regulatory Commission and the China Securities Regulatory Commission) have asked for detailed records of their investments in the U. S. and European financial assets.

China Construction Bank Corporation (SHA: 601939) and Industrial and Commercial Bank of China (SHA: 601398), China's largest bank by assets leads the pack with its announced exposure of $191.4 million and $151.8 million, respectively in Lehman. China Construction Bank has $141.4 million in senior bonds and $50 million in subordinated bonds; the amount accounted for a miniscule 0.019% of its total assets and 0.29% of its net assets through June. Industrial and Commercial Bank of China's exposure to Lehman constitutes 0.01% of its total assets and 0.03% of the total investment in debt securities of the Group as of 30 June 2008.

Other Chinese banks with exposure to Lehman include Bank of China Limited (SHA: 601988), China Merchants Bank (SHA: 600036) and Industrial Bank (SHA: 601166), with each reporting exposure of $129 million, $70 million and $34 million, respectively. These exposures are in the form of loans and bonds and constitute between 1-2% of their profits.

Indian banks not directly vulnerable to the global credit crisis

India's biggest private sector bank and second largest lender ICICI Bank (NYSE: IBN) was the subject of malicious rumors. The word was that top management was selling shares, leading to a price decline of 15% in the last 10 days ended September 19. ICICI Bank has until now been identified as the only Indian bank to have exposure to Lehman Brothers bonds. The bank's UK subsidiary - ICICI Bank PLC has an investment of $80 million in senior bonds of Lehman Brothers. These bonds constitute less than 1% of ICICI Bank PLC's total assets and less than 0.1% of the consolidated total assets of the ICICI Group. ICICI Bank PLC already holds a provision of about $12 million against investment in these bonds. Considering a 50% recovery estimate, the additional provision required would be about $28 million. ICICI Bank's market cap was wiped down by $1.2 billion since 15th September but regained its lost ground after surging 9% last Friday.

India's first and third largest banks SBI (BOM: 500112) and Punjab National Bank (BOM: 532461) are also rumored to have exposure to Lehman bonds, but this could not be verified. Indian Finance Minister P. Chidambaram says that India's banks are not vulnerable to the global credit crisis. Although the full extent of their exposure is not known, most Asian banks are believed to be well positioned in terms of capital to assets and deposits to loans, and expected to weather the global contraction in liquidity.

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