banks subprime crisis
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Banks Subprime Crisis. Joel Damitier Corey Lyon Danny Hernandez. History of Banks. Citigroup Merger of Citicorp and Travelers Group Worlds Largest Financial Services Organization HSBC Focused mostly on lending Bank of America Largest Bank Holding Company in the U.S. - PowerPoint PPT PresentationTRANSCRIPT
BanksSubprime Crisis
Joel DamitierCorey Lyon
Danny Hernandez
History of Banks Citigroup
Merger of Citicorp and Travelers Group Worlds Largest Financial Services
Organization
HSBC Focused mostly on lending
Bank of America Largest Bank Holding Company in the U.S.
Leading Up to the Sub-Prime Crisis
Banks would refuse to lend money to those with bad credit or low income.
In order to get a mortgage, the qualifications were strict General process: 1. Broker provides mortgage loan 2. Broker sells mortgage to a bank 3. Firms collect thousands of mortgages each month
that should continue throughout the life of the mortgages
4. Firm sells shares of that income to investors
Leading Up to the Sub-Prime Crisis
Banks steadily loosened up on how they lend money:1. SIVA- stated income, verified assets 2. NIVA- no income, verified assets3. NINA- no income, no assets
Banks thought this would produce more mortgages and more securities
Impact In the U.S.COMPANY BUSINESS TYPE LOSS(BILLION USD)
Citigroup bank $ 39.10
UBS AG bank $ 37.70
Credit Agricole bank $ 4.80
HSBC bank $ 20.40
Bank of America bank $ 7.95
CIBC bank $ 3.20
Deutsche Bank bank $ 7.70
JP Morgan Chase bank $ 5.50
Wells Fargo bank $ 2.90
Wachovia bank $ 11.10
Banks and The Subprime Crisis
Stock Prices dropped making banks lose money on investments
Risky Lending Easy for consumers to get loans High interest rates Borrowers could not afford the payments Borrowers would default Home Foreclosures
Banks and The Subprime Crisis
Banks and The Subprime Crisis
HSBC was the first to announce that they would see larger than anticipated losses from rising defaults in 2007
New Century Financial filed for bankruptcy court protection in 2007
Bank of America agreed to acquire Merrill Lynch in 2008
BOA doesn’t buy Lehman Brothers.
Stock Prices During Subprime Crisis
Impact In the U.S. Between June 2007 and November 2008,
Americans lost more than a quarter of their net worth.
Total home equity in the United States, which was valued at $13 trillion at its peak in 2006, had dropped to $8.8 trillion by mid-2008 and was still falling in late 2008.
Americans' second-largest household asset, dropped by 22 percent, from $10.3 trillion in 2006 to $8 trillion in mid-2008.
Impact In the U.S. Investors don’t want to buy Mortgage Back
Securities (MBS) Affect on Borrower
Interest rates riseMore difficult to get loansDefaulting
After The Crisis Bailouts- Government intervention New laws enacted(financial reformed) Bank health improvement
For the first quarter in 2010, the net income of banks was $18 billion opposed to $5.6 billion exactly a year prior to that
Stricter lending
Lessons Learned Responsible lending and borrowing better monitoring bank
activities( transparency). we can develop additional policy
instruments.