Information, news and commentary on corporate social responsibility, especially in the New York City area.
Maintained by John Tepper Marlin, Principal of CSRNYC, www.csrnyc.com.
Monday, November 12, 2007
CSR Issues Relating to Subprime Loan Losses
As the subprime loan losses mount up, the CSR issues relate to where markets failed and what can now be done proactively by the financial sector (and government officials) to reassure the investing public. The S&L crisis of the 1980s was largely a regulatory issue, with losses confined to the S&Ls themselves and to U.S. taxpayers who paid for restoration of stability to the industry. But a substantial percentage of subprime prime loan losses seem to have been exported overseas. Subprime loans are hiding in collateralized debt obligations (CDOs) salted away in many overseas institutions. Deutsche Bank AG, Credit Suisse Group and HSBC have all recently written off substantial subprime losses. This problem is therefore not confined to the United States and the solution may need to be global. The stock prices of Barclays and the Royal Bank of Scotland have fallen sharply on rumors that they will have to take large losses, with Sanford Bernstein projecting last week that the two banks would have to write off $4.4 billion in subprime losses. Barclays today denied that it was seriously affected by subprime loan losses and its stock price recovered somewhat, along with that of RBS. But investor confidence in both Barclays and the RBS, which earlier were fighting over control over ABN Amro Holding NV (RBS's team won), remains weak, with their price-earnings multiples in the range of 6 to 7 whereas the average for European banking institutions is 10.