World Financial Crisis

Today’s breaking news

Sensex 11,328  U.K. Treasury Will Inject About $87 Billion to Prevent Collapse of Banks
 Nikkei Drops Most Since 1987, Japan Corporate Bankruptcies Jump 34%
 Indonesia Exchange Halts Stock Trading After Benchmark Index Plunges
10%
 HSBC, RBS in Financing Double Whammy as Rates Rise
 Venture Funding May Fall This Year for First Time Since 2003
 Airline Downsizing: High Fares and Packed Flights
 NSE, Banks Work out N600bn Bail-out Package

Of late we have become habituated to read and hear news like above mentioned.
Last month was very frightening for us as every morning we woke up to learn that
ABC or XYZ bank went bust or bankrupt or being acquired by another. This was
followed by more banks collapsing due to liquidity crunch and the contagion of that
Nifty 3,514 ilk reached to European shores this week creating more havoc in the markets across
the globe. Global indices are collapsing like castle of cards breaching new lows
every day. Panic is such that newspapers are fraught with bailout plans being
announced every now and then by various governments to rescue respective banks.
Such bailout programs are not new but the scale and depth of them this time are
really a matter of great concern. Few quarters ago, some veterans had warned us
that failure of some of the banks like Bear Stearns was just a tip of the iceberg. Even
now we don’t know what lies next or who is going to collapse.

Since 1970 the US Govt. has had a history of 13 bailouts amounting to $ 1,388 billion
in 2008 terms including the much hyped $ 700 billion bailout program recently
passed by the US Congress. Out 1388 billion, $1,040 billion pertains to current sub-
prime crisis. Many giants that ruled the financial markets for decades are now a thing
Global indices of past. In Europe too, several banks have either failed or are struggling with liquidity
problems. The equities have plummeted violently across the globe reacting to over
SHCOMP 2,092 $690 billion bailouts announced both in the US and European countries. There are
NIKKEI 9,203 experts engaged in wild guessing how long it will take when the dust will settle and
HSI 15,432 economies will stabilize. The truth is nobody knows it.
STRAITS 2,034
DJIA 9,447 Fortunately, Indian banks have little exposure to the sub-prime crisis. ICICI Bank has
NASDAQ 1,755 reported maximum exposure of $80 million which means the expected loss of $28
FTSE 4,626 million followed by Bank of India and Bank of Baroda whose expected losses are of $
S&P 500 996 5million and $4 million respectively.

Deepak Tiwari
Research Analyst

deepakt@arthamoney.com

T: + 91 22 4063 3032

October 8, 2008 For Private Circulation only 1

The Chronology of 2008 bailouts worldwide:

Cost (in $
Date Corporations Business billion) Bailout/ acquired by

Oct. 5 Hypo Real Estate German mortgage lender 69 German State and other banks

Oct. 5 Fortis NV Belgium-based bank 20 BNP Paribas, the French bank

Oct. 3 Wachovia Corp Bank 15.1 Wells Fargo

Govts. Of Belgium, France and

Sept. 30 Dexia SA Belgian bank 9.2 Luxembourg

Sept. 29 Glitnir Iceland's third-largest bank 0.878 75% bought by Iceland Govt.

Sept. 29 Bradford & Bingley Mortgage lender 124 British government

Sept. 26 Washington Mutual Bank 2 JP Morgan Chase & Co

Sept. 23 Goldman Sachs Investment Bank 5 Berkshire Hathaway Inc.

Sept. 23 Lehman Brothers Investment Bank 0.25 US business by Barclays

Asia specific operations by

NA Nomura

Sept. 17 HBOS Mortgage lender 22 Lloyds TSB Group PLC

Sept. 15 Merrill Lynch Investment Bank 50 Bank of America

Sept. 7 Fannie Mae and Freddie Mac Mortgage lender 200 US Govt.

Aug. 1 Bank of Venezuela Bank over 11 Govt of Venezuela

Jul. 11 IndyMac Bank Mortgage lender 8.9 JP Morgan Chase & Co

Apl. 30 WestLB Bank 7.8 German State

Mar. 16 Bear Stearns 29 JP Morgan Chase & Co

Feb. 22 Northern Rock PLC Bank 107 British government

Feb. 13 IKB Deutsche Industriebank AG Bank 1.5 German State

The History of US Government’s Bailouts:

Industry/ Corporation Year Cost in 2008 ($)

Penn Central Railroad 1970 $3.2 billion

Lockheed 1971 $1.4 billion

Franklin National Bank 1974 $7.7 billion

New York City 1975 $9.4 billion

Chrysler 1980 $3.9 billion

Continental Illinois National Bank and Trust Company 1984 $9.5 billion

Savings & Loan 1989 $293.8 billion

Airline Industry 2001 $18.6 billion

Bear Stearns 2008 $30 billion

Fannie Mae / Freddie Mac 2008 $200 billion

American International Group (A.I.G.) 2008 $85 billion

Auto Industry 2008 $25 billion

Troubled Asset Relief Program 2008 $700 billion

October 8, 2008 For Private Circulation only 2

Sub- prime exposure to Indian banks:

Companies Reported exposure Expected Loss

ICICI Bank $80 mn $28 mn

SBI $5 mn $1.5 mn

PNB $5 mn $2 mn

BOI $11 mn $ 5 mn

BoB $10 mn $ 4 mn

Axis Bank $1.5 mn Negligible

Source: Dawnay Day AV

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