‘Round-the-World Reaction to U.S. Subprime Woes

According to Australia's Rams Home Loans Group Ltd., ``The U.S. has experienced unprecedented disruptions in recent weeks, which has resulted in material increases in spreads and shortages in liquidity.” 
 
Rams’ announcement that the fluctuation in global debt markets may cut profit sparked a 19 percent drop in shares, making it Australia’s worst-performing initial public offering this year. 
 
The Sydney-based lender says the impact on its June profit forecast ``is likely to be material” because of rising financing costs. It is the first Australian home loan company to announce profits may be affected by the worsening U.S. debt crunch. Rams, which went public just last month, obtains almost half of the funds for its mortgages by selling short-term debt in the U.S.  
 
Peter Morgan, who manages more than $3 billion at 452 Capital in Sydney, says ``Companies like Rams are heavily dependent on what's happening in the credit markets, and a major global event like this one is going to hurt.'' Morgan contends, “Rams won’t be the last Australian company to feel it, and you can multiply it by a hundred overseas.” 
 
Paul Xiradis, who manages about $8.3 billion in Australian stocks at Ausbil Dexia Ltd. in Sydney, agrees, saying ``The uncertainty created by the credit issue and what scenarios are going to occur has made people panic.” 
 
Reacting to the Aussies’ reaction, Asian financial stocks fell after Rams’ announcement about the potential reduction in profits. The Morgan Stanley Capital International (MSCI) Asia-Pacific Index dipped 0.2 percent to 149.05, with about five stocks declining for every three that increased. The MSCI financials index has lost 8.4 percent in the past month, the worst performance on the broader measure after energy shares. 
 
The largest bank in Japan, Mitsubishi UFJ Financial Group Inc., lost 1.7 percent, its lowest drop in almost two years after U.S. subprime lender Aegis Mortgage Corp. filed for bankruptcy. 
 
Hiroyoshi Nakagawa, who helps manage about $1 billion in Asian equities at Tokyo-based Societe Generale Asset Management Co., says``It'll be a while before the market fully digests the effects of the subprime problem, which is why banks and financials are still being sold.'' 
 
Money managers who speak different languages share the same words about the U.S. credit crisis. ``Confidence isn't there, so people aren't rushing out to buy stocks,'' said Salah Seddik, who helps manage about $5 billion at Paris-based Richelieu Finance.Says Seddik, ``We haven't yet finished with the subprime questions. We still don't know the extent of losses.''  
 
The largest bank in France, BNP Paribas SA, stopped withdrawals from three investment funds last week, saying it was not able to ”fairly” value their holdings in the face of the U.S. subprime mortgage losses’ effect on credit markets. 
 
Lawrence Peterman, investment director at Eden Financial in London, says ``Such uncertainty is still holding the market back.”