US: more startling news on US property market

If you were told you could double your money in a year, you would be suspicious. If you were told you could halve your fat in a year, you would be the same. Anything approaching 100% in a year is so spectacular that normal people would do a quick double-take.

But reports on BBC World News this morning say that it has seen figures suggesting that home repossessions are up 93% on this time last year.

No matter what central banks are saying, the sub-prime mortgage crisis is not over yet. In the past three days, a series of announcements from US financial institutions are showing the scale of the problem and its continued effects.

For example, Bank One - one of the world's biggest credit card and mortgage lenders, is to cull 1900 staff and completely close its wholesale mortgage business, Green Point Mortgage. It bought the unit only recently and the closure will cost more than USD800 million.

German bank WestLB has more than USD1.2 milliard tied up in the US sub prime lending market - and has said that as a result, it is finding it difficult to raise capital in the open market. WestLB is one of Germany's largest banks.

Northern Rock, a large UK mortgage lender with small retail banking services admitted that it was exposed to the US market to the tune of some USD500 million, but was quick to say that this was a small investment at just 0.24 of its "assets."

Increasingly, the definition of US mortgages as "assets" is turning into a weasel phrase. There are now daily announcements of funds that are either closing their doors to redemptions (i.e. refusing to give investors their money back) or are selling assets into what one US fund called "a difficult market." In plain English, that means holding a fire sale in order to stave off creditors.

And the crisis is now spilling over into Real Estate Investment Trusts. The REIT has been a fashionable investment vehicle in recent years with a number of countries changing their laws to facilitate the creation of such schemes.

Asia Pacific countries, who felt that property prices had bottomed out following the 1997 crisis and could only go up have been at the forefront of the REIT development.

When America Sneezes... A Pan Asian Conference on the regional effects of the US sub prime crisis will be held in Singapore on 23-34 September 2007. Details here