ICICI to take a $28 million hit on Lehman collapse

MUMBAI: The move by Lehman Brothers Holdings, the fourth-largest investment bank to file for bankruptcy in the US, will impact the country’s largest private bank ICICI Bank partly. The bank will have to take a hit of $28 million on account of the additional provisioning that ICICI Bank’s UK subsidiary will have to make. During this quarter, ICICI Bank pared its credit default swap (CDS) exposures to overseas corporates from $650 million to $80 million. Some of the larger state-owned banks are also likely to take small hits because of mark-to-market provisioning on their overseas investments. ICICI Bank will also have to make additional provisioning on its investments in corporate bonds and on CDS exposures of Indian corporates. However, officials in the Mumbai-based bank said that the provisioning requirement for these investments is not substantial.

For the first quarter of FY09, ICICI Bank had reported a net profit of Rs 728 crore. ICICI Bank’s UK subsidiary had investments of euro 57 million (around $80 million) in senior bonds of Lehman Brothers. It has already made a provision of close to $12 million against investment in these bonds. Assuming a recovery of 50% of these investments, the additional provision required would be about $28 million, said Chanda Kochhar, joint MD & CFO, ICICI Bank. The bank has already made a provision of $188 million in its international books at the end of March 2007-08. According to a research report by broking house Edelweiss, the UK subsidiary would have to book mark-to-market losses of $200 million. The report said that the subsidiary had $600 million investments in mortgage-backed securities and another $500 million investments in corporate bonds. However, bank officials said that it was too early to comment on the mark-to-market on corporate bonds as things could change if the Fed cuts rates. Late on Tuesday evening, ICICI Bank’s ADR offering was quoting at $26.28, down almost 12%. The bank scrip closed at Rs 591.35 on the Bombay Stock Exchange, down 5.82%. ICICI Bank and its subsidiaries had consolidated total assets of Rs 484,643 crore as on June 30, while ICICI Bank UK had total assets of around $8.7 billion. At the end of the last quarter, the bank had on its books CDS papers of overseas clients in the range of close to $650 million. Subsequently, the bank was able to pare this to $80 million. The bank also has close to $1.5 billion of CDS of Indian papers. It is likely to take a small hit on these investments. Some of the other Indian banks such as State Bank of India would also have to take a mark-to-market hit on its investments. SBI officials said that it was too early to quantify the amount.
March 4 (Bloomberg) -- ICICI Bank Ltd., India's second- largest bank, reported $264 million of costs to write down the value of overseas investments, the biggest loss disclosed by an Indian bank since the collapse of the U.S. subprime-loan market.
The bank set aside $90 million through December and $70 million will be earmarked in fourth-quarter earnings, said Chanda Kochhar, ICICI joint managing director, in a telephone interview. The rest will be set off against the bank's net worth.
ICICI slumped on the Bombay Stock Exchange, leading lenders lower on concern subprime-related losses will hurt some banks in India after infecting lenders from Germany to Australia. Japan's Takefuji Corp. on March 3 said it may lose $291 million on derivatives transactions.
So far, 45 of the world's biggest banks and securities firms have written down or lost $181 billion related to investments tied to rising defaults on U.S. home loans or to people with poor credit histories.
``The quantum of the loss comes as a surprise and has unnerved the market and traders,'' said Rajesh Jain, chief executive officer at Pranav Securities Ltd. ``Investors know from experience that such signs are always the tip of the iceberg.''
The company has the largest holdings of overseas investments among the nation's major banks and has been expanding internationally to counter slowing demand for credit in India. The value of the subprime-related investments in its $2 billion of overseas assets dropped because investors are shunning all except the safest securities, Kochhar said.
Profit Increase
The Mumbai-based bank slumped as much as 9.3 percent on the Bombay Stock Exchange after Junior Finance Minister Pawan Kumar Bansal disclosed the loss in parliament today. The shares closed 5.2 percent lower at 971.60 rupees.
Bansal said there's no sign of large-scale credit losses among Indian banks.
``Following the subprime crisis overseas, ICICI Bank's overseas operations had reported marked-to-market losses of $264.34 million on account of its exposure to credit derivatives and investments as on'' Jan. 31, 2008, Bansal said in reply to a question in parliament in New Delhi.
Indian banks don't have big enough investments overseas to warrant panic, Fitch Ratings said.
``I don't think it is a serious issue for the Indian banking industry as a whole since only a few banks have this kind of an exposure,'' said Ananda Bhoumik, senior director at Fitch Ratings. ``The market expected it to be far lower, and that's where the surprise was.''
Quarterly Earnings
ICICI Bank's profit rose 35 percent to 12.3 billion rupees ($305 million) in the quarter ended Dec. 31, the bank said in January, beating analyst estimates.
``If it's limited to marked-to-market and not credit losses, it should not affect the operations significantly,'' said Sandip Sabharwal, chief investment officer at J.M. Mutual Fund, which manages about $3 billion in assets.
State Bank of India, the nation's largest by assets, lost 2.6 percent to 1,873.95 rupees. HDFC Bank Ltd. slid 2.4 percent to 1,357.30 rupees.
Singapore's government investment funds are the single largest holders in ICICI Bank, with about a 9 percent stake. Temasek Holdings Pte, through Allamanda Investments Pvt., owns 7.6 percent, and the Government of Singapore Investment Corp. holds 1.4 percent, according to the latest regulatory filings.
``So far, no specific instance of significant losses suffered by large financial institutions in India, especially from subprime mortgages in the U.S., has been noticed,'' Bansal said in parliament.