Financial Crisis
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Financial Crisis: A Trickle-down Effect of the Subprime Mortgage UST WHEN WE THOUGHT Bear Stearns was selling part of its business in order to raise enough • Wachovia, the sixth largest lending Jthe last. cash including Philippine American Life & Insurance institution in the US, sold its banking operations to Recent Episode. The global financial industry, Co., its Philippine subsidiary. Citigroup. shocked by the $2/share sale of global investment Most recent, however, was the $326B bailout • The Federal National Mortgage Association bank Bear Stearns to JPMorgan Chase March of the US government given to Citigroup Inc. The (FNMA) or Fannie Mae and Federal Home Loan of this year, was again taken aback middle of bank has lost $160B of market capitalization for Mortgage Corporation (FHLMC) or Freddie Mac, September with the announced bankruptcy of the past year because of the continuous drop in guarantors of the $5 trillion home loans in the US, the 158-year old giant investment bank Lehman the stock price of the company reaching a record was in a danger of collapse due to housing sector Brothers. With the continuous default among the 16-year low. The bailout amounts to $20B in troubles and a lowering stock price resulting to subprime borrowers of the bank, Lehman Brothers’ capital infusion and $306B worth of government government stepping in through nationalizing them stock prices continued to plummet caused by huge guarantees. and giving easy access to Federal Reserve loans. write-down on the troubled mortgage portfolio of This grim scenario leaves us with Goldman • Financial institutions in other arts of the the bank. In order to restore liquidity and replenish Sachs and Morgan Stanley as the two remaining globe such as Bradford and Bingley of the UK and the balance sheet, talks with US Federal Reserve major Wall Street investment banks. However, Fortis of Belgium were given state rescues. and the US Bureau of Treasury were set in order in order to have greater access to central bank • Iceland’s financial system was in a deep to seek for an institution that will purchase a stake lending, both firms applied for commercial bank in Lehman Brothers. Unfortunately, all of the three problem as toxic assets of the country’s leading status. This action was complemented by additional banks are even larger than the gross domestic financial institutions—Korean Development Bank, equity investments (Goldman Sachs got an equity Barclays, and Bank of America—pulled-out from product of the country. Contingency measures investment from Warren Buffet’s holding company coming from other European countries were the talks which left Lehman Brothers resorting to while Morgan Stanley sold 20% of its equity to filing for protection under Chapter 11 of the US taken in order to restore the financial situation in Japanese Mitsubishi UFJ Financial Group.) because Ireland. Bankruptcy Code for the bank’s reorganization. of stricter capital requirements for commercial Aside from Lehman Brothers, several financial banks. Investment banks are subject to lenient All these events in the US brought about institutions also suffered excessive write-down’s. regulations by the US Securities and Exchange plummeting stock prices and indexes across the Merrill Lynch, a huge rival of Lehman Brothers, Commission and have no capital requirements. globe. European and Asian stock markets are down also experienced a fall in its stock prices and write- Commercial banks, on the other hand, are subject because of the fear of a further slip fueled by the down’s and credit-related losses amounting to $52 to stricter regulations and are under the authority belief that we have yet to see the worst in this billion. Day before its rival filed for bankruptcy, of a country’s central bank. latest episode of the financial crisis. Further liquidity problems arise as investors want to liquidate their Merrill Lynch agreed to a sale agreement with Bank Aside from insurance firms and investment of America for a purchase price of $50 billion. capital investments resulting to a panic selling of banks, several lending institutions and government stocks which further causes a decrease in the stock American International Group (AIG), the world’s sponsored enterprises (GSE’s) also recently became prices. Institutions like International Monetary Fund largest insurer also found itself in the financial prey to the subprime crisis. have been seeing a deep recession for the world quagmire caused by its $441 B total derivatives • Washington Mutual, a large loans and economy because of this financial meltdown. For exposure in credit default swaps, a form of savings bank in the US, had a bank failure because example, IMF sees a slowing down of GDP growth insurance against the risks of bond default. It has of real estate losses. The bank assets were sold for different countries with the Philippines having sold 79.9% of its equity to the US Federal reserve by the US regulators to JP Morgan Chase. This is a 3.5% (2.7% according to a November release of and sustained credit rating downgrades from considered the largest bankruptcy in US history. Citigroup) growth for 2009. This is lower than the Moody’s and Standard and Poor’s. It has been CONTINUED ON PAGE 4 WHAT’S INSIDE? CBA opens to 2 new competitions Pinoy Cinema Rises 3 Increase in online 3 information UP Charter of 2008 8 Death of Newspapers 8 the GUILDER | JUNE-NOV 2008 Reviving the Better Days: CBA’s openness to new competitions AST YEAR was definitely not one of the college’s participate in. The FINEX team was chosen a bit criteria in mind, several competitions were opened to Lbetter days. The UP team for the Intercollegiate earlier (December instead of April). Even for PANA the CBA community. Finance Competition (ICFC) by the Financial and Stratmark selections, an invitational subject, First was the aforementioned JCI Best Business Executives Institute of the Philippines (FINEX) finished BA 198, was opened for audition to aspiring BA and Plan Competition where Katrina Mae Magallanes and second to Ateneo De Manila University (ADMU) after BAA students who are good in Marketing. At the end Aileen Meriel Balderama bagged the first prize. Finals ending first for five times compared to the latter’s of the semester-long subject, teams were assessed is coming this October for another new competition, twice. Subsequently, the UP team for the Integrated according to growth in their final presentation and the Investment Research Challenge of the CFA Marketing Communication (IMC) competition by PANA and Stratmark teams were released after Institute. This is a competition where each team the Philippine Association of National Advertisers Summer from the class. With BA 146, however, the will act as independent financial analysts who will Foundation (PANAF) got eliminated already in the first rest that were not chosen in the FINEX competition, value a certain company, which in this year’s case is screening of the strategies. To add more to this, the were given Business Plan making crash courses and the Manila Water Company Inc. (MWCI), and from UP team who participated in the Nationwide search was encouraged to join the Lee Kwan Yew Business valuation of which shall get the stock price of that for the Most Outstanding Accounting students by plan competition. Those who passed were also company and recommend if investors should buy of the Association of CPAs in Commerce and Industry prompted to join another competition, the Junior sell that stock. Our university will be represented in (ACPACI) got disqualified for allegedly violating a rule Chamber International (JCI) Best Business Plan this competition by 5 BS BAA students, namely, Oliver in the said competition. These consecutive incidents Competition and here the better days of the CBA Allan Co, Nikki Isabel Laynes, Ralph Joseph Pantua, have never and will never be blamed on the students are again being revived. Mark Rome Race, and, John Edward Labay. who willingly and passionately represented the The college’s very own BS BAA students, Katrina college. Mae Magallanes and Aileen Meriel Balderama, Aside from these competitions, the college, especially its dedicated professors, Dani Rose Salazar, As for FINEX and PANA, there was really nothing along with their BS ECE teammate Rosanno JC Gavin Lee, and Daniel Borja, have also been helping the administration can do. Nonetheless, the case De Dios represented the university in the JCI other competitions even if the teams run without the for the ACPACI anomaly still stood. From Guilder’s Best Business Plan Competition and bagged the college’s funding. One of those is our university’s last issue, the latest act published was when the first prize. Their company, IEM Solutions, Inc. is representation in the ING Funds Tournament by a administration wrote a letter of protest to and met engaged in the production and distribution of team of three BS BAA students, Michael John Patag, with PICPA to which the decision was to stick with the intelligent environment monitoring system in aid of Jennifer Carla Catahan, and Iris Gem Li. They have judges’ final decision. Still, CBA continued to fight for better productivity in the agricultural sector. This been receiving constant investment advices from the the college and for its students through requesting win may have started CBA’s openness in joining aforementioned professors. Moreover, these professors the Diliman Legal Office to write a formal legal letter new and yet prestigious competitions. Maybe, the also support the UP Junior Philippine Institute of addressed to the organizers to reconsider their good that the incidents last year brought was that Accountants’ (UP JPIA) NCR Cup representatives. decision to disqualify our team. The organizers no CBA became receptive to more options and not longer responded to the letter.