ICICI to take $200 million MTM hit

Says unit holds $81m Lehman debt

MUMBAI: Rising credit spreads for global banks is likely to have reduced the market value of bonds held by ICICI Bank in the UK, leading to marked-to-market losses, Vishal Goyal, an analyst at Edelweiss Capital, wrote in a note.

He pegs MTM losses on the bank’s UK books at around $200 million. The recent 100 basis points widening in spreads on investments globally may result in a loss of about $175 million on ICICI Bank’s holdings in bonds other than Lehman’s, Goyal said.
However, impact on the bank’s reported profit may not be significant as this MTM loss would be in the subsidiary account.

Shares of ICICI Bank fell 5.7% to Rs 591.65 on the BSE.

Meanwhile, Indian banks are coming out with details of deals involving now-bankrupt Lehman Brothers, a confirmation that India may not after all come out unscratched from the ‘once in a century’ global financial crisis.

ICICI, Axis Bank and public sector Punjab National Bank have admitted to trades with the defunct US bank in the overseas market — recovery of this money may now have to be through the bankruptcy procedure in the US.

In a press statement on Tuesday, ICICI Bank joint managing director and chief financial officer Chanda Kochhar confirmed that the bank’s UK arm unit holds 57 million euros ($81.3 million) in senior bonds of Lehman Brothers.

However, she also said that it was too miniscule to hurt the bank in any way. “(It) constitutes less than 1% of ICICI Bank UK PLC’s total assets and less than 0.1% of the consolidated total assets of the ICICI Group. ICICI Bank UK PLC already holds a provision of about $12 million against investment in these bonds,” Kochhar said.
The bank is estimating a 50% recovery from the Lehman bonds. “The additional provision required would be about $28 million,” ICICI Bank said.

But unlike ICICI Bank, two other banks said their exposure to Lehman was related to foreign exchange trade. Axis Bank said it has about $1-1.5 million inter-bank exposure with Lehman. Its treasurer Partha Mukherjee said the transactions are maturing in “2009 or 2010”.

PNB chairman and managing director KC Chakrabarty said his bank had an exposure of less than $10 million relating to forex derivatives in which Lehman Brothers was the counter party. “I don’t know the exact amount. These trades originated in India and are not significant. We can give a seven day notice, pay a fee with another bank,” he said.

However, State Bank of India said it does not have any large cross currency exposure wherein Lehman is a counterparty. “There is no agreement with Lehman. Whether or not there was a deal with Lehman at some point, my treasury will know. I have no idea but there is no agreement or something if that sort,” chairman O P Bhatt said.

Private sector Kotak Mahindra Bank also said it did not have any exposure with any of the three US banks in trouble. A Yes Bank spokesperson refused to comment.
HDFC Bank treasurer Sudhir Joshi said the bank’s exposure to Lehman Brothers was “insignificant”.

“I think more than the domestic exposure, the market is more concerned the overseas exposure because Lehman was a very active and large player in FCCBs, credit default swaps and credit linked notes. So banks having such exposure with Lehman as a counter party could face a problem,” he said.

r_joel@dnaindia.net