In a sign that sub-prime-related bank problems are having a global impact, Japan's Mizuho Financial has exited from a segment of the U.S. structured debt market.
Mizuho pulled out of the business of creating and trading U.S. collateralized debt obligations containing asset-backed securities or high-yield corporate loans, according to an International Herald Tribune story credited to Bloomberg News. Among the five people who lost their jobs were Alexander Rekeda, head of structured credit in the Americas, and Paolo Torti, chief of structured credit trading.
Ironically, Mizuho had only recently settled a $750 million lawsuit sparked by its hiring of Rekeda and Torti away from Calyon in December 2006. Bloomberg also said the group underwrote $4.4 billion worth of CDO deals while at Mizuho, which may produce $700 million in losses.
"Due to changes in the global market for structured-credit products, Mizuho Securities has decided to suspend U.S. asset-backed CDO and CLO (collateralized loan obligation) activities," Mizuho spokesman Seth Martin told Bloomberg.
Plagued by exposure to sub-prime mortgage loans, the CDO market has been a top contributor to the asset write-downs and losses afflicting a multitude of U.S. banks and securities firms in recent quarters.
Now it's increasingly clear that Asian and European-based institutions are vulnerable, too. Last summer, Nomura Securities exited the U.S. residential mortgage-backed securities business and disbanded its New York structured finance research group. It had lost 34.3 billion yen ($278.5 million based on the June 30 exchange rate) for the June quarter and wrote down the book value of its U.S. operations by 70 billion yen ($568.4 million) in July.
Credit troubles in real estate also were evident in Australia overnight. That country's main stock index sank more than 3.5 percent Monday - which the Sydney Morning Herald called a larger decline than the index sustained on Sept. 12, 2001, the day after terrorists destroyed New York's World Trade Center. The Australian stock-market rout was caused in part by Centro Property Group's warning that it failed to refinance $1.3 billion of maturing debt.
Meanwhile Japan's Nikkei 225 Stock Average fell 1.7 percent, led by sharp declines in bank shares amid concern that local banks may have to kick in $5 billion each to a U.S. sub-prime-asset bailout fund, according to a Nikkei newspaper story cited by Bloomberg News.
Earlier this month, Mizuho said it will inject yen 150 billion ($1.4 billion) into its investment banking unit to offset losses tied to rising U.S. mortgage defaults.