The largest exposures are held by banks in Japan. Lehman's bankruptcy filing lists Japan's largest unsecured lenders as including Aozora Bank with USD463m, Mizuho Corporate Bank with USD382m, Shinsei Bank, Ltd with USD231m, Mitsubishi UFJ Trust and Banking Corp with USD185m, Sumitomo Mitsui Banking Corporation (SMBC) with USD177m and Chuo Mitsui Trust & Banking Company with USD93m.
The full picture is more complex than the above unsecured loan numbers suggest. Chuo Mitsui has acknowledged total exposure of JPY15bn (about USD150m), while SMBC has acknowledged total gross exposure of USD980m of which USD880m is secured, leaving net exposure of around USD100m. Shinsei has reported total exposure of JPY38bn. Aozora Bank's exposure appears somewhat larger but it had previously taken action to mitigate the risks with the result that its net exposure is much lower. It states that its "hedging instruments" reduce its exposure by USD255m and collateral pledged by a further USD180m, estimating that its "projected exposure" could be reduced to less than USD25m.
For all the banks the exposures are small in relation to equity capital but provisions could adversely affect earnings - this is at a time when banks are already absorbing other losses arising from the credit crisis. Fitch is currently undertaking its annual ratings review of the major Japanese banks and will incorporate the impact of such potential losses as well as broader market developments into its analysis.
Australian banks have not released comprehensive information but Commonwealth Bank of Australia has stated that its exposure is less than AUD150m. Australia & New Zealand Banking Group (ANZ) was mentioned in Lehman's bankruptcy filing with USD69m in unsecured loans and has stated that its total exposure is USD120m, of which USD92m is to subsidiaries of the holding company. The filing also shows that both ANZ and National Australia Bank (NAB) had small exposures in the form of letters of credit. NAB has stated that its total exposure to Lehman is less than AUD100m. Westpac Banking Corporation has indicated that its exposures are under AUD10m, while both Macquarie Bank Ltd. and St.George Bank Limited have said their exposures are immaterial.
Korea's financial sector regulators have disclosed that the whole system has exposure of USD720m. Only USD28m is in the form of loans; a further USD290m is in securities including Credit-Linked Notes and USD390m in equity-related derivatives where the Korean financial institutions sold equity-linked investments to clients and did back-to-back hedges with Lehman. The direct risk to Korean banks appears small; that of Korea's securities firms may be more significant and will be subject to further investigation by Fitch.
Taiwanese banks were also named in Lehman's bankruptcy filing as significant unsecured lenders: Hua Nan Commercial Bank with USD59m, both First Commercial Bank (Taiwan) and Bank of Taiwan each with USD25m and Taipei Fubon Bank with USD10m. Potential losses may impact earnings but are not very material - Hua Nan's exposure is about 2.4% of its equity capital. Preliminary data disclosed by Taiwan Financial Supervisory Committee indicates that the Taiwanese financial system as a whole has USD2.5bn exposures related to Lehman credits, of which half were held by financial institutions and half by retail investors through various wealth management vehicles. The exposures borne by financial institutions represent about 2% of the system's capital base. Fitch is in the process of collecting further details on Taiwanese banks' exposure to Lehman's fallout as well as other US market-related exposures that could potentially cause material losses.
Among Chinese banks, only Bank of China was listed as a significant unsecured lender with USD50m but potential losses are not material for a bank of BOC's size.
Thai banks have generally limited exposure, with Bangkok Bank Public Company Limited the highest at THB3.5bn accounting for only 2% of its equity. Among Indian banks, ICICI Bank Ltd. has disclosed exposure of a modest EUR57m. The three Singapore banks have indicated that their direct exposure is not material. Data from banks in Hong Kong is not yet complete, but among the banks that have provided information none so far have acknowledged a material exposure to Lehman.
