By Na Jeong-ju
Staff Reporter
Woori Bank and other financial firms have suffered billions of won in losses from their investments in the sub-prime mortgage market in the United States, bank officials said Monday.
The Financial Supervisory Service (FSS) said it has requested financial firms to submit data on their investments in U.S. sub-prime mortgages to check how much financial damage they incurred.
Woori Bank, the country's third largest lender, said it has bought $450 million (373 billion won) worth of collateralized debt obligations (CDOs), a type of bonds issued by sub-prime mortgage firms with sub-prime mortgage loans as collateral, since early 2005.
Its loss from its investment in the sub-prime bonds is estimated at over 10 billion won as the value of CDOs has fallen, according to Woori officials. The bank tried to cut losses but couldn't as it had difficulty finding buyers, meaning that its losses could rise further.
Nonghyup Bank recorded 3 billion won in losses from its 100 billion won investment into CDOs in the U.S. The Korea Exchange Bank is also known to have invested $42 million in CDOs.
``We estimate Korean lenders have incurred more than 16 billion won in losses,'' an FSS official said. ``Korean lenders increased investments in the U.S. sub-prime mortgage market between 2005 and 2006, when home prices soared rapidly.''
CJ Investment & Securities analyst Kim Seung-han said that the news that Woori Bank and other banks will take the brunt of the U.S. sub-prime loan problems negatively affected investor sentiment in bank stocks as a whole.
``Bank stocks took a severe beating today due to concern about the losses involving their exposure to U.S. sub-prime loan-related bonds.
Most banks closed lower on the stock market. Woori Bank shares lost 4.36 percent to close at 24,150, while the KOSPI closed down 0.68 percent at 1,949.51.
The U.S., plagued by the so-called sub-prime lending crisis, is making efforts to protect borrowers and mortgage firms from a torrent of defaults. Housing experts say up to three million Americans may lose their homes this year and up to 100 sub-prime mortgage companies may go under.
South Korea is also stepping up its monitoring of small-sized private lenders and mortgage companies in a precautionary measure against possible mortgage defaults as a result of declining home prices.
A Woori official said the lender is trying to dispose of its CDOs in the U.S., but has failed to find investors who can take over them. An increasing number of people have recovered their investments from the U.S. mortgage market on expectation that home prices may fall further, he said.
``We are checking the financial stability of U.S. sub-prime mortgage firms to see whether they are exposed to higher default risks,'' a Woori official said. ``Their financial status may be negatively affected by soaring interest rates and the sluggish housing market, putting more borrowers in trouble.''
The FSS said mortgage firms and borrowers in the U.S. could be exposed to higher default risks at any time if the housing market undergoes a steep correction.
jj@koreatimes.co.kr