Hundreds of charities, churches and local councils around Australia have been burnt by the subprime crisis, facing a potential loss of up to $2 billion.
Australia's biggest banks have shrugged off the subprime crisis with little more than a dent in their billion-dollar profits, but information obtained by Fairfax newspaper shows how far the damage has affected community groups.
Metropolitan Ambulance Service and the Victoria Teachers Credit Union are among the groups that own the products, which Wall Street investment bank Lehman Brothers marketed, Fairfax newspapers reported today.
The exposure reflects the assets managed by just one bank, albeit the most prolific in selling risky financial instruments such as collateralised debt obligations (CDOs).
CDOs are a mixture of investment securities, including mortgages, of variable risk; the higher the risk, the more the CDO pays.
Subprime mortgages are those made to people with no or a poor credit history and therefore carry a higher rate of interest.
While Commonwealth Bank announced a $4.8 billion profit this week and is yet to experience pain other than a rise in funding costs and a slowing in demand for loans, National Australia Bank said last month it would take a $1 billion, or 90%, write-down on its CDO portfolio. With profit running at $1 billion a quarter, it can afford to do this.
The likes of the St Vincent de Paul Society (with its $8.9 million in funds with Lehman - the bulk in CDOs), the Starlight Children's Foundation, the Boystown charity for underprivileged children, and the Anglican, Baptist, Uniting and Catholic churches do not have that luxury.
The CDOs were marketed with traditional Australian names such as Federation, Tasman, Parkes, Flinders, Kokoda, Kiama and Torquay.
Although NSW and Western Australia are the most heavily exposed to potential losses, Victoria has its share of councils, charities and super funds with CDO exposure.
The Victoria Teachers Credit Union has $17 million in CDO-laden assets with Lehman, hospitals agency Western Health ($8 million), Benalla and District Memorial Hospital ($1.5 million), Baptist Union of Victoria ($2 million), East Gippsland Council ($9 million), and East Gippsland TAFE ($4 million).
