Lehman exposure drags ICICI Bank stock down

Lehman exposure drags ICICI Bank stock down
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First Published: Wed, Sep 17 2008. 12 29 AM IST

Defensive mode: ICICI Bank shares recovered from the day’s low after a clarification from chief financial officer Chanda Kochhar. Ashesh Shah / Mint
Defensive mode: ICICI Bank shares recovered from the day’s low after a clarification from chief financial officer Chanda Kochhar. Ashesh Shah / Mint
Updated: Wed, Sep 17 2008. 12 29 AM IST
Mumbai: Investors rushed to sell shares of ICICI Bank Ltd on Tuesday, dragging the bank’s stock down by at least 10% to Rs565 at one time, after analysts said that India’s largest private sector lender has exposure to US investment bank Lehman Brothers Holdings Inc. which filed for bankruptcy on Monday.
The stock recovered to end the day at Rs591.35 on the Bombay Stock Exchange, losing 5.82%, after Chanda Kochhar, ICICI Bank’s joint managing director and chief financial officer, clarified that the exposure constitutes less than 1% of subsidiary ICICI Bank UK Plc.’s total assets and less than 0.1% of the consolidated total assets of the ICICI group.
Defensive mode: ICICI Bank shares recovered from the day’s low after a clarification from chief financial officer Chanda Kochhar. Ashesh Shah / Mint
India’s most tracked equity index, the Sensex, recovered 467 points from the day’s low to close at 13,518.8, virtually flat. However, Bankex, the exchange’s banking index, gained 349 points or 5.37% on Tuesday after losing 4.2%, or 288.81 points, intraday.
ICICI Bank is not the only Indian bank to invest in Lehman bonds. State Bank of India (SBI), the country’s largest lender, and Punjab National Bank (PNB) also have exposure to the US company but the size of their investments could not be ascertained.
K.C. Chakrabarty, chairman and managing director of PNB, admitted that the bank has some exposure to Lehman, Merrill Lynch and Co. Inc., and other foreign banks but declined to quantify these. He claimed these holdings would not impact the bank.
According to analysts who did not want to be named, SBI has an exposure of around $55 million (Rs256 crore) and PNB $5 million to Lehman. Mint couldn’t independently verify these figures. The stock of SBI and PNB were not affected by it. SBI gained 6.49% to close the day at Rs1585.5 a share while PNB gained 3.39% to close at Rs504.75 each. ICICI Bank UK has made an investment of €57 million (Rs379 crore) in Lehman’s senior bonds.
As on 30 June, ICICI Bank and its units had consolidated total assets of Rs4.85 trillion.
“ICICI Bank UK already holds a provision of about $12 million against investment in these bonds. Considering a 50% recovery estimate, the additional provision required would be about $28 million. There is no other material impact on ICICI Bank or ICICI Bank UK on account of exposure to Lehman Brothers,’’ said the statement.
When asked about ICICI Bank’s exposure to the struggling insurer American International Group Inc., bank spokesperson said: “We could have some exposure to AIG,” but declined to disclose the number. According to banking analysts who did not want to be named, this could be around $30 million.
“The bank can recover 50% of its exposure to Lehman but it will see higher provisioning in the coming quarter which will affect its profitability. The stock could test a low of Rs510,” said a banking analyst at a Mumbai-based brokerage.
In 2007-08, ICICI Bank made a provision of around Rs684 crore for writing down the value of various types of credit derivatives pertaining to Indian and non-Indian papers.
Ashwin Ramarathinam contributed to this story.
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First Published: Wed, Sep 17 2008. 12 29 AM IST