ICICI Bank, India’s second-largest bank announced its exposure of $81 million in Lehman Brothers senior bonds, after Lehman Brothers filed bankruptcy.
The Bank said that as part of its treasury operations, it undertook transactions with Lehman Brothers entities as counter-parties, adding that the exposure on account of these transactions and potential loss thereon are not material.
The exposure constitutes less than 1% of ICICI Bank UK PLC’s total assets and less than 0.1% of the consolidated total assets of the ICICI Group. ICICI Bank UK PLC already holds a provision of about US$12mn against investment in these bonds.
The management expects 50% recovery and the additional provision required would be about $28 million.
In any case, we have valued ICICI Bank UK conservatively at about 1.0x FY2008 BV, contributing Rs11 to ICICI Bank’s SOTP target price.
While the bank is facing asset quality pressures in the near-term, we believe valuations are attractive, keeping in mind large value in insurance, broking and asset management subsidiaries as well as core bank’s renewed focus on CASA. We maintain a BUY on the stock, with a 12-month target price of Rs907.