Thursday, March 06, 2008

ICICI’s exposure to CDs pegged at $6 billion

That’s four times the estimates; but analysts say share remains a ‘buy’

MUMBAI: ICICI Bank’s investments in credit derivatives could be four times previous estimates at $6 billion, analysts said on Wednesday.

“ICICI Bank has clarified that there is some more exposure at its 100% owned international subsidiaries. In fact, its total exposure works out to $6 billion ($2.2 billion in credit derivatives and the rest in fixed income instruments),” Morgan Stanley’s Anil Agarwal, Anil Bang and Mansi Shah, said in a note to clients.

The trio warned that though the underlying credit quality on these instruments remains strong, ICICI’s mark to market losses could rise as global credit conditions are likely to worsen.

“ICICI Bank’s subsidiaries in the UK and Canada have invested $500 million in credit derivatives and taken a loss of $35 million as of January. Moreover, they have a fixed-income book of $3.8 billion, which is a bit out of money,” Agarwal, Bang and Shah said.

Suresh Ganapathy, analyst with Deutsche Bank, told DNA Money feels ICICI could recover the losses in the next two years when yields stabilise.

“But obviously all those having international operations are vulnerable because credit spreads are likely to be volatile in the next few months and one must also remember it is pre-election time here in India,” Ganapathy said