Australia: Victorian Agencies Face Subprime Exposure

Although the Australian state of Victoria has continued to state that it has “no direct subprime exposure,” The Age reports that these denials are not accurate.  In an article today, The Age reports that it has identified a number of Victorian agencies — including Northern Health, Western Health, Gippsland Ports, East Gippsland TAFE, Benalla & Memorial Hospital and the Metropolitan Ambulance Service — which hold or have held synthetic CDOs (collateralized debt obligations). The “referenced” assets underlying these securities reportedly “include securitized bonds issued by US subprime mortgage providers and monoline insurers such as Countrywide and Washington Mutual.”

The article states that the ongoing “stubborn denials from Premier John Brumby and his Treasurer John Lenders have proven ever more hollow as evidence trickles in from various Victorian government agencies exposed to losses from this strain of fancy structured products alone.”

The CDOs owned by Victorian agencies identified by The Age include:

  • Goulburn Valley Health: $2 million worth of CDOs.
  • Northern Health held “Omega” and “Beryl” CDOs as part of a$5.5 million portfolio with Lehman.
  • Western Health had $8 million exposure to Corsair, Federation, Helium, Omega and Zircon CDOs arranged by JPMorgan, Lehman, Merrill Lynch, BNP and Lehman respectively.
  • Gippsland Ports held a $2 million portfolio with Lehman that included Corsair and Zircon CDOs.
  • Benalla & Memorial Hospital held $1.5 million in Corsair, Helium and Zircon CDOs
  • Ambulance Victoria confirmed that it held $7.5 million in CDOs and FRNs (floating rate notes) via Metropolitan Ambulance Services.
  • East Gippsland TAFE held $4 million in Omega and Zircon CDOs and confirmed it still held CDOs.

Read the article in The Age