Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, assignment questions, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 16 pages in length and its case teaching package is 17 pages.

Abstract
This case concerns the securitization by The Bank of East Asia (BEA) of US $260,000,000 of mortgages during the Asian financial crisis. The case introduces students to mortgage loan, asset-backed securities in the context of bank risk management. Students analyze the credit risk of mortgage lending in Hong Kong, the interactions between macroeceonomic crisis and financial decision making, and the structure of securitizations: bankruptcy remote vehicles, credit enhancements, swaps, servicing agreements and tranche subordination.

This case should be used in a senior level undergraduate or MBA management of financial institutions course. It could also be used in a risk and insurance course, a real estate finance course or an international financial management course. Students should first be introduced to debt securities, swaps, credit risk, and bank financial statements. An understanding of macroeconomics is assumed.

Study Questions

1. Who (or what) fulfills each role outlined in the generic securitization?
2. Under what conditions would mortgage portfolio lose money?
3. If the mortgage pool experiences losses, who suffers first? Second? Third?
4. How can a shell company in Grand Cayman issue U.S. dollar securities backed by Hong Kong dollar mortgages that have a higher credit rating than the Hong Kong government?
5. Given the historical losses of the BEA in its mortgage portfolio, how risky is property lending in Hong Kong?
6. How do you account for the cost of apartments in Hong Kong?
7. How has the Asian finanical crisis affected the credit worthiness of the proposed mortgage backed securities?
8. How has the Asian financial crisis affected BEA's need to securitize?
9. To what extent would the securitization reduce BEA's capital risk?

Key Words and Terms

securitization, Asian financial crisis, bank mortgage portfolio

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