Australia's Rams Home Loans Group Ltd. failed to refinance A$6.17 billion ($5 billion) of short- term U.S. loans, forcing the lender to seek emergency funding.
Rams slumped 36 percent, or 48.5 cents, to close at 87 cents on the Australian Stock Exchange. The Sydney-based company has lost two-thirds of its market value this week and is down from the A$2.50 paid by investors in an initial public offering arranged by UBS AG before the company listed on July 27.
The lender's inability to obtain financing helped fuel the biggest decline in Asian shares in a year as investors fled high-risk assets. The deepening crisis in credit markets threatens to ensnare more mortgage lenders. Countrywide Financial Corp., the biggest U.S. home-loan issuer, dropped 13 percent after Merrill Lynch & Co. said it may fail.
This shows how the problems in the mortgage market have seeped into the rest of the credit market. Here we're talking about short-term commercial paper which (depending on the quality of the borrower) is usually a done deal. However, because a mortgage funder is involved, no one wants to touch the deal.
This is what a credit crunch looks like.
