Subprime woes hit Arab Banking

Bahrain-based Arab Banking Corp (ABC) said it aims to raise $1 billion by selling shares to existing stakeholders, after reporting its second quarterly loss on exposure to the US subprime mortgage crisis.

ABC posted a loss of $587 million in the first quarter ended March 31, compared to a profit attributable to shareholders of $70 million a year earlier, the bank said in a statement late on Wednesday.

"The loss was almost entirely driven by significant exposure to structured investment vehicles and collateralised debt obligations," the bank said, referring to financial instruments in which US subprime loans were packaged.

Gulf Arab officials, including central bankers, have repeatedly said the region's banks are largely shielded from the crisis triggered by defaults on US subprime mortgages, or home loans for people with poor credit history.

ABC said it would double its paid up capital to $2 billion through a rights issue in which existing shareholders would have priority. The lender gave no timeline.

The bank's total income fell 8% compared to a year earlier to $127 million.

Few Gulf lenders have reported heavy losses from subprime credit exposure, but among those that have ABC is among the most severely affected.

Global banks including Citigroup and Merrill Lynch have written down at least $75 billion in credit market losses. (Reuters)

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