From house purchases in the USA to the plunge of the voestalpine share price: the US real estate crisis reflected dangerous global economic interconnections.
The US real estate crisis (subprime crisis) that began in late summer of 2007 was the trigger for the global economic crisis that had stock prices in Europe plummeting a year later.
The origin of the real estate crisis
The crisis began with insufficiently secured mortgages in the USA. Debt and interest were traded as separate securities that were rated much too highly. Their value, however, dropped with increasing payment defaults and rapidly falling real estate prices. Funds, banks, and insurance companies who had invested in these securities were faced with huge payment defaults.
Transition to the economic crisis
The falling purchasing power of indebted creditors had a knock-on effect, resulting in slumps in sales and falling orders in industry. With banks holding back in issuing loans, or only making them available at much higher rates for fear of further payment defaults, and a general atmosphere of mistrust in the banking sector, the crisis extended to the real economy. Those who suffered most were businesses relying on international finance, with credit and equity capital increasingly difficult to secure.
The impact on share prices
Credit shortages had dramatic consequences for the economy: companies canceled investments, some were forced to shed jobs or watch profits fall. Shareholders perceived this as a loss in company value—and so share prices fell.
During the crisis the voestalpine share lost 73% of its value.
Two decades ago voestalpine AG started out on its path to becoming a privatized and exchange-listed company. The ‘IPO 1995—20 years on the stock exchange’ series describes key events on the path to becoming an internationally successful steel-based technology and capital goods group.
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