Mumbai, Mar 6: ICICI Bank’s surprise disclosure about mark-to-market (MTM) losses from its exposure to collateral debt obligations (CDOs) has taken most of the large broking houses by surprise. Although a major part of this loss is in the books of ICICI Bank’s subsidiaries abroad, the India-listed entity might also have to take some hit since these are 100% subsidiaries, brokerages said.

On Wednesday, big foreign brokerages like CLSA, Merrill Lynch, Morgan Stanley, Citi, UBS and JP Morgan came out with reports on the bank and most cut their target price for the stock. On Tuesday, ICICI Bank had said that it had a MTM loss of $263 million (about Rs 1,050 crore) in its loans and investments exposure. The bank management has also said that it does not have any direct exposure to the subprime mortgage loans and related assets.

In its report Morgan Stanley said it was surprised by the quantum of exposure, higher than the previously disclosed. Its total exposure at $6 billion in credit derivatives and fixed income instruments was higher than Morgan Stanley’s estimated exposure of $1.6 billion.

"The bigger concern is at international subsidiaries. ICICI Bank has two international subsidiaries in the UK and Canada and these subsidiaries have invested $500 million in credit derivatives and taken a loss of $35 million as of January," the broking house wrote in the report. "Moreover, they have a fixed income book of $3.8 billion, which is a bit out of money (meaning in the red)," it added.

In the long run, the bank might have to recapitalize these subsidiaries. And it is coming at a time when the capital requirement for its life insurance subsidiary has increased since selling part of the holding company for insurance and asset management didn’t go through, the report warned. The broking house, however, maintained its overweight rating on the stock.

CLSA, considered to be the leading foreign brokerage house in India, cut ICICI Bank’s target price by as much as 13% to Rs 1,350 from Rs 1,550 put in January. In its report the broking major also warned that "increase in MTM losses or default in underlying may lead to further downside to our forecasts." CLSA however continued with its buy rating on the stock.

Merrill Lynch, another broking major, estimates that the bank could take a further $100 million hit in the current quarter ending March 31. It has also cut the stock’s target price by 17% to Rs 1,450, but maintained its buy rating.

J P Morgan, however, has advised its clients to bottom-fish the stock, meaning buying at this beaten-down level of around Rs 950-1,000. "We believe it is time to buy at these very cheap valuations," JP Morgan said in its report and has put a price target of Rs 1,628, an upside of over 65% from the current levels.

Citi and UBS also said that higher disclosure was a surprise but they too have kept the target price on the stock unchanged. While for Citi it is Rs 1,510, for UBS its Rs 1,515.