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Tuesday, October 28, 2008

More On European Banks and Eastern Europe

Bloomberg published an article today addressing some of the issues I was discussing in the previous post. Here it is, and here's the kicker:
Already retrenching as they try to cover $221.8 billion in losses and writedowns, European banks also stand to be hurt more than most if emerging markets goes sour, said Stephen Jen, chief currency strategist at Morgan Stanley in London.

European banks lent $3.5 trillion to these economies, compared with $500 billion from the U.S. and $200 billion from Japan, according to his estimates. Those in Austria and Spain were particularly exposed, he said. Three quarters of loans to China and India originate in Europe.
The really dicey debt is a much smaller number than that 3.5T. There is also some exposure to the central asian republics. Indian corporate debt is becoming a worry, but my biggest immediate concerns are the cross country lending chains to some of the eastern European banks and companies, and to PE groups that invested heavily in these areas. And it's a lot - probably 500 billion or so of this debt is quite questionable, which is the reason for:
At the same time, U.K. Prime Minister Gordon Brown said today the IMF is running out of cash and China and Persian Gulf oil-producing nations should pay into a new fund to help eastern Europe.

``The IMF has $250 billion available,'' Brown said. ``This may not be enough. We need a multilateral solution. The big surplus countries are in a position to help the most.''
This is the decision point. Related to this:
Citigroup Inc., HSBC Holdings Plc and seven other banks are still seeking buyers for $6 billion of loans to Investment Corp. of Dubai, more than two months after underwriting the debt for the state-owned holding company.

Demand for Dubai loans has dried up on investor concern that the worldwide credit crunch will hurt the Persian Gulf state's ability to finance itself. Dubai's government-controlled companies owe at least $47 billion, more than the emirate's 2006 gross domestic product, according to Moody's Investors Service.
Sorry for the light blogging. I'm finally feeling better and I'm trying to get a bunch of stuff done!

If you are interested, I strongly recommend that you download the BIS September statistical supplement (100 pages or so in pdf). If you go to table 9b, you will see external bank exposures to the various countries. The countries having claims run across the top, and the table extends across several pages and down a lot more pages. The last two columns in the table are US bank exposures and European bank exposures. Go to page 69, where you see that the US has 57,795 million in exposure to the developing European countries, whereas European banks have 1,502,080 million in exposure to these same countries.

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