RANsquawk 26th November Morning Briefing - Stocks, Bonds, FX etc.

DJ ) 11/26 09:41AM =DJ 3rd UPDATE: European Bank Dubai Exposure Estimated At $40B

(Adds detail.)

By Margot Patrick
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--European banks face potential losses on an estimated $40
billion in exposure to Dubai after the city state's largest corporate entity,
Dubai World, asked creditors for a six month standstill on debt repayments,
raising fears that recent signs of improvements in banks' bad debt levels
could reverse and Dubai's problems could weigh on the global recovery.
Most banks on Thursday said their exposure to Dubai and Dubai World is small
or wouldn't comment. Dubai World accounts for about $60 billion of the city
state's $80 billion in liabilities, of which half is estimated by Credit
Suisse analysts to be held by European banks.
The city state shocked investors Wednesday by saying it would restructure
Dubai World and wants creditors to hold off on demanding interest or
repayments until at least the end of May. After several years of rapid and
debt-fueled growth, the Dubai economy has suffered in the past 18 months as
the global recession took hold and foreign investment in its ambitious
infrastructure projects dried up.
Bank analysts at NCB Stockbrokers said Standard Chartered PLC (STAN.LN) is
the U.K. bank proportionately most exposed to the United Arab Emirates, with
7% of its loan book in the region. HSBC Holdings PLC (HBC) has about 2% of its
loan book in the region, while Barclays PLC (BCS), Royal Bank of Scotland
Group PLC (RBS) and Lloyds Banking Group PLC (LYG) have less than 1% of their
loans in the UAE, according to NCB analysis.
Fears over Dubai's financial health rattled stock markets Thursday. Major
stock indexes in London, Paris and Frankfurt were down by 1.5% to 2% at 1400
GMT. The Stoxx Europe 600 banks index dropped 3.7%, and shares in HSBC and RBS
fell more than 4%.
Credit Suisse analysts said European banks could face a 5% increase in their
bad loan provisions in 2010, or an aggregate hit of about EUR5 billion after
tax, if they lost 50% on their roughly $40 billion exposure to Dubai.
A report by the Emirates Banks Association said the top eight foreign banks
in the United Arab Emirates by lending volume--HSBC, Standard Chartered,
Barclays, Royal Bank of Scotland's ABN Amro, Citigroup Inc. (C), BNP Paribas
SA (BNP.FR), Lloyds and Credit Agricole SA's (ACA.FR) Calyon--extended about
$36 billion in loans last year throughout the federation, without breaking
down the loans by emirate or type of borrower.
Calyon in an email said it has a "small exposure" to Dubai World's debt, and
that it doesn't think it has any cause to worry about the announced
restructuring.
Standard Chartered said it doesn't comment on specific clients and would
make a statement if it had anything material to disclose, while the other
banks declined to comment on their Dubai exposure.
Banks that acted as arrangers or bookrunners on Dubai World's most recent
$5.5 billion loan facility in June 2008 include HSBC, RBS, Lloyds, ING Groep
N.V. (ING) and Calyon, as well as Bank of Tokyo-Mitsubishi UFJ (MTU), Sumitomo
Mitsui Banking Corporation (JD-SMU), Emirates Bank and Mashreq Bank
(MASQ.DFM).
ING said its exposure is small. The Asian and Middle Eastern banks couldn't
immediately be reached. The Eid holiday means that government and private
sector offices are closed throughout the Middle East.
Banks helping entities to place loans typically keep at least 10% of the
total, while syndicating the rest to other banks and institutional investors.
It is possible some of the banks involved in the financing have no remaining
exposure to Dubai World. Most of the banks have also worked on financings for
other entities controlled by the city state.
According to Dealogic data, other banks who have worked on bond and loan
financings for Dubai entities include Barclays, Citigroup, Credit Suisse Group
(CS) and Deutsche Bank AG (DB).
Credit Suisse said its exposure to Dubai World is "not material." A person
familiar with the matter said Deutsche Bank's exposure to Dubai World isn't
noteworthy.
While it is too soon to predict the outcome of the Dubai World
restructuring, financial reorganizations usually result in lenders having to
make concessions on how quickly they are repaid, accept lower rates of
interest, or to swap their debt for equity.
The cost of insuring sovereign Dubai debt against default rose to $570,000
to insure $10 million of bonds, up from $440,000 at Wednesday's New York
close, according to data provider CMA.
In the first half, Standard Chartered took $460 million in impairment
charges against Middle East loans, 42% of its total group impairment, and up
from $80 million in the first half of 2008, highlighting the rapid
deterioration in the region's economy. HSBC's impairment charge in the Middle
East in the first half was $391 million, up from $41 million in first-half
2008.

-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451;
margot.patrick@dowjones.com
(Jethro Mullen in Paris, Andrew Critchlow in Dubai, Eyk Henning in
Frankfurt, Katharina Bart in Zurich, Maarten Van Tartwijk in Amsterdam and
Michael Wilson in London contributed to this article.)

All sorts of problems on the LSE halted trading this morning. As trade resumed rumors about forced sellingcirculated

Stocks Lower As Trade Resumes 
 1438 GMT [Dow Jones] FTSE 100 trades -2.1% at 5250, resuming after the
London Stock Exchange halted the trade of UK stocks mid-morning due to
technical problems. A spokesman for the LSE says there is currently no further
information available about what caused the technical glitch. Trade is very
thin, but the news about Dubai World is still the main driver, says David
Morrison at GFT. He adds that worries about the liquidity of Greek banks is
also weighing on sentiment. Banks suffer the worst losses, with Royal Bank of
Scotland -6.8% and Standard Chartered -5%. Morrison adds that if Asian shares
are weak again Friday, this could prompt another selloff in London. 

t.

JPM needs to push away from the turkey table and start gunning futures..

help me HAL!!

Kit Juckes, chief economist at ECU Group, said the developments in Dubai and in the currency markets are related as the fall in risk appetite has pushed money into government bonds and into safe haven currencies such as the Swiss franc and the yen.

This, he said, is "testing the tolerance of central banks to see their currencies cause further damage to their economies."

Already there has been unconfirmed talk in the markets that the Swiss National Bank has intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc. - source

This would be a nice ongoing daily feature, no?

Take a minute to post your views & opinions on UK spread betting firms at Trading Spreads

Sean Rushforth

Who is the counter-party on the Dubai CDS ?

Hope it's not AIG again. They were just beginning to look pink in the cheeks again...