HSBC and Standard Chartered have little to fear from Dubai World
The two bank stocks I like best for their big business in emerging economies don’t look like they’ll take big hits in the Dubai World debt freeze and restructuring. Initial estimates put the exposure of HSBC Holdings (HBC) and Standard Chartered (SCBFF) to the United Arab Emirates as a whole at $17 billion and $8 billion, respectively. With the possibility that the crisis in Dubai would spread to the rest of the federation, that was way too big a risk, even if, as I said in my November 30 post http://jubakpicks.com/2009/11/30/danger-in-dubai-and-perhaps-opportunity/ , the danger was remote.
Well, now we’ve got some better numbers that break out bank exposure just to Dubai World and the damage to banks from the United Kingdom looks much, much smaller indeed. Read more
Making a list, checking it twice: What countries are in danger of default?
This is progress?
A year ago Wall Street analysts, credit rating companies such as Standard & Poor’s, and individual investors were putting together lists of banks in danger of failing.
Today, the lists are of deeply indebted countries in danger of defaulting on their debt.
The catalyst for today’s lists is the crisis in Dubai, where a government-controlled conglomerate, Dubai World, has declared a 6-month standstill on paying interest or principal on $26 billion in debt. Banks had assumed that this debt was somehow guaranteed by either the government of Dubai or by neighbor Abu Dhabi or by the central government of the United Arab Emirates. Yesterday, November 30, the government of Dubai told banks they were greatly mistaken and that Dubai would not stand behind what it now calls “private corporate” debt.
That hasn’t exactly ended fears that Dubai itself could default. Or that the contagion could spread to other countries. Egypt’s stock market took a beating on November 30, falling 8% on the day, for example.
All of which has led investors to try to figure out who might be next. Read more
Dubai says the crisis is over; the banks say it’s over–why does that make me uneasy?
Hope it’s that easy. But I doubt it.
Dubai and Dubai World, you remember the country and the company that threw world financial markets into a panic over the Thanksgiving weekend, say that working out a restructuring with lenders is turning out to be as easy as pumpkin pie. (Well, “constructive” is the word Dubai World actually used.)
Oh, and by the way, those estimates that the company was in danger of defaulting on $60 billion in debt were way, way too high, Dubai World says. Turns out that it’s just $26 billion in debt that needs restructuring.
Take this all with a grain of sand, however. Read more
Danger in Dubai–and perhaps opportunity
U.S. investors should feel very familiar with the financial crisis that broke out in Dubai last week.
The names are different but the story is striking similar to the U.S. mortgage crisis.
And if you’re trying to figure out the dangers and the opportunities in this crisis, it’s most useful to see it not as something new but as an extension of the global real estate meltdown. The crisis in Dubai should remind us all that the global real estate collapse hasn’t finished playing out. The crisis now seems to be sucking in quasi-government companies around the world. The assumed government guarantees that led lenders to extend credit to companies in Dubai, the Ukraine, Russia, and other emerging markets are now turning into hollow promises. And that’s leading to another round of re-pricing of global assets. Read more
