naked capitalism

Anonymous says:

I’m from Finland and believe that this will happen. The balts had a huge debt based orgy – in particular in real estate. Think of L.A. or Arizona. And, yes, Swedes were the ones financing it, largely at least. With no real economy, not even gambling as in L.A., the balts will not be able to pay it back. Hence, they and their Swedish financiers will tank with 100 per ecent certanity. Then again, they also deserve it. The balts with cope with the meltdown by immigrating elsewhere in even higher numbers, unpatriotic as they are…

Fiuman says:

One aspect of thi, is that when (i would gladly write if, but i fear its way past that) the baltic Real Estate market starts going down, we might see less financing for RE elsewhere in Eastern Europe. And that will hurt German, Austrian and Italian banks (Reiffeisen, Unicredit, Erste…) – and in turn they will close the spigot for corporate loans, so Eastern Europe is upfor some tough reawakening after about 10 years of easy credit.

Paul says:

Wow, here’s a post (and comments) to give the lie to the idea of calm, rational, fact-based Scandis.

1) the Thai baht did not drop 90%. With the exception of a couple of weeks around the turn of 97-98 the drop was more like 40%.

2) Intangibles are not an equity item. They’re assets. “Savvy analysts in London” are usually more demanding about this sort of thing.

3) $5bn of gross exposure, without allowing for Hansa equity, deposits or recovery rates is pretty manageable in the context of a $280bn balance sheet. (that’s assuming that the poster’s SEK30bn figure for Swedbank exposure to Hansa is right, not something i’d take on trust).

4) (from the original post) Stag parties are not a key part of the Latvian economy. Nor is Prague cheaper than Riga. Nor, for that matter, is Shannon anywhere near Birmingham.

5) Swedbank heavily dependent on wholesale funding? Yes clearly a key issue but this is to do with how Swedish mortgages generally are financed and has absolutely zip to do with the Balts.

6) Certainly the scandi banks are going to take a nasty bath in the Balts. But the Scandi banks are big relative to the size of their Baltic subsidiaries and the Baltic numbers (current accounts, real estate, funding, fdi) are far worse than those in the rest of CEE, even the Balkans.

This banking setback will be nasty enough without getting hysterical.

John Hempton says:

I ought to reply. Yes – I got the extent of the Thai Baht collapse wrong. I conflated with the Indonesial Rupiah which was between 80 and 90.

Sorry.

The exposure of Swedbank to the Lats is well over half the equity.

The recovery rates will be very poor indeed. You only need to look at the extent of negative equity in the Estonian mortgage market to convince yourself of that. Besides the Baltic deposits will rank ahead of the Swedbank unsecured in the Hansa Bank funding.

A current account deficit of 20% of GDP is a wapping big imbalance. It has to be funded somewhere. Watch that place.

Funny – senior bankers at competitor banks are moderately worried.

And as for someone who is a panic merchant about the banking crisis – I own WaMu sub debt. I prefer it to Swedbank debt!

J

jonesf says:

As a subsidiary Hansa is, afaik, Swedens responsibility in case of liquidity issues and also for the oversight of their financial stability. Any central bank intervention would however be coordinated and cleared among the national central banks.

Mara says:

As another Latvian, living in the states but helping support family over there, I could see for some time that the real estate prices were totally psycho. I don’t even know any local latvians who own real estate, except for rather modest little apartments that were paid in cash (which was the norm since independence in 1992).
My 2 cents is that the Swedes will get a lot of defaults. My sense is that Mrs.Vikes-Freiberga’s govt won’t be able to do a lot. And given the unpopularity of rich foreigners coming in to buy up gaudy houses and condos [and raising locals' prices for everything], there’s not going to be a lot of sympathy to their plight.
Considering its rather grim history, the latvians can weather the economic “ice age” that will come. As for Russian interests, and the implication of aggression in the face of economic weakness— I’d say there’s no greater chance of them suddenly invading than there would be at any other time. Let’s be honest, we don’t have one of those great ‘super weapons’ like in the movie “The Mouse that Roared” (but it would be cool if we did!).

Anonymous says:

This scenario implies that the latvian and estonian currencies become devalued. So we have to look at how probable that would be.

As i understand, outside speculators/shocks cannot cause the currency to become devalued, because there are no instruments to use. Internally there is no political power who might be capable or willing to devalue the currency.

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AND
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