Dodgy doings in the desert
David Blackburn 9:06am
Of all the lunacy engendered by this financial crisis, Dubai’s decision to call a six-month creditor standstill on its chief holding company is the most pronounced. Dubai’s successful but hideous entrepot model depends on the confidence capital markets, and as a rule markets don’t react to nasty shocks with a shake of the head and a song and dance routine. It’s as if plague has descended on every stock exchange in the world; investors are fleeing for safety. Overnight, shares in Asia collapsed between 3 and 5 percent, and the FTSE, Dax and Cac40 have opened around one percent down. Prepare for another black day.
Will this blip develop into a crisis? As the FT’s leader points out, Dubai’s fellow emirate Abu Dhabi can cover its neighbour’s stated debt. That it hasn’t implies that either the Sheikh of Dubai has had too much sun or the debt is larger than alleged. It is too early to turn panic into pandemonium by heralding the coming of the double of dip.
How far are British banks exposed? Gordon Brown has been terribly keen to define British identity, and under his leadership we now have an answer: our pre-eminent national trait is a flair for investing in duds. J.P. Morgan report that HSBC’s liabilities are £17bn and RBS’s stand at £200m, and who knows how far Barclays (who described Dubai debt as a ‘good buy’ last week) are exposed. If the UAE decides against rescuing its brash junior member, will further demands be made on the UK taxpayer? Between you and me, I suspect we will get a share in the Beckhams' grotesque bungalow.
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Bill at Perton
November 27th, 2009 9:18am Report this commentOh my goodness. I think this is finally it, the beginning of the end. Head for the hills.
Olaf
November 27th, 2009 9:25am Report this commentHow does Gordo plan to keep the hordes of returning ex-pats off the unemployment figures?
KG Barrett
November 27th, 2009 9:26am Report this commentLet's look on the bright side. At least it has snuffed out some of the most hideous and vulgar developments the architectural profession has ever foisted upon the world.
Naomi Muse
November 27th, 2009 9:28am Report this commentThis Dubai bubble was first indicated when the property prices lost 50%.
The impact on the rest of the world is hard. Pensions lose value because of Dubai. It is uncovered again that banks have loaned money on a lending for hot air basis.
Many folks asked if RBS was being propped up by the taxpayer for its overseas 'investments' and not got a reasonable answer. It should have been that our taxpayer money was only to support the UK lending.
HSBC has quietly been in smug-mode because its diversity of investments meant that it did not get caught short in the CDS claw backs.
Only the banks acting as corporate guardians of internationally moving money will have a handle on this quickly, and the rest of the information will trickle out over time. For that Bank of New York Mellon is biggest and J P Morgan second, but RBS also acts.
That said, a 6 month holiday or moratorium on repayments, if properly substantiated in due diligence, should mean simply that and should not lead to a long-term loss to all the lenders who thought the sun shone in more ways than one, if financing Dubai.
I fear that it means that the first 6 months of 2010 is going to be very tough for all as the banks will shed more people, charge more and lend less whilst they make up the shortfall on the repayments they won't get during that period.
The banks were banking on that liquidity and it won't be there whether or not Abu Dhabi rescues Dubai.
Nick
November 27th, 2009 9:28am Report this commentThe Dubai crisis fits neatly into you "turning Japanese" story. One of the strongest features of the ten year plus Japan lost decade was that every six months there would be the announcement of a massive bankruptcy in a real estate, consumer finance or other highly leveraged business; despite the market not previously having any inkling that said company was in particular difficulty, having always been given a clean bill of health from its bankers.
Expect more Dubal-type announcements as other emerging markets, commercial property companies or finance companies exposed to consumer loans finally are unable to service their massively leveraged debts and go under.
Anne Wotana Kaye
November 27th, 2009 9:45am Report this commentIs it possible that The Great Leader will be bailing out Dubai's failing businesses and banks at the expense of the UK taxpayers? Of course, he may just administer a "sticking plaster" sending Lord Mandy to offer comfort in their hour of need.
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I wrote this blog last night during the tedium of QT. It was penned in a cynical mood, but now I am seriously concerned. The Messiah of the Economical World may yet send his chief disciples, led by Darling to scrabble around in the architectural monstrosities and decide that once again the British taxpayer must bail out corrupt bankers.
Yam Yam
November 27th, 2009 9:56am Report this commentI hear the sound of Islamic purists muttering 'I told you so'.
Lola
November 27th, 2009 10:15am Report this commentKGB @ 9.26 ...and hopefully any future Dubia GP's on that awful excuse for a Grand Prix track.
Bruce Robertson
November 27th, 2009 10:26am Report this commentIt's not so much "the lunacy engendered by this financial crisis" as the financial crisis engendered by the lunacy of the last 10 years.
Peter
November 27th, 2009 10:57am Report this commentWhat's 'hubris' in Arabic?
Victor Southern
November 27th, 2009 11:01am Report this commentA country and an economy built on sand.
John Levett
November 27th, 2009 11:03am Report this commentOur politicians keep insisting that we're all going to fry; unless we live at sea level, in which case, we're going to drown. Accordingly, I would regard it as yet another act of gross hypocrisy for the government to use my taxes to buy a 'share in the Beckhams' grotesque bungalow' or any part of this development.
What stupid developers and investors to ignore the consensus eh?
Helen
November 27th, 2009 12:08pm Report this commentAll those who invested out there are getting everything they deserve given the amount of sharia finance involved.
Who knows if the zakat creamed off sharia bonds out there will not end up helping Islamic terrorist groups?
It's happened before and is extremely hard to uncover.
TrevorsDen
November 27th, 2009 2:20pm Report this commentOh dear - Brown says the world economy is strong enough to cope with Dubai's debts.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6669430/Gordon-Brown-says-world-economy-strong-enough-to-cope-with-Dubai-debt-problems.html
Guido Fawkes points to the curse of Gordon. Brown met Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai only on Monday in Downing Street. The handshake of death.
Roger Daley
November 27th, 2009 2:39pm Report this commentBrown says (from Trinidad) ...
"I think we will find it is not on the scale of previous problems we have dealt with"
Deep dippy doo then !
Holly ......
November 27th, 2009 3:53pm Report this commentLook on the bright side peeps...
Britain will have growth by the end of the year.
37 DAYS!!!!Christmas will be done & dusted.
What are you folks wanting to get for christmas?
I am getting Susan Boyle's CD from the cats(Tich, Squirell & Fred all related)and UB40'S Greatest Hits from Mr Holly.
Mr Holly is getting.... stuff,can't say because he reads these comments. Hi Sweetheart.Don't forget to lock the door tonight.
Edward
November 27th, 2009 7:40pm Report this commentHmph. Dubai was a house built on sand if ever there was one (pun intended). It was all a mirage. No industry, no history of finance, no real institutions.
I just pity the poor sods at the bottom of the social pile who are going to suffer the most.
Hysteria
November 28th, 2009 12:41am Report this commentEdward says it for me.... so many dreams of people who saw an opportunity to improve their position - throughout Asia... very sad.
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