Is the Double-Dip Depression Here? Dubai threatens British and other banks all over the world

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  • Barclays,
    RBS and HSBC face losing billions
  • Wall Street
    plummets by 2 per cent after late opening
  • FTSE falls
    by 1.5 per cent before stabilising
  • Banks see
    £14billion wiped off market value in one day
  • Dubai may
    consider selling QE2 to tackle debt

British banks
were teetering on the brink of a fresh meltdown today after it emerged
they had invested heavily in crisis-hit Dubai.

An $80billion
debt default in the emirate has already reawakened the spectre of
a global ‘double dip’ – that the first shoots of recovery could
be wiped out by a second wave of recession.

But the level
of exposure that the crippled British banking sector faces is now
under renewed scrutiny.

The crisis
was prompted by Dubai World, the development company behind three
palm shaped islands as well as an off-shore replica of the globe,
defaulting on its debt.

Today it emerged
that:

  • Royal Bank
    of Scotland (RBS) was Dubai World’s biggest loan arranger since
    January 2007, according to JP Morgan
  • HSBC has
    an estimated £9.6billion in loans and advances to UAE customers
  • Barclays
    has an exposure of around £3billion

The figures
are particularly alarming as the sector has had to be bailed-out
by the tax payer on a number of occasions over the last year-and-a-half

Earlier this
month, RBS and Lloyds Banking group received another £50billion
to keep them afloat

RBS – which
has received the biggest state rescue anywhere in the world – is
now effectively owned by the taxpayer.

As the money
markets continued to falter, Gordon Brown moved to dispel investors’
panic, claiming that he believed British banks were ‘well-capitalised’.

Speaking at
the Commonwealth summit in Trinidad, Mr Brown said: ‘I think we
will find this is not on the scale of the previous problems we have
dealt with.’

Asked if the
Dubai situation could spark a ‘double-dip’ recession, he said: ‘You
are obviously going to have setbacks with a bank here or an organisation
there which has had problems, but I do believe the world has a better
way of monitoring what is happening, so we can be sure that – despite
setbacks – we will continue to go forward.’

Stock markets
around the world have endured another turbulent 24 hours.

Wall Street
plummeted 2 per cent when it opened at 2.30pm GMT this afternoon.

In London,
the FTSE fell around 1.5 per cent first thing after a 3 per cent
fall yesterday wiped almost £44 billion from blue-chip stocks.

The index recovered
its poise to stand 0.5 per cent lower after the first hour of trading.
It was at 5188.73 at 12.45pm, down from 5194.13 at start of trading
this morning.

In Frankfurt,
the Dax index fell 1.32 per cent to 5,540.34 while in France, the
CAC lost 1 per cent to 3,639.66.

Asian markets
were also under pressure overnight as Hong Kong’s Hang Seng fell
more than 5 per cent and Japan’s Nikkei was 3 per cent lower.

Banks worldwide
saw £14billion wiped off their market value yesterday.

Dubai’s rulers
have done their best to calm fears, claiming the situation was under
control.

Sheikh Ahmed
bin Saeed al Maktoum, the uncle of Dubai’s ruler Sheikh Mohammed
bin Rashid al Maktoum, said: ”Our intervention in Dubai World was
carefully planned and reflects its specific financial position.

‘The government
is spearheading the restructuring of this commercial operation in
the full knowledge of how the markets would react.

‘We understand
the concerns of the market and the creditors in particular.

‘However, we
have had to intervene because of the need to take decisive action
to address its particular debt burden.’

There were
reports today that the emirate may consider selling the QE2, bought
for $100million in 2007, to tackle some of its debt.

Read
the rest of the article

November
28, 2009

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