Eastern Europe: Latvia Causes First Cracks
FN: We have passed thru the eye of the hurricane and the calm is about to be shattered. The first tremors of instability in Eastern Europe have revealed a few cracks in the Western European banking system...
It all began when a bond auction in Latvia went "no bid". Basically it couldn't have been any worse. Latvia failed to sell about 50 million lati ($99.9 million U.S.) in Treasury bills at auction yesterday after receiving (really) no bids. Apparently there aren't enough lati to go around and this has driven the overnight lending rate (kind of like LIBOR) to a record 16.4%. This is bad. Very bad. Because it means the country can't fund itself.
The original Bloomberg article was entitled: Latvia Fails in Treasury Bill Auction, Gets No Bids (Update2)
This morning the same damn article was titled: Sweden Can Handle Possible Bank Collapse in Baltics (Update1): "Sweden’s government can handle a possible bank collapse, or nationalization, sparked by the economic collapse in the Baltic states, Finance Minister Anders Borg said.
“For Sweden, this means that there is a significant risk of loan losses at the banks,” Borg told Swedish television broadcaster SVT in an interview last night, following a failed Latvian Treasury bill auction for 50 million lati ($100 million). Still, Sweden can weather the fallout of loan losses in the Baltics, he added.
The Baltic state’s failure to sell debt on market terms sparked concern amongst some investors that Latvia may be heading toward a default that would precipitate a devaluation of the lats as the government waits for the next tranche of an international bailout. The central bank today released a statement reiterating plans to maintain the lats peg until the country adopts the euro.
The failed Treasury bill auction sparked a 16 percent decline in shares of Stockholm-based Swedbank AB, the biggest bank in the Baltic states. SEB AB, the second biggest lender in the region, dropped 11 percent, while Nordea AB decreased 5.2 percent. Those declines contributed to a 3.1 percent slump in Sweden’s benchmark index."
FN: The first title and article was of course far more accurate. It was not at all clear in the first version that Sweden could handle a devaluation or default by Latvia.
The failed bond auction rippled out from Latvia hitting Sweden and Hungary... but it won't stop there. Austria's and Switzerland's banks are all heavily exposed to the region.
Sweden's Krona Trades Near Six-Week Low on Latvia Loan Concern: "The Swedish krona traded near the lowest level in six weeks against the euro on concern Latvia will devalue its currency, hurting loans in the Baltic country held by Swedish banks.
Sweden’s Riksbank this week noted a deterioration in the Baltic nations as one of the biggest risks to its banks. The krona fell 4.3 percent against the euro since June 1, when the Baltic News Service cited Latvian Justice Minister Mareks Seglins as saying the government should debate abandoning the system that keeps the lats pegged to the 16-nation currency."
Forint Falls Most in Three Months on Latvia Devaluation Concern: "The Hungarian forint fell the most in almost three months, leading declines in eastern Europe, as concern that Latvia may devalue its currency spurred investors to sell assets in the region."
Latvia Traders See 53% Devaluation, Forwards Show (Update1): "Latvia currency traders expect the lats to drop to half its value against the euro within a year as the Baltic nation struggles to cope with the effects of the global financial crisis, said Bank of America Corp.-Merrill Lynch & Co.
Forward contracts price the lats 53 percent weaker than its current spot rate of 0.7073, Benoit Anne, the London-based chief strategist for Emerging Europe, Middle East and Africa, said in a phone interview today. Forward contracts are agreements in which assets are bought and sold at current prices for future delivery."
FN: A devaluation is certain. The question is when and by how much. A 53% devaluation basically means any Latvians that have loans outstanding in other currencies will now have to pay 100% more to retire that same loan. Obviously this isn't likely to work at all and that these loans will just be defaulted instead. The problem is that the whole country is likely to default, because the government borrowed in foreign currencies...
Latvia, Lithuania, SEB CDS rise sharply-CMA: "The cost of protecting the debt of Baltic states Latvia and Lithuania and of Swedish bank SEB , seen as heavily exposed in the Baltic region, rose sharply on Thursday, CDS monitor CMA DataVision said.
Speculation about a possible devaluation in Latvia has hit regional markets in recent days, although the Latvian lat rose on Thursday on hopes the International Monetary Fund might agree to release another tranche of a previously-agreed loan.
Latvia's five-year credit default swap rose to 721.1 basis points mid-price from a close on Wednesday of 675 and a close a week ago of 602.1, CMA said.
Lithuania rose to 481.9 mid-price from 450, and SEB rose to 199.4 mid-price from 148.1.
Five-year CDS for Swedish bank Svenska Handelsbanken also rose, to 106.7 from 95 bps."
Related Posts:
Latvia: Another Government Falls
Global Protests, Riots, Violence as Economies Unravel
Hyperinflation First, Then Global War
Global Violence, Gold: But Not Yet
It all began when a bond auction in Latvia went "no bid". Basically it couldn't have been any worse. Latvia failed to sell about 50 million lati ($99.9 million U.S.) in Treasury bills at auction yesterday after receiving (really) no bids. Apparently there aren't enough lati to go around and this has driven the overnight lending rate (kind of like LIBOR) to a record 16.4%. This is bad. Very bad. Because it means the country can't fund itself.
The original Bloomberg article was entitled: Latvia Fails in Treasury Bill Auction, Gets No Bids (Update2)
This morning the same damn article was titled: Sweden Can Handle Possible Bank Collapse in Baltics (Update1): "Sweden’s government can handle a possible bank collapse, or nationalization, sparked by the economic collapse in the Baltic states, Finance Minister Anders Borg said.
“For Sweden, this means that there is a significant risk of loan losses at the banks,” Borg told Swedish television broadcaster SVT in an interview last night, following a failed Latvian Treasury bill auction for 50 million lati ($100 million). Still, Sweden can weather the fallout of loan losses in the Baltics, he added.
The Baltic state’s failure to sell debt on market terms sparked concern amongst some investors that Latvia may be heading toward a default that would precipitate a devaluation of the lats as the government waits for the next tranche of an international bailout. The central bank today released a statement reiterating plans to maintain the lats peg until the country adopts the euro.
The failed Treasury bill auction sparked a 16 percent decline in shares of Stockholm-based Swedbank AB, the biggest bank in the Baltic states. SEB AB, the second biggest lender in the region, dropped 11 percent, while Nordea AB decreased 5.2 percent. Those declines contributed to a 3.1 percent slump in Sweden’s benchmark index."
FN: The first title and article was of course far more accurate. It was not at all clear in the first version that Sweden could handle a devaluation or default by Latvia.
The failed bond auction rippled out from Latvia hitting Sweden and Hungary... but it won't stop there. Austria's and Switzerland's banks are all heavily exposed to the region.
Sweden's Krona Trades Near Six-Week Low on Latvia Loan Concern: "The Swedish krona traded near the lowest level in six weeks against the euro on concern Latvia will devalue its currency, hurting loans in the Baltic country held by Swedish banks.
Sweden’s Riksbank this week noted a deterioration in the Baltic nations as one of the biggest risks to its banks. The krona fell 4.3 percent against the euro since June 1, when the Baltic News Service cited Latvian Justice Minister Mareks Seglins as saying the government should debate abandoning the system that keeps the lats pegged to the 16-nation currency."
Forint Falls Most in Three Months on Latvia Devaluation Concern: "The Hungarian forint fell the most in almost three months, leading declines in eastern Europe, as concern that Latvia may devalue its currency spurred investors to sell assets in the region."
Latvia Traders See 53% Devaluation, Forwards Show (Update1): "Latvia currency traders expect the lats to drop to half its value against the euro within a year as the Baltic nation struggles to cope with the effects of the global financial crisis, said Bank of America Corp.-Merrill Lynch & Co.
Forward contracts price the lats 53 percent weaker than its current spot rate of 0.7073, Benoit Anne, the London-based chief strategist for Emerging Europe, Middle East and Africa, said in a phone interview today. Forward contracts are agreements in which assets are bought and sold at current prices for future delivery."
FN: A devaluation is certain. The question is when and by how much. A 53% devaluation basically means any Latvians that have loans outstanding in other currencies will now have to pay 100% more to retire that same loan. Obviously this isn't likely to work at all and that these loans will just be defaulted instead. The problem is that the whole country is likely to default, because the government borrowed in foreign currencies...
Latvia, Lithuania, SEB CDS rise sharply-CMA: "The cost of protecting the debt of Baltic states Latvia and Lithuania and of Swedish bank SEB , seen as heavily exposed in the Baltic region, rose sharply on Thursday, CDS monitor CMA DataVision said.
Speculation about a possible devaluation in Latvia has hit regional markets in recent days, although the Latvian lat rose on Thursday on hopes the International Monetary Fund might agree to release another tranche of a previously-agreed loan.
Latvia's five-year credit default swap rose to 721.1 basis points mid-price from a close on Wednesday of 675 and a close a week ago of 602.1, CMA said.
Lithuania rose to 481.9 mid-price from 450, and SEB rose to 199.4 mid-price from 148.1.
Five-year CDS for Swedish bank Svenska Handelsbanken also rose, to 106.7 from 95 bps."
Related Posts:
Latvia: Another Government Falls
Global Protests, Riots, Violence as Economies Unravel
Hyperinflation First, Then Global War
Global Violence, Gold: But Not Yet
Eastern Europe: Latvia Causes First Cracks
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