Don’t moan, look closer to home
by Andrew WhiteThis email address is being protected from spam bots, you need Javascript enabled to view it on Tuesday, 01 December 2009
John Meynard Keynes had it about right. “If I owe you a pound, I have a problem,” he once said. “But if I owe you a million, the problem is yours.”
Nowhere has that been more starkly illustrated than in the announcement this week that the Dubai government won’t guarantee the debts of Dubai World. The conglomerate owes around $59bn to a string of creditors around the world, and international institutions are scrambling over themselves to try and reclaim cash they presumed was covered by the emirate’s ruling family.
The UK is in a particular panic, as evidenced by the stream of hysterical media reports that have spewed forth over the last few days. Dubai has variously been referenced as an island, a country within its own right, and a landlocked desert oasis. Meanwhile, one esteemed publication speculated that the sovereign state of Qatar was set to sell its stake in carmaker Volkswagen, in order to bail out its ‘fellow emirate’.
Geographic gaffes aside, the Fourth Estate has gone feral. Denigrating Dubai as a “monument to vanity and greed” (The Daily Mail), it is attacking the emirate with the kind of venom previously reserved for the ‘fat cat’ banking executives accused of pocketing huge bonuses even during the worst days of the credit crunch.
Such vitriol can perhaps be attributed to the fact that thousands of Brits have lost their jobs in Dubai as a result of the downturn. It has been a brutal 2008, and there won’t be a Dubai-based reader who has yet to see a friend or colleague booted back to Blighty.
This aside, the feeding frenzy may also be attributed to the fact that UK banks have the largest exposures to the UAE from among international banks, estimated at $49.9bn. This represents no less than 40 percent of foreign banks’ total exposure to the Emirates.
HSBC and Standard Chartered are the most exposed, with $17bn and $12.3bn in loans to Dubai World Group, respectively. And not far behind come Barclays and RBS, each of which has extended significant credit to the conglomerate.
If you would believe the more splenetic coverage, each of these venerable finance houses has been duped by a mean-spirited state-owned conglomerate that implied government support but never really intended to settle its debts. Sucked into the sandpit, the noble Brit bankers have been robbed blind in the desert and left for the crows.
Except some of the aforementioned institutions have previous form; it’s not been a vintage couple of years for the bastions of British banking.
In March, HSBC absorbed losses estimated to be somewhere between $30bn and $62bn as it closed down the branch network of its HSBC Finance arm in the US.
Standard Chartered and Barclays will each have written down billions of dollars of toxic debts before the year is out. And in the case of RBS, we should not forget that a series of hideous errors of judgment have left it all but nationalised – the UK government presently owns an 80.4 percent stake in the troubled lender.
So rather than wail in the direction of Dubai, why doesn’t the UK’s enraged establishment take a closer look at why its banks were happy to take risk after risk, ploughing money into a series of ventures that – as with any investment – came with promises of vast returns, but no cast-iron guarantees?
Dubai World is in the process of taking responsibility for its loss-making operations; it’s a process that will be painful, drawn-out, and humbling. So why don’t the UK banks that have so over-exposed themselves take a little responsibility too? They came here to make money – and mountains of it – while ignoring the risks inherent in an emerging economy such as Dubai’s. How’s that for greed?
The Dubai debt story pales in comparison to the global exposure readily accepted by British institutions as they hunted for profits in the good times. At such levels as are at stake in Dubai, international banks’ exposures are easily manageable. They are a drop in the ocean compared to the toxic assets wiped out during the global crisis.
A look at the ticker will tell you that the share price of HSBC has already started to recover, with Barclays and Standard Chartered already recording smaller losses than they did during the previous week. Dubai might have held the headlines this week, but equity markets outside the region have already settled.
Unlike its counterparts in the UK, The New York Times has moved on, and is looking for the next ‘debt bomb’ to explode (its tip is Russia). The Dubai World announcement may have proved a
PR problem, but the emirate isn’t the first to have caused ripples in the global economic pond, and it won’t be the last.
It will be interesting to see if the UK press marches on Moscow with quite so much glee as it has stuck the boot into Dubai.
Don?t moan, look closer to home - Politics & Economics - ArabianBusiness.com