Emerging Europe

In response to the impact of the global economic crisis on central and eastern Europe, the European Bank for Reconstruction and Development is looking to increase its investments in 2009. EBRD president Thomas Mirow has outlined a proposal to invest up to €7 billion, a record amount for any single year since the bank was founded and 20% higher than previously planned. As EBRD investments have typically attracted additional funding from commercial partners of at least 2:1, EBRD-led financing could exceed €20 billion in 2009.

Parex banka, Latvia’s second-largest bank, has been effectively nationalized by the authorities in Riga after a run on the bank. Under the agreement with the Latvian government, some 51% of Parex banka shares were transferred to the state-owned Mortgage and Land Bank of Latvia with a buy-back option after one year. Majority shareholders Valery Kargin and Viktor Krasovitsky will retain a 34% holding, with the 15% balance retained by minority shareholders. The state will also provide a €285 million loan to Parex. Commenting on the government’s move, Latvian prime minister Ivars Godmanis says: "It is necessary to do everything to avert disruptions of the banking and financial system." As part of that, his government is seeking between €1 billion and €3 billion from the IMF and the EC to rescue Latvia’s economy.

The past few months have been significant for Austrian exchange Wiener Börse’s attempts to position itself as the prime conduit for portfolio investment in central and eastern Europe. In a notable run it has managed to secure majority control of three exchanges in the region. Most recently, it signed an agreement in November to acquire a 92.4% stake in the Prague Stock Exchange, one of the largest in central and eastern Europe, with a market capitalization of about €40 billion.

As was widely expected, the government in Kazakhstan has stepped in to support the central Asian republic’s embattled banking sector. Since the onset of the global credit crunch last August, Kazakh banks have found themselves under severe pressure given the choking off of cheap funding from abroad, which helped to finance the rapid expansion of branch networks and lending portfolios at home. At the same time the domestic economic environment has deteriorated rapidly, with GDP this year expected to come in at 4.5% – less than half the 10% average annual growth levels seen since the start of the decade. The straitened economic circumstances have also led to a sharp increase in bad debt levels. While pre-credit crunch non-performing loans were in the range of 1.5% to 3% they have now jumped to 7% to 8% although some observers believe the true figure is as high as 15%.

Eastern Europeans think it could be a haven in troubled times.

There are not many markets left in which it would be safe to invest but agriculture ought to be a safe bet.

“Until there is clarity on this programme, issuers will remain wary of issuing and investors will remain wary of investing. ”

Governments worldwide have moved to recapitalize banks. But the amounts injected will only be sufficient to avert a great depression; they are not enough to sustain lending and avert a global recession.

Russia’s mega-rich are fast emerging as victims of the global credit crunch.

63,300,000,000 the amount in dollars of equity capital raised by financial institutions in the third quarter of 2008. The quarterly amount is the second highest on record after the second quarter of 2008, when financial institutions raised a record $109.1 billion. Finance sector ECM deals accounted for nearly half of the total volume of transactions in the third quarter.

Excuse the cliché, but there is a silver lining in the cloud hanging over hedge funds. Many are destined to shut down. But that means more opportunity for those that survive, argues Neil Wilson.

Russia, Iran and Qatar have signed a framework agreement with a view to establishing a gas cartel. Commenting on the deal, Alexei Miller, chief executive of Russian gas company Gazprom, says: "We have decided to have closer contacts, and it can be said that a large gas trio has been formed." It remains to be seen if the new agreement will extend beyond ensuring commonly agreed production targets into regulating gas prices on the world market as Opec does for the oil market.

Hungary reached agreement on a $25.1 billion rescue package last month from a number of multilaterals, including the IMF. The money will be used to help Hungary shore up its financial system, battered by the international crisis. Hungary’s reliance on external debt has made it especially vulnerable with the forint down 20% against the dollar and euro in the past month.

In late October, the upper house of parliament in Kazakhstan passed the latest amendments to a law designed to bolster confidence in the central Asian republic’s banking sector, which has been buffeted by the global credit crunch. This, in turn, has choked off the supply of cheap foreign currency debt that had fuelled the rapid expansion of Kazakh banks’ networks and lending portfolios in recent years.

IMF loan may not be enough to stave off banking and currency collapse.

Corporate FX losses are already running into billions. The problem, as the dollar’s rally continues, could be endemic.

With CDS prices at unprecedented levels, the crisis shows no sign of abating.

The government bail out packages unveiled across developed countries last month may have prevented the collapse of a host of banks with more toxic assets than equity.

When it comes to mergers and acquisitions, Turkey’s banking sector remains a land of opportunity. UniCredit analyst Matteo Ferrazzi says: “In central and eastern Europe, opportunities for mergers and acquisitions are few and far between. Most banks are already in solid hands or owned by foreign players. But in Turkey, it is a different case and there are still banks to be privatized.”

The country’s banking crisis at the start of the millennium prompted a bail-out, consolidation and the introduction of a strict regulatory regime. This has underpinned a period of loan expansion. GDP growth is slowing but the strength should persist, local banks insist. Charles Piggott reports.

It seemed like such a no-brainer. This time last year asset managers of every hue were falling over each other to establish debt opportunity funds – the obvious response to the looming liquidity crunch in the credit markets. Indeed, the number of firms setting up funds as early as 2005 showed how clearly they were seen as the next big money-spinner. Fast forward a year and, along with many other investment strategies across the capital markets, things have not quite panned out as planned. Credit opportunity funds that were poised to pile into the hung LBO pipeline last year were initially frustrated as many banks stubbornly refused to sell and secondary prices remained in the mid-90s. Several big sales in the second quarter of this year – such as Citi’s sale of $12 billion loans to Apollo Management, Blackstone Group and Texas Pacific Group and Deutsche Bank’s $5 billion deal with Apollo and Blackstone – were seen as a sign that the long-awaited deluge of distressed buying opportunities had arrived.

In October the credit crunch finally devastated global equity markets as investor panic threatened to bring down all but the very strongest banks. Alex Chambers was pounding the sidewalks of New York just as the crisis entered its most tumultuous period and perhaps its denouement.

Bans on short sales, of naked shorting, and variations thereof were the order of the day in the second half of September as countries around the world attempted to stop stock markets falling.

It was not only US investment banks such as Lehman Brothers and Merrill Lynch that found themselves in dire trouble in September. In the middle of the month, Russia’s KIT Finance found itself unable to meet repo obligations and had to hurriedly find a strategic buyer to prevent itself following Lehman’s fate. According to market sources, KIT Finance failed to settle repo obligations worth about Rb6 billion to Rb8 billion ($153 million to $230 million) In the end the company was rescued by Leader Asset Management, the pension fund arm of Russian energy company Gazprom.

Deutsche Bank is taking a 40% strategic stake in Russian fund manager UFG Invest, one of the top 10 players in the Russian asset management industry. Under the terms of the agreement between the two firms, Deutsche will have the option to increase its holding to 100%. Deutsche’s existing fund business, DWS Investments, will be combined with UFG Invest and the new entity will be branded Deutsche UFG Capital Management. "[This] transaction further strengthens our role in Russia," says Igor Lojevsky, chief executive of Deutsche Bank Russia.

Onexim Group, one of Russia’s largest private investment funds, with more than $25 billion in assets, has entered into a strategic agreement whereby it will acquire a 50% interest in Renaissance Capital, the market-leading investment bank in Russia, the CIS and Africa. Commenting on the transaction, Stephen Jennings, Renaissance Group chief executive, says: "The partnership with Onexim creates a financial powerhouse with the resources, skills and ambition to be the clear leader in all its markets."

At the beginning of 2007, Euromoney wrote that the retail lending boom in the Balkans was putting pressure on the region’s banking systems and that cooperation between banks and authorities was vital. But as the world’s economic downturn pushes into southeastern Europe, that warning might be going unheeded. Jethro Wookey reports.

It will take months if not years before we know with any certainty who the ultimate winners from the financial crisis will be. But having purchased the US businesses of Lehman Brothers it seems that Barclays Capital will be among them.