Thanks for sharing your story. It's always interesting to hear how creative banks are getting in an effort to reduce the likelihood of additional charge-offs. Wonder what we'll see next?

-Jeremy

Immofinanz, which has said it needs 110 million euros ($156.4 million) by the end of the year to keep afloat, reported a loss before interest and tax (EBIT loss) of 1.85 billion euros compared with 431.6 million euros profit a year ago.

Losses before tax (EBT loss) dropped to 2.65 billion euros in the first half of 2008/2009, Immofinanz said.

Earlier this month Immofinanz presented its six main creditor banks with a plan to restructure the company. It said on Monday the banks had agreed in principal to grant the necessary financing but are still evaluating the measures.

On top of the money it needs before the end of 2008, the company has said it also needs another 150 million euros by the end of April to avoid a liquidity crunch.

http://www.reuters.com/article/rbssFinancialServi...

An earlier version of the article said: "Immofinanz unit Immoeast, which focuses on central and eastern European markets, this month posted a 1.8 billion euros pretax loss in its second quarter to October, triggered by downward revaluations in its real estate portfolio and writedowns due to halted development projects."

This is an Austrian real estate company that is about to go bust because of loans to Eastern Europe. There are scads more like this lurking.

However, the interest rates can go up much more then they can go down.

on the other hand, if your oil price scenario plays out (i personally think brent stays in the 30s up to year end), then the outlook for russia is pretty catastrophic.

I recently heard from Citibank UK this past month that they were going to terminate my card because I was not resident in the UK any longer. That’s funny because I haven’t lived in the UK for 8 years. Obviously, they were looking for any and every way to reduce their loan loss exposure and this was one of the ways: cutting credit lines to non-UK resident account holders.

This is just anecdotal but it seems to be a trend in both credit cards and home equity loans.

The problem with the European banks is that their capital ratios are so low that loan losses will quickly eat into their reserves. The Scandinavians and the Austrians seem most exposed because of their relatively small size. Germany may be less of a problem.

John Hempton is right about Swedbank in Latvia. I have also heard a good deal about Danish banks in the Baltics as well. I will have to look for some good publicly available source material from the Austrian, Swedish and Danish newspapers and post a translation.

I just looked through my bookmarks and nothing comes to hand immediately. But, I will post when I find a good link.

Cheers.

Edward

Abstract:

This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit.

It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development.

It solves most of the puzzles of macro economy: among which Business Cycles, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap…

It shows that no fiscal or monetary policy, including the barbaric quantitative easing will get us out of depression.

It shows that Adam Smith, John Maynard Keynes, Karl Marx and Alan Greenspan don't contradict each other but that they each bring a meaningful contribution to a same framework for understanding macro economy.

It proposes a credit free, free market economy as a solution that would correct all of those dysfunctions.

In This Age of Turbulence People Want an Exit Strategy out of Credit, an Adventure in a New World Economic Order.

Read It.

- the combined GDP of the CEE EU10 is about 5-10% (give or take, depends whether you use market exchange rates or PPPs) of the “old” EU15’s GDP. I’ll grant you that that doesn’t include non-Baltic ex-USSR nor most of ex-Yugoslavia. I also ignore Turkey, which although often included in “emerging Europe” is not eastern Europe;

- credit-to-GDP ratios in this region are typically modest, I would guess about 50% on average;

This should put the overall potential impact on the EU banking system into context.

There are admittedly some EU banks that are particularly exposed to CEE, e.g. Erste, Raiffeisen, Unicredit and Swedbank. But would even they be taken down if their CEE-related assets went bad? For example, could Unicredit withstand the BK of its Austrian BA-CA subsidiary (through which the group manages its CEE business)? Or could Raiffeisen survive the loss of its international subsidiary (ditto)? I don’t know the answer BTW. Swedbank admittedly looks shaky (as noted by John Hempton).

http://www.creditcards.com/credit-card-news/look-...

I guess
1. the bond market bubble may bust next year. US dollar rally will end early next year.

2. More and more retails companies get into trouble, esp. the luxuries ones.

3. Because of the large dual deficit, U.S. allows some high tech companies to export its core technologies.

mL

Your brief commentary does seem about right though:

I agree that next year is going to be ugly for the economy and investment, but I have to wonder at what point our views about them are becoming more shaped by emotion than empiricism. Things are bad, but I think we'll wend our way out of this situation in 3-5 years. Heck, maybe we can even return to budget surpluses by then and begin to pay off the huge national debt we are accumulating!

I would actually say I am more bullish about investments than you though. There are mountains of value investments accumulating. In bear markets, value increases. So, I am pretty bullish about good stock pickers being able to do well. The broader market is another story. There it is less certain.

As for getting out of trouble in 3-5 years, you should note a post called Beware of deficit hawks I wrote about deficit hawks like myself trying to get out of debt before a sustainable recovery has shaped up. Think 1937 in the US or 1997 in Japan. I'm looking at 10 years, but I might be surprised. I would normally be more hawkish but I do think the banking system is very very fragile.

I agree that next year is going to be ugly for the economy and investment, but I have to wonder at what point our views about them are becoming more shaped by emotion than empiricism. Things are bad, but I think we'll wend our way out of this situation in 3-5 years. Heck, maybe we can even return to budget surpluses by then and begin to pay off the huge national debt we are accumulating!