Markets face meltdown as losses in Russia reach pounds 70bn

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The Independent Online
WALL STREET was last night heading for meltdown as estimates of the amount investors have lost in the Russian crisis climbed to $114bn (pounds 70bn).

As markets crashed around the globe, at least two smaller hedge funds were reported to have gone under as a result of Russian losses. Other big investors were liquidating holdings wholesale in order to cover Russian losses.

The big losses disclosed so far include:

George Soros, who lost $2bn, according to Stanley Druckenmiller who runs Mr Soros's flagship Quantum Fund.

Credit Suisse First Boston, which has admitted to $400m to $500m losses in July and August, mainly in Russia:

Republic New York, which said yesterday it was taking a $110m hit in the third quarter, effectively wiping out its profits for the period:

Citicorp, which admitted to Russian exposure of $420m:

UBS, which has admitted to Sfr180m (pounds 73m) in losses on Russian securities trading in August and Sfr360m of outstanding loans to Russia not covered by provisions:

German banks, which lent $30.5bn or 42 per cent of banking loans to Russia:

American banks, including BankAmerica, Bankers Trust and Chase Manhattan, were owed about $6.8bn in loans, derivatives, foreign exchange and other securities by Russian companies and the government as of 31 March, according to the US Federal Reserve:

III Offshore Advisor, a hedge fund based in Palm Beach Florida, which invested $900m in Russian Treasury Bills before the default. Other hedge funds, including Leon Cooperman's Omega Advisors, Julian Robertson's Tiger Management and Everest Capital, have lost money on Russian debt.

The Dow crashed by 357.4 points to end at 8,166, a fall on the day of more than 4 per cent. In the City the FTSE 100 closed down 176.9 at 5,368.5. Frankfurt's DAX shed 4.5 per cent, reflecting Germany's position as Russia's biggest trade partner and the huge loan exposure of its banks. Zurich fell more than 5 per cent, with Credit Suisse, CSFB's parent bank, slumping 8.5 per cent.

There were even bigger falls in Latin America where Brazil, which accounts for 30 per cent of emerging market tradable debt, fell more than 7 per cent.

Around $59bn has been wiped off the value of the Russian stock market this year, and investors have lost $8.4bn on Eurobonds issued by the Russian government in the past two years - before taking into account the $40bn worth of short-term government debt, a third of which was owned by foreigners and which is now virtually worthless.

There was talk of a rerun of the 1980s when many smaller mid-Western banks in the US came unstuck after signing up for big syndicated loans to Latin America.

Traders said there would be more bad news to come. "If Soros can lose $2bn then things must have been really bad," said one trader. "There is a lot of liquidation of holdings going on."

UK bank exposure is relatively small. Barclays has around pounds 50m worth of loans.

The $10bn Russia saved in interest by forcing through its debt restructuring package has already fled the country, Western bankers said yesterday.

Earlier in the day, with the rouble in free fall , Russia's central Bank suspended all foreign exchange trading as demand outstripped supply by $290m. Exchange offers were posting rates as low as 11.50 roubles to the dollar against an official fix of 7.86, well below the central bank's target of 9.50 for the end of the year. The Bank said foreign exchange trading would be suspended today.

Liquidity has all but dried up, leaving the banking system paralysed with severe knock-on effects for the economy.

Another five banks announced plans to merge: National Reserve Bank, Inkombank, Avtobank, Mezhkombank and Alfabank. Three other Russian banks have merged in the past few days. Another stricken bank, SBS-Agro, is to be taken over by the central bank.

"The whole system has collapsed," said Chris Woodgate, who runs ICE Securities, a brokerage specialising in east European securities. "Western firms are having to pay their employees with physical cash. They have money but they can't get it out of the bank."

The gold price fell to its lowest for seven months on fears that the Russians may starting selling their holdings to raise cash.

News analysis, Outlook, page 15