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Protectionism Tried in Banking System
Protectionist policies are becoming more common in the United States, European Union and Russia. Banks and other financial institutions have suffered the greatest losses of capital since the beginning of this year due to the U.S. mortgage crisis, making them easy targets for acquisition by other institutions. The potential aggressor in that situation is a state bank or sovereign fund of countries that have excess funds in the current harsh market conditions. A Renaissance Capital analysis of transactions made by sovereign funds involving the stock of banks shows that the issue of closing markets or internationalizing the capital of the banking system of the U.S. and EU is one of most pressing issues in world politics and economics.
The largest loss during the U.S. mortgage crisis so far has been Merrill Lynch's write off of $13.5 billion and its loss of 53 percent of its capitalization since the beginning of the year. New investments in Merrill Lynch affiliates worth $6.6 billion from Kuwait and South Korea are partial compensation for those losses. Morgan Stanley has lost less. Its $9.4-billion mortgage-linked losses were offset by investments from China of about $5 billion. Losses in capitalization are the most significant impetus for the internationalization of the banking system. Thus, the influx of fresh money to Citigroup, which has declared only $1 billion in losses and write-offs from the mortgage crisis so far, has totaled almost $20 billion since the beginning of the year, eve as its market capitalization has sunk by 65 percent. The money has come almost in equal parts from Singapore, Kuwait and the United Arab Emirates.
Citibank's experience will probably be key to the determining future protectionism in the banking system. Analysts are mentioning various forms of “outside management” of that organization more frequently and whether it will become more dependent on money from sovereign fund from, for example, China, or whether it will receive “national” support within the U.S. with limitations on foreign investment depends on the U.S. government. Russia will not be found in that group. Russian financial institutions are too weak for it. Russian companies will not generate serious interest on the mergers and acquisitions market in the U.S. mainly because of internal problems. The liquidity crisis coincides with the window of opportunity, and sovereign funds have other tasks.
www.kommersant.com
All the Article in Russian as of Mar. 19, 2008
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