NY Times. More Large Banks Report Trading Losses in Russia [See middle section]
nytimes.com
August 29, 1998
Related Articles
Defiant Yeltsin Says He Will Not Resign
Forum
Join a Discussion on The Shake Up in Russia
By TIMOTHY L. O'BRIEN
dding to the list of American companies battered by economic
turmoil in Russia, three more large banks reported trading
losses there, but provided mixed signals about whether financial
downturns elsewhere in the world might lead to more widespread
losses.
As the Russian crisis deepens, volatility in more economically
significant countries like Brazil and Argentina is also eating into the
profits of some financial concerns doing business there. Some analysts
say that there is now ample evidence that the current raft of financial
problems extends far beyond Russia's toppling economy.
"That's the most important issue -- that markets are starting to overrun
governments' abilities to contain them in many parts of the world --
and nobody wants to talk about them because it's a confidence game
of sorts," said Charles Peabody, an analyst with Mitchell Securities
Inc. in New York. "Banks and businesses don't want to create
uncertainty that causes people not to repay one another."
Still, some analysts said they have yet to see signs indicating that
serious losses will surface elsewhere in the world.
"The market's concern and what Moody's is concerned about is
exposures in places like Latin America," said Gregory Bauer, a
managing director and banking analyst with Moody's Investors
Service in New York. "The banks are well positioned now to deal
with potential losses."
Nonetheless, the debris from errant trading is piling up.
BankAmerica, the fifth-largest bank in the United States, said Friday
that it had trading losses of $220 million on a pre-tax basis over the
last two months, largely due to soured trades in Russia. Given reports
earlier this week of other companies' losses in Russia, many analysts
and investors had been bracing themselves for BankAmerica to report
a similar loss, so the figure did not come as a complete surprise.
But BankBoston, the 17th-largest bank in the country, announced a
$30 million pre-tax trading loss, only $10 million of which was related
to Russia. Most of the rest of the figure was due to trading losses in
Brazil and Argentina, according to the bank.
Although BankBoston is not in the top tier of large American money
center banks doing business abroad, it has one of the oldest and
largest U.S. banking franchises in South America and is something of
a proxy for conditions there. And the announcement of its trading
losses is the first solid indication this week that American firms may
start to take hits in that region.
Yet J.P. Morgan, the nation's fourth-largest bank, Friday offered a
glimpse of its trading activities, appearing to indicate that its vaunted
trading house may be faring well. Morgan is an even more important
bellweather for the well-being of emerging markets than BankBoston,
since it is one of the world's premier bond traders and underwriters in
those regions.
Morgan announced in a press release Friday that its exposure in
Russia was $160 million, well below the exposure of $400 million that
analysts believed the bank had. A Morgan spokesman said that the
$160 million figure was the result of trading losses the bank incurred
in Russia, but declined to specify the size of the losses or what the
bank's exposure was before the losses occurred.
Morgan said that its trading revenue so far during the current quarter
is $300 million, which includes "losses from write-downs of Russian
trading assets, partially offset by gains in other emerging markets, and
lower revenues from trading activities in developed markets."
Morgan's trading revenue is on track to fall well short of the $920
million it hauled in last quarter.
Friday's news follows disclosures of big Russian trading losses this
week by Credit Suisse First Boston, Republic New York Corp., and
speculator George Soros' group of hedge funds.
Predictably, investors punished BankAmerica and BankBoston for
their trading losses. Shares of BankAmerica fell $4.125, or 5.6
percent, to $69.625, while BankBoston's stock plunged $3, or 7.7
percent, to $36, a new 52-week low. J.P. Morgan, which released its
statement after the stock market closed, saw its shares beaten down
6.7 percent to $97.75.
As has been the case all week, other bank stocks also suffered
Friday. Bankers Trust dropped 5.3 percent to $79.375; Citicorp fell
4 percent to $117.125, and Chase Manhattan fell 2.8 percent to
$56.50.
Large U.S. banks have relatively little exposure in Russia given their
size -- about $7.68 billion, according to Brown Brothers Harriman &
Co. By comparison, the largest American banks have $25.7 billion in
exposure to Brazil, $17.3 billion to Mexico, and $16.2 billion to
Argentina, according to Brown Brothers. And in Latin America as a
whole, the exposure is a whopping $98.9 billion. [Based on this, I guess Brazil (not Russia) is too big to fail...]
Some analysts pointed out that even if banks face mounting losses
around the globe, they are not the same companies that were brought
to their knees a decade ago by shoddy lending practices to foreign
governments and domestic real estate operators.
"Back in the '80s, these banks had less equity, less reserves, and less
earnings power than they do now," said James McDermott, chief
executive of Keefe Bruyette & Woods Inc., a bank research firm in
New York. "Banks now have much more ability to withstand pain.
They may be exposed to earnings shortfalls, but this is not a large,
systemic economic threat."
BankAmerica said its exposure in Russia has been reduced to $100
million from $412 million on June 30, primarily because of the trading
setback. BankAmerica's Moscow operation has been plagued by
large accounting snafus. Recently, the bank was forced by what it
described as an "accounting error" to restate its exposure in Russia at
the end of the second quarter to $412 million from $668 million.
Copyright 1998 The New York Times Company
|
