Banks hit by Emirates exposure

By LUCY FARNDON
Updated:

Fresh fears over Dubai enveloped British banks in a cloud of gloom.

Ratings agency Moody’s cut six Dubai-government companies to ‘junk’ status to reflect the emirate’s warning that it won’t be guaranteeing loans to Dubai World and its property subsidiary Nakheel.

Shares on the Dubai stock market fell a further 6pc as finance minister Abdul Rahman al-Saleh said the restructuring of the debt-laden conglomerate would take more than six months.

Dubai

On the junk pile: Following the emirate's warning it would not guarantee loans, Moody's cut six Dubai-government backed companies to 'junk' status

Six of the biggest creditors to Dubai World met with officials to discuss the fate of its $59bn (£36bn) of debts. UK banks HSBC, Standard Chartered, Royal Bank of Scotland and Lloyds Banking Group are understood to have been at the meeting.

Investor fears have been focused on RBS, renowned as the biggest arranger of loans to Dubai World.

HSBC has the highest overall exposure to the United Arab Emirates, but it is seen as big and strong enough to comfortably swallow any eventual losses without a major hit to the bottom line.

All of the banks bar Lloyds ended the day in the red. RBS was the hardest hit, closing down 2.55p at 30.45p, an 8pc drop. HSBC closed down 17.70p at 700.54p, Barclays ended down 9.55p at 289.6p, Standard Chartered fell 55.5p to 1437p, while Lloyds ticked up 0.08p to 53.6479p.

Bank shares have fallen sharply (see table) since Dubai announced on November 25 that it needed breathing space from creditors on the billions of loans that had been racked up by Dubai World’s breathtaking expansion drive.

Initially, investors had been under the impression that Dubai, or its sister state Abu Dhabi, would guarantee the loans. But Abu Dhabi has said there will be no bailout and lenders will have to take responsibility for their own decisions.

Dubai World said it wants to restructure $26bn of its debts, but the eventual amount could be far higher. Among the six Dubai entities Moody’s rates as ‘junk’ is DP World, the P&O ferries and ports group.

Documents suggest that Nakheel, responsible for Dubai’s iconic palm tree island development that drew celebrities such as David Beckham and Brad Pitt to the region, plunged into a $3.65bn (£2.2bn) loss in the first half as it was forced to slash its property values.

Revenues at the property group, which has $3.5bn (£2.1bn) of bonds due for repayment on Monday, crashed 78pc.

All of this is bad news for RBS, which has billions at stake in the region. But this is just one of many thorns in the side of its chief executive Stephen Hester.

High on investors’ worry list is the 84pc government stake, which seems to be increasingly used as a lever to force RBS to do its bidding. T

oday’s pre-Budget report could bring further bad news on bonuses. And as RBS’ shares languish close to its lows, Hester’s own share award – which pays out at 55p and 70p – is looking harder to reach than ever.

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