Foreign banks struggling for survival

[Naveed Yaseen]

By Shahid Iqbal
KARACHI, Nov 6: Managements are tightlipped, employees are fearful while reports showed that foreign banks, also operating in Pakistan are in deep trouble as some of them lost over 80 per cent of their market value.

The giant American and European banks ruling the financial world fell to ground since the meltdown started a year back. The surprising evidence of erosion of their market value was recently assessed by J P Morgan.

Pakistan remained relatively unhurt while compared with the recent meltdown causing massive erosion of market capitalisation of the banks, but those working for these giants in Pakistan looked worried fearing shutdown or large decline in their operation in the country.

Banking industry sources said foreign banks, the victims of financial crisis though still operating, were ‘undecided about their future in Pakistan.’ The banks were tightlipped over the banking plan in the country.

The vast erosion of market value of these giant banks has practically shaken, changed and shrunk their rule on the financial system and economies of the entire globe.

Before the meltdown started, these banks were quite capable to even topple economies of many emerging markets and was practically shown during the crisis which gripped the Far Eastern economies in 1990s; they withdrew money and left the economies at the mercy of IMF.

According to JP Morgan assessment, the RBS (Royal Bank of Scotland) faced the biggest setback followed by the Citigroup as the loss is so massive that recovery looks beyond possibilities.

The market value of these giant banks was compared from second quarter of 2007 to October 20, 2008.

During this period, the RBS remained just 18.3 per cent of the value it had a year ago. The value eroded from $120 billion to just $22 billion till Oct 20.

The Citigroup lost about 68 per cent value of its market capitalisation as its value of $255 billion in second quarter of 2007 remained just $88 billion till Oct 20.

Deutsche Bank fell to $26 billion of its value it had a year before when it was one of biggest banks with a market capitalisation of $76 billion, losing 66 per cent.

Similarly UBS fell to $46 billion from $116 billion during a year. Credit Agricole fell to $30 billion from $67 billion, Societe Generale remained with a value of $33 billion from $80 billion, Barclays fell from $91 billion to $35 billion, Unicredit from $93 to $41 billion.

Among the less affected banks JP Morgan was at the top as its’ value fell to $147 billion from $165 billion during a year.

Others were HSBC from $215 billion to $169 billion, Goldman Sachs from $100 billion to $56 billion, BNP Paribas from $108 billion to $64 billion and Santander from $116 billion to $80 billion.

These banks need help from the governments to stop them falling sharply day-by-day and restore confidence of the people.

The governments of Europe and America have started injecting trillions of dollars to save the entire financial system from collapse.

Top brains of these countries were searching to find out what went wrong that triggered meltdown causing erosion of trillions of market capitalisation of banks and other assets.

The initial findings suggest that massive shadow banking with highly imaginative products which were valued by the rating agencies and traded in the market and kept as securities by the banks were real culprit behind the still prevailing meltdown.

Pakistani banks were not affected directly as these banks were not traded in the fashion which was common in the markets of developed economies but the after-shocks have started penetrating causing shortage of liquidity.

The State Bank has taken a series of steps to save the banking system to become victim of liquidity crunch as now visible in the European and American banking system.

Recently the State Bank Governor announced that Pakistani banks escaped unhurt but frequent pumping of liquidity, cut in cash reserve requirement and now 100 per cent financing to exporters tell the story different from what it is being painted.

Some of the most affected banks mentioned above, have good presence in Pakistan, like Citigroup, Barclays, RBS and HSBC. Other foreign banks operating in Pakistan are also the victim of financial meltdown.

“Thousands are working with foreign banks operating in the country but their jobs are now hanged with performance in Pakistan,” said a senior banker working for a large foreign bank. He said all of them were worried ‘until it was decided that operating in Pakistan was still profitable.’


http://www.dawn.com/2008/11/07/ebr1.htm