As expected yesterday’s post drew more reaction (and visitors) than any previous post on this blog. There are a few corrections to make (mostly minor). But I should also share with my readers a taste of the comments that came through the mail.
The only really substantive comment – which came both on the blog and through the mail – was that I underestimated the importance of lending in Euro (rather than Lats) in
That is fair enough. Consumers can have a high price loan in Lats or a low price loan in Euro. They take the low price loan in Euro.
However if the currency suddenly halves a lot of distressed borrowers (and I will prove over the next few days that they are distressed) will suddenly owe twice as much as they previously owed. Hansa Bank will then implode in credit risk. Credit risk, currency risk – you pick your poison…
It all reminds me of a flight I was once on between
The second set of comments came down to whether it was possible for Swedbank to go insolvent even if Hansa were a complete disaster. Swedbank has about 40 billion Swedish Kroner in Hansa (including both debt and equity stakes). Swedbank has tangible capital closer to 50 billion Swedish Kroner. If everything goes to zero (which it won’t) then Swedbank still has tangible equity they would argue. And Hansa – no matter what happens – will get some recoveries.
That may be right. Swedbank will look considerably worse than Washington Mutual does now but it may be solvent. Indeed WaMu has blown up considerably less capital than Swedbank does under any variant of that model. But then I think WaMu is solvent. (Regular readers know I own the subordinated debt.)
I used to think – and I made it clear in the post – that Swedbank probably survived. After their conference call and the lack of indication that they will ever pull the plug – I now think they probably fold. However if they pulled the plug now and were straightforward with the risks they were taking the stock would almost certainly stay above zero. [Memo to Swedbank management – now is your time.]
Thirdly there was some objection to my characterisation of the Latvian economy as being driven by sex tourism.
“A pint of lager costs the same in Tallin as it does in
You could argue similar about property prices...
Some noted that I got the currency crises confused when I talked about the fall in the Thai Baht. I did. The Thai Baht only fell by about 60%. The Rupiah fell something between 80 and 90. I never traded anything in
Several noted that there was little new in my post. One sell side stock analyst from
There were several comments from people who had lived through the Argentine crisis who thought that I had the character of crises spot on. There were a few people from the Baltic republics who didn’t feel it was inaccurate though quibbled about minor details.
Some people noted that the biggest risk to a short position was the geo-political significance of the
And that I think is the real reason this situation is allowed to go on. Nobody thinks the economy of the Baltics will collapse without Western bailout. They are watching the geopolitics. And maybe they are right. I don’t do politics very well.
Further comments much appreciated.