ft.com/alphaville

As the world faces up to the risk of emerging market failure, banks’ current exposure - as estimated by the Bank of International Settlements (BIS) - is perhaps worth reiterating.

According to Ambrose Evans-Pritchard of the Telegraph, the BIS states that Western European banks hold almost all the exposure to the emerging markets:

They account for three-quarters of the total $4.7 trillion £2.96 trillion) in cross-border bank loans to Eastern Europe, Latin America and emerging Asia extended during the global credit boom – a sum that vastly exceeds the scale of both the US sub-prime and Alt-A debacles.

He quotes Morgan Stanley’s currency guru Stephen Jen as saying an emerging market crash is a vastly underestimated risk, which threatens to become “the second epicentre of the global financial crisis”.

The big emerging markets banking players are to be found in Austria, Switzerland, Sweden, UK and Spain, with exposure ranging from 50 per cent of GDP (Austria) to 23 per cent (Spain).

Conversely America’s exposure is just small wafer of that at 4 per cent.

Meanwhile, among those European institutions already signalling distress on their emerging market exposure:

• Austria’s Raiffeisenbank which saw its Russian subsidiary post a 74 per cent fall in Q3 net profit fell on Oct 15th
• Swedbank which today became the first major Swedish bank to bolster its finances with a fully underwritten $1.56 bn rights issue
• Polish lender Pekao, owned by Italy’s Unicredit, which continues to see its stock dramatically slump (see chart):

Pekao SA

Related links:
The EE Mortgage - FT Alphaville
Europe on the brink of currency crisis meltdown - The Telegraph