At the moment, there’s political instability in Malaysia, Pakistan, Japan, Russia, Ukraine, and Turkey. Mexico, Iceland, Turkey, Russia, and Pakistan were or are also facing runs on their currencies. Banco de Mexico sold $2.5 billion in the market yesterday and early today to stem a rout in the peso and said it would offer an additional $400 million when the peso weakens more than 2 percent in a day.

VIX today exceeded 60 for the first time as the DJIA fell to a five- year low below 9,000. as Treasury Secretary H. Paulson is weighing plans government to invest in banks as the next step in trying to resolve the credit crisis.

Libor for three-month loans rose to 4.75 percent, the highest level since Dec. 28. The Libor-OIS spread widened to a record. The overnight dollar rate fell to 5.09 percent, still 359 basis points more than the Fed’s 1.5 percent target rate. The three-month rate in euros held at a record high of 5.39 percent.

ECB offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, also loaned banks a record $100 billion in overnight dollar funds, allotting most of the cash at 5 percent, down from 9.5 percent yesterday.

“Libor rates are now more or less meaningless because everyone is just doing business with the European Central Bank,” said Jan Misch, a money-market trader at Landesbank Baden- Wuerttemberg, Germany’s biggest state-owned bank, via Bloomberg.

South Korea, Taiwan and Hong Kong cut interest rates today, after yesterday’s coordinated reductions. The U.K. government also pledged to spend 50 billion pounds ($87 billion) to stave off a collapse of the British banking system.

Money-market rates rose in Hong Kong, Singapore and Japan to the highest levels in at least nine months. Hong Kong’s three-month interbank offered rate jumped to 4.4 percent, a one- year high. Singapore’s comparable rate for dollar loans increased to 4.51 percent, the highest level since Jan. 8.

Overnight borrowing costs for companies dropped to the lowest in almost two weeks after yesterday’s rate cuts and the Fed committed to buying commercial paper.

Iceland seizes a bank

One of the earliest victims of this crisis was Iceland. Their troubles have been intensifying since the collapse of Bear Sterns in March of this year.

 

From Bloomberg:

 

Iceland‘s government seized control of Kaupthing Bank hf, the nation’s biggest bank, completing the takeover of a financial industry that collapsed under the weight of foreign debt.

 

Iceland is guaranteeing Kaupthing’s domestic deposits and helping manage the banks to provide a “functioning domestic banking system,” the country’s Financial Supervisory Authority said in a statement on its Web site today.

 

Glitnir Bank hf, Landsbanki Island hf and Kaupthing are unable to finance about $61 billion of debt, 12 times the size of the economy. Their collapse has affected 420,000 British and Dutch customers, and frozen assets held by universities, hospitals, councils and even London’s police force. The government is seeking a loan from Russia and may ask for aid from the International Monetary Fund to help guarantee deposits. 

 

All trading in Iceland’s equity markets is suspended until Oct. 13 due to “unusual market conditions,” the country’s exchange said today.

 

Currency Peg

 

Trading in the krona ground to a halt today after the central bank yesterday ditched an attempt to fix the exchange rate at 131 krona to the euro. Nordea Bank AB, the biggest Scandinavian lender, said the krona hadn’t been traded on the spot market today, while the last quoted price was 340 per euro, compared with 122 a month ago.

 

Assets at Iceland’s three biggest banks had grown five-fold since 2004 as the companies looked to expand beyond the confines of an island with a population of 320,000, half that of Las Vegas. Much of that growth was debt financed, helping send gross external debt to 9.55 trillion kronur at the end of the second quarter, equivalent to $276,622 for every person on the island.

 

U.K. taxpayers will probably face a bill of at least 2.4 billion pounds ($4.1 billion) to compensate about 300,000 U.K. holders of accounts at Icesave, a unit of Landsbanki, the Financial Times reported, citing unidentified U.K. officials.

 

`Severe Recession’

 

“The economy may well contract more than 10 percent between now and the end of this crisis,” said Lars Christensen, chief analyst at Danske Bank A/S in Copenhagen. “Inflation will jump to at least 50 percent to 75 percent in the coming months.”

 

To avert the collapse, Iceland will start talks with Russia on Tuesday to secure a loan of as much as 4 billion euros ($5.48 billion), Prime Minister Geir Haarde said late yesterday. He added that loans from the IMF and Russia “are not mutually exclusive,” though the government hadn’t, “at this point at least,” asked the IMF for a standby loan or an economic program.

 

Fitch Ratings Ltd. cut Iceland’s long-term foreign currency issuer default rating to BBB- from A-. The rating remains on negative watch, Fitch said.

 

Ukraine seizes a bank

Ukrainian lender Prominvestbank had its credit ratings cut three steps by Moody’s Investors Service after the country’s central bank seized control.

The National Bank of Ukraine appointed its deputy governor, Volodymyr Krotyuk, as the temporary head of Prominvestbank yesterday and imposed a moratorium on payments to creditors for six months.

Ukraine‘s government has the worst creditworthiness among Europe’s emerging markets, based on the cost of credit-default swaps. It joins Iceland, Germany, the U.K. and Belgium among a growing number of European countries taking control of banks.

Prominvestbank, Ukraine‘s sixth-largest lender, had 27.6 billion hryvnia ($5.1 billion) of assets as of Sept. 30, according to its Web site.

And RBS is loudly struggling with solvency issues.

FerroChina Says It Can’t Repay Loans

FerroChina Ltd., a Chinese steelmaker, said it is unable to repay loans totaling 706 million yuan ($104 million) because of the “current economic crisis,” and a further 4.52 billion yuan in loans and notes may also be at risk.

Production at FerroChina’s plants has been suspended and the mill is in talks with creditors and potential investors, the company said today in a statement to the Singapore Stock Exchange, without identifying companies.

The escalating credit crunch has toppled banks in the U.S. and Europe, frozen credit markets and slowed economic growth, curbing demand for China-made products. Steel prices and demand in China have been declining.

The company, which has a market value of S$436 million ($297 million), requested on Oct. 7 that its Singapore-listed shares be suspended from trade. The stock, which last traded at 54.5 Singapore cents, has slumped 70 percent this year.

“Due to the current economic crisis, the group is unable to repay part of its working capital loans aggregating approximately 706 million yuan which has become due and payable,” the statement said. “The management is seeking new equity and loan funding.”

Further loan facilities and notes of about 2.03 billion yuan and “some other working capital loans” totaling 2.49 billion yuan may potentially become due, it said.

Changshu Plants

FerroChina has plants in Changshu City and Changshu Riverside Industrial Park in Jiangsu province, according to today’s statement. The company produced 1.65 million metric tons of steel in 2007, according to Kelly Chia, an analyst at OCBC Investment Research Pte.

“It could be because some of its customers weren’t able to pay up, or the price of its products weren’t enough to fund its working capital,” Chia said by phone from Singapore.

FerroChina reported net profit more than tripled to 230.4 million yuan in the second quarter from a year earlier, according to a slides presentation from the company on Aug. 14.

“Given the weak capital market and poor economic conditions, there is no assurance that we can be successful” in the talks with potential investors and creditors, today’s statement said. The talks with would-be investors were announced in a company statement on Sept. 16.

“As a zinc-galvanizing steel sheet producer, the slowdown in building, manufacturing and home-appliance industries hurt the company’s sales,” JPMorgan Chase’s Qin said.

The Chinese price of hot-rolled coil, a benchmark product, has fallen 29 percent to 4,230 yuan a ton from a record 5,957 yuan on June 5, according to Beijing Antaike Information Development Co.

Advertisements