RBS led Dubai World lenders; HSBC at risk

RBS, the largest UK government-controlled bank, arranged US$2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report Friday, citing Dealogic data. HSBC, Europe's biggest bank, has the “largest absolute exposure” in the U.A.E. with US$17 billion of loans in 2008, JPMorgan said, citing the Emirates Banks Association. Abu Dhabi Commercial Bank PJSC may be owed US$1.9 billion by Dubai World, making it the largest creditor outside the emirate, said two people familiar with the companies.

“The market is very nervous about exposure to Dubai and RBS's name has been associated with it as both a lender and a book runner,” said David Williams, a banks analyst at Fox-Pitt Kelton Ltd. in London. “People are concerned it's going to produce a new wave of losses. Dubai is driving everything in the market at the moment.”

Stocks in Asia fell the most in three months led by HSBC and Standard Chartered Plc and European stocks extended Thursday's sharpest slump since April on concern a debt restructuring by Dubai World, with US$59 billion of liabilities, will add to the US$1.72 trillion of losses and writedowns from the global credit freeze. British banks have the most to lose among international lenders from a crisis in the United Arab Emirates, with a combined US$49.5 billion of loans outstanding, according to a report from RBS that cites Bank for International Settlements data in June.

Dubai World, controlled by the emirate's ruler, Sheikh Mohammed Bin Rashid Al-Maktoum, borrowed from more than 70 lenders to buy assets ranging from stakes in Las Vegas casino company MGM Mirage to London-based Standard Chartered through Istithmar PJSC. The government said it this week it will seek a “standstill” agreement to delay repayment of its debt, including US$3.52 billion of bonds due Dec. 14 from property unit Nakheel PJSC.

“We are in touch with Dubai World, and we have been in discussions more than once Friday and Thursday,” Ala'a Eraiqat, the chief executive officer of Abu Dhabi Commercial, the third- largest lender in the United Arab Emirates, said in a telephone interview Thursday. He declined to comment on specifics. “We have a lot of assurances which is a good thing.”

RBS spokesman Piers Townsend in London declined to comment.

“HSBC has more in customer deposits in the United Arab Emirates than it has in loans and advances,” said Jezz Farr, an HSBC spokesman in London. Loans and advances to customers in the U.A.E. totaled US$15.9 billion at the end of the first half of 2009, while deposits stood at US$19.3 billion, Farr said, declining to comment further.

Dubai World borrowed US$13.5 billion in syndicated loans in 2007, according to JPMorgan's report. Banks “typically retain 10 percent to 20 percent of the originated loans and use collateral or hedges,” JPMorgan wrote.

RBS shares rose, reversing losses of as much as 10.2 percent to gain 3.4 percent as of 9:46 a.m. in London. The shares fell 7.8 percent Thursday.

HSBC dropped 7.1 percent in Hong Kong, the most since March 9, and was 1.2 percent lower in London, extending a 4.8 percent slide Thursday. Standard Chartered slid 8.6 percent in Hong Kong and 0.9 percent in London after Thursday's 5.8 percent decline.

Goldman Sachs Group Inc. analysts led by Roy Ramos estimated potential credit losses at HSBC related to Dubai World may be US$611 million, and US$177 million for Standard Chartered, according to a research report released Friday. The impact on both banks will be “manageable,” the analysts wrote.

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