UK Bank Exposure to Dubai Inc

The Financial Times today carried a story that UK banks held US$5 billion or so out of the US$40 billion or so at Dubai World.   That gives them the dubious distinction of being the largest foreign creditor group.

US$ 2 billion at Royal Bank of Scotland, and US$ 1 billion a piece at HSBC, Lloyds, and Standard Chartered.  The article also identifies BNP Paribas, Societe Generale, and Calyon as large creditors.

The article goes on to say that their exposure is focused on the "still functioning" parts of Dubai World e.g.,  Jebel Ali Free Zone and Dubai Ports World.

Thus, of the Dubai World debt which the government has to date announced will be rescheduled, their exposures are a more modest US$700 million (RBS) and US$350 million for Stan Chart.

Some thoughts:

1. It would be natural for big foreign banks to lend to what they perceived to be major companies.
2. It is usually the tenderfoots in the market as opposed to the grizzled veterans who are most likely to see Bigfoot or its financial equivalent the "implicit guarantee".   As I noted earlier the implicit guarantee is not worth the paper it isn't written on.
3. That being said some of the grizzled veterans in the market sometimes make mistakes.  It looks like the market and S&P are pretty much convinced that Abu Dhabi Commercial Bank, Emirates NBD have massive exposures.   Local banks especially those owned by governments often step up to lend government entities, especially when in cases like Emirates NBD the same government owns both the lender and the borrower.