FN: We have passed thru the eye of the hurricane and the calm is about to be shattered. The first tremors of instability in Eastern Europe have revealed a few cracks in the Western European banking system...
It all began when a bond auction in Latvia went "no bid". Basically it couldn't have been any worse. Latvia failed to sell about 50 million lati ($99.9 million U.S.) in Treasury bills at auction yesterday after receiving (really) no bids. Apparently there aren't enough lati to go around and this has driven the overnight lending rate (kind of like LIBOR) to a record 16.4%. This is bad. Very bad. Because it means the country can't fund itself.
The original Bloomberg article was entitled:
Latvia Fails in Treasury Bill Auction, Gets No Bids (Update2)
This morning the same damn article was titled:
Sweden Can Handle Possible Bank Collapse in Baltics (Update1): "Sweden’s government can handle a possible bank collapse, or nationalization, sparked by the economic collapse in the Baltic states, Finance Minister Anders Borg said.
“
For Sweden, this means that there is a significant risk of loan losses at the banks,” Borg told Swedish television broadcaster SVT in an interview last night, following a failed Latvian Treasury bill auction for 50 million lati ($100 million). Still, Sweden can weather the fallout of loan losses in the Baltics, he added.
The Baltic state’s failure to sell debt on market terms sparked concern amongst some investors that Latvia may be heading toward a default that would precipitate a devaluation of the lats as the government waits for the next tranche of an international bailout. The central bank today released a statement reiterating plans to maintain the lats peg until the country adopts the euro.
The failed Treasury bill auction sparked a 16 percent decline in shares of Stockholm-based
Swedbank AB, the biggest bank in the Baltic states. SEB AB, the second biggest lender in the region, dropped 11 percent, while Nordea AB decreased 5.2 percent. Those declines contributed to a 3.1 percent slump in Sweden’s benchmark index."
FN: The first title and article was of course far more accurate. It was not at all clear in the first version that Sweden could handle a devaluation or default by Latvia.
The failed bond auction rippled out from Latvia hitting Sweden and Hungary... but it won't stop there.
