Failed Latvian Bond Auction Rattles Sweden
June 8th, 2009Via: Forbes:
The failure of a bond auction in Latvia is making bankers in Sweden quake in their boots.
Shares in Swedbank, the biggest lender to Latvia, dived 15.9%, to 38 Swedish Kronor ($4.92) after the Latvian government failed to sell any of its government debt securities on Wednesday. Skandinaviska Enskilda Banken–better known as SEB–fell 11.0%, to 30 Swedish kronor ($3.88). The Swedish kronor meanwhile fell to 10.91 against the euro, from 10.71.
The failed auction has raised fears that Latvia may have to devalue its currency. That could have a major impact on Scandinavian lenders who had flooded the Latvian market with euro-dominated loans that let borrowers take advantage of better interest rates. A devaluation of the kroon essentially makes it harder for them to repay their debts, sending the number of bad loans higher.
Swedish banks are deeply entangled in the sliding Latvian economy: total lending to the region makes up 19% of Swedish gross domestic product, according to the Bank of International Settlements.
Updated: Fears Grow on Latvian Currency
