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What in the world is happening in Dubai World?

November 28, 2009

So what’s up with Dubai World?  Will the Arab Nation bail them out?  Or is Dubai World simply going to restructure their debt of at least $60 billion?
Dubai World!  It boasts of the largest man-made island — the Palm Jumeirah and the World islands, the largest indoor ski area (Ski Dubai), and is home to the greatest number of 7-star hotels …. and a huge debt.
On Wednesday, stocks fell Friday afternoon over fears of the possible “fallout” from Dubai’s credit problems.  The Dow Jones fell 155 points (1.5%) after closing at a 13-month high; S&P lost 19 points (1.7%); Nasdaq composites lost 13 points (1.7%).
It’s impact on the world?  CNN Money’s Richard Quest, Ali Velshi and Johnathan Maim are predicting that Dubai’s debt problem will either be a “hiccup,” or something much more. Currently, CMA DataVision’s is predicting that there is a 35.82% chance that Dubai World will default on the debt. 
Its impact on the world financial industry?  Investors from the United States – Citi Group has invested $1.9 billion in default risk.  In the United Kingdom, the total amount is $30 billion in default risk – the institutions involved include Standard Chartered, HSBC (HBC), Royal Bank of Scotland (RBS) and Barclays (BCS).  It is speculated that since the U.S. banks have extensive dealings with the United Kingdom institutions, including trading and guaranteeing debt, that our banks may feel losses.  Additionally, U.S. banks and their German counterparts have loaned money to the Eastern European nations (as has Germany) – and so U.S. banks may suffer some loss / risk from defaults from potential Eastern European defaults. 
And then there is the possible impact on the world-wide real estate markets.  Dubai may be forced to unload properties at very low prices (can this be equated to “short sales?).  If this were to happen, Richard Bove, Bank Analyst with Rochdale Securities, speculates about the risk exposure and real estate that would have the potential of impacting the U.S. Congress decisions about increasing regulation for anyone connected to the U.S. financial system.  Bove continues by suggesting that such moves by Congress may dampen all commercial credit markets by increasing the default risk reserve funds, forcing underwriting to become more cautious.  Decreased lending would equal decreased bank profits.
I can’t wait to see what unfolds Monday!


2 Comments leave one →
  1. November 30, 2009 9:00 pm

    Interestingly, Dubai is calling the creditors to recognize their responsibility. For more, see

  2. November 30, 2009 9:12 pm

    Yes. I read that – and stocks actually closed higher today. So, I imagine that the world is viewing Dubai World’s financial problems as a “hiccup”!

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