The last resort: Offloading emerging markets businesses
Such is the fragile state of leading banks that they might have to sell their highly prized emerging markets businesses to survive.
Desperate times call for desperate measures. But just how desperate has it got for US and European financial institutions reeling from the credit crisis? Desperate enough to contemplate selling their most prized emerging market assets in the hope of raising capital quickly to shore up ailing balance sheets?
Consider Citi. In the past two months the biggest bank in the US has raised $20 billion from a liquorice allsorts of investors including sovereign wealth funds, private accounts and fund managers to maintain liquidity. It has also announced a public offering of $2 billion in convertible preferred securities and an additional offering of $3.5 billion of straight preferred securities. Throw other measures into the mix and the bank has raised almost $30 billion in recent months.
Citi has also cut its quarterly dividend by 41% to 32 cents a share and has said that it will continue to sell non-core assets. All of this is in response to the $18.1 billion write-down it has made because of its exposure to the leveraged loan and sub-prime markets.
Still, some analysts believe this is not enough and, with the US economy seemingly heading for a recession, Citi’s domestic consumer banking business is increasingly vulnerable.