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Wednesday, September 24, 2008

Kazakhstan Plans Paulson Style Bailout: Borat?

What have you done Borat?

I can't believe it! Kazahkstan plans to implement their very own Paulson bailout. Those crazy Kazakhstanis!

Insanity is a virus.

Those of you still betting on some kind of decoupling are just absolutely nuts. This thing is huge. This thing is global. Nothing and nobody is immune.

Kazakhstan Plans Paulson-Style Rescue Fund for Riskiest Banks: "Kazakhstan's government, grappling with a credit squeeze that has cut economic growth by half, is working on a $5 billion rescue fund to buy distressed assets from its banks.

The central Asian country's banks will be able to swap their loans for bonds that are "partially guaranteed by the government,'' Kazakh Finance Minister Bolat Zhamishev told a banking conference in the financial capital Almaty today. The government will set up the fund "as quickly as possible'' and keep it in place for at least three years, he said.

Kazakhstan's banks have a bigger default risk than any in Europe or Asia, based on the cost of credit-default swaps for BTA Bank, the country's largest lender. Banks raised their bad loan provisions by 42 percent in the first eight months of this year amid a slump in the value of property assets that back more than a third of their clients' debt, according to the Financial Supervision Agency.

"The Kazakh plan is similar to the U.S. plan'' to buy bank assets, said Ekaterina Trofimova, a Paris-based analyst for Standard and Poor's, said in an interview in Almaty. "In these circumstances there aren't many roads to salvation.''

President Nursultan Nazarbayev ordered the government to create the fund earlier this month and the government said on Sept. 12 it would invest about $1 billion. Local units of Citigroup Inc., Deutsche Bank AG, Credit Suisse Group AG and Renaissance Capital took part in a government meeting on the fund last week, the Financial Supervision Agency said on its Web site.

Paulson Plan

Like the $700 billion U.S. rescue plan advocated by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke, the Kazakh government will avoid paying banks discounted prices for their loans, basing the swaps instead on the stated "book value,'' Zhamishev said. Bernanke said yesterday that the U.S. government won't pay "fire-sale prices'' under its plan.

The Kazakh bonds that are offered in exchange for distressed bank assets may be split into three portions or tranches. The risk of losses from the lowest tranche will be assumed by the banks, Zhamishev said. The banks may be allowed to resell the top tranche to investors.

"It wouldn't be reasonable to sell these bonds to investors at this point,'' Zhamishev said, adding that banks should wait until market conditions are "favorable.'' The amount of bonds issued by the fund will depend on the assessed value of banks' distressed assets, he said.

Default Risk

Lenders have been battered by the end of a construction boom fanned by Kazakhstan's oil-led economic growth at 10 percent a year since 2000. The $100 billion economy grew 5.4 percent in the first half of 2008 as banks curtailed lending because of the global credit crunch.

Net income at Kazakhstan's 36 banks has fallen 47 percent this year as lenders put aside more money to cover bad loans, the Financial Supervision Agency said in a statement.

"The fund will help to increase investors' confidence in the quality of bank loan portfolios,'' Zhamishev said.

The cost of protecting bonds sold by BTA Bank from default jumped by 118 basis points to a record 1,463 basis points today, according to prices from CMA Datavision. That means it costs investors $1.46 million a year to protect $10 million of the Almaty-based lender's debt for five years. The cost is higher than all three of Iceland's largest banks.

Credit-default swaps, financial instruments based on bonds or loans, were conceived to protect bondholders by paying the buyer face value in exchange for the underlying securities should the borrower default. An increase indicates a deterioration in the perception of credit quality.

The Kazakh bailout plan is a "positive" step, S&P's Trofimova said."

The only thing I know about Kazakhstan, is that Borat lives there.

I decided to find out a little about how their markets have been performing of late. From the Kazakhstan Stock Exchange site I learned that the KASE index "is the ratio of included into the representative list shares market prices at the list development date to this list shares prices at a certain date, weighted on capitalization considering free floating shares. KASE Index is recalculated after each deal concluded on shares, included into the index representative list."

WTF? Click here to see for yourself.

Apparently they entire exchange was founded in 1993 and only lists a few dozen companies. That's what Wiki says.


Anonymous said...

see now precedent has been set. Paulson can point to this as a reference...I am sure he will argue how close the models are and that his plan is going to be an assured slam dunk! I am changing my vote!

Anonymous said...

This is just a copy cat crime.

Ben Bittrolff said...

The safest thing to do right now, is to get really drunk...

Anonymous said...


Random, but another funny thing. Did you hear how Hong Kong decided to fight inflation by offering a 3-month rent holiday for residents in public housing?,dwp_uuid=f6e7043e-6d68-11da-a4df-0000779e2340.html

I seem to remember another one of your posts about a price floor in the stock market? Who comes up with these things? Oh yeah, Paulson.

Great post!

Cobra said...

Yeah, get really really drunk!

Anonymous said...

Ben, Kazakh capitalism is even more screwed up than you know:

From articles on's August issue:

The Kazakh language lacks works for "profit" and "interest," so business must be conducted in Russian.

The Kazakh market is not included in frontier market indices because it doesn't have "normal" settlement conventions, like T+3. Intead, it's "rolling settlement," where each trade on the exchange must be followed with another. I don't understand how you can take cash out, then, but that's what says.

Anonymous said...

very nice ,. is good

Unknown said...

Did they throw the Jews down the well?

Anonymous said...

The Norwegian Oil Fund is determined to double down on it's losing USD "investments"; apparently they are going all-in on USD:

This is why "we Europeans" want "the plan" to fail: It is our money being thrown away too!!

Anonymous said...

Kaz's Stock Exchanges are like many of the ex-soviet state Exchanges: very small with few listings and very thin trading. Any corp. bond market at all? Maybe only a handful of issues for trading? Some of these states have no deficit, so do not issue bonds (Treasuries) and thus their central banks have little or no way to influence interest the borrowers and lenders set their own, deal by deal.
The capital markets in these countries are like Canada's (but on a smaller scale), just too small to function as a place to raise significant capital, that's why we all need London NYC and Tokyo to be running finance requires the big capital markets these places provide.
OTOH smaller Markets can be "regulated" without affecting the entire planet. Unlike say NY or London....but these places would not be what they are without the pre-existing strong stable and predictable legal systems in place to deal with the inevitable disputes and squabbles of any Capital Market.
Bottom line: Kaz (and most like it) are small potatoes, and will follow the lead of the main players. What they do will only have a limited extent of "damage", but sometimes (remember Sweden and its super-high surprise overnight hikes to its central banks' interest rates?) the unilateral action can work due to the small size of the Market being intervened in.

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apple loans said...

hi, naturalthing1 Back in those days very few people actually knew about Borat or Ali G. Here in South Africa most people only heard about Borat when the Borat movie came out.thanks to all............