The Great Debate

– Neil Unmack is a Reuters columnist. The opinions expressed are his own —

Some kind of debt restructuring was inevitable for Dubai’s myriad overleveraged borrowers, but the emirate’s decision not to support property developer Nakheel and seek a debt standstill for holding company Dubai World has devastated its standing in financial markets. Dubai’s future and ability to attract much-needed external capital will depend on how it handles the fallout.

It is rare to see a company announce plans to launch a bond on the same day it threatens creditors to one of its main businesses with potential default. That’s what Dubai just did, when it asked creditors of flagship holding company Dubai World and property developer Nakheel, owned by Dubai World, for a debt standstill until next May on the same day it announced plans to sell a bond for its electricity and water authority.

This muddle suggests Dubai has underestimated how much international markets’ view of its own standing would be contaminated by the standstill. Yesterday’s bombshell followed weeks of rapprochement between Dubai and international markets, culminating in the government’s recent sale of an Islamic-compliant bond. That goodwill is now lost.

Supporting property developer Nakheel may have been unpalatable, but the way the news was announced — on the eve of the Eid holiday — is hugely damaging for other government-related entities and Dubai itself.

Wall Street would like you to believe that when investment banks take on risk they are largely doing it for the benefit of investors -- maybe even you and me.

Bankers say much of the capital that their firms put at risk each day is to complete trades for big corporations, mutual funds, pension funds, hedge funds and university endowments. And contrary to the conventional wisdom, proprietary trading -- bets made for a bank's own behalf -- is really just a small part of their business.

Lately, Wall Street's captains of capitalism have been aggressive in pushing the "we take big risks for our customers, not for ourselves" line of argument.

You have to hand it to Barclays. The reported sale of BGI, its fund management arm, to BlackRock  for $13 billion is probably the best way that the bank could bolster its capital ratio.

It looks like it will end up with around $8 billion in cash and a fifth of the enlarged asset manager.

The gain on the sale would lift its equity tier 1 ratio to 6.8 percent from just over 6 percent, according to Nomura.

– James Saft is a Reuters columnist. The opinions expressed are his own –

Nationalization of weak banks in Britain and the United States may be preferable to current plans for insurance and soft “bad banks” schemes which risk being swamped by future losses as assets, especially real estate, continue to crater.

An insurance program, getting banks to identify their riskiest assets to the government which will insure them for a fee, is one of the main planks of a UK plan to bail out banks unveiled this week.