Crisis in Poland and Baltics more visible

Several events prompted me to concentrate more on economy. I think that there is information war going on or there were launched operations of financial information deception. I can't explain other way so many contradictory statements on current economic crisis. One very basic strategy is subversion - implanting of false information, which triggers a self destructive process in the opponents target system.

Thanks to great hep from Mr Michael J. Panzner who wrote great books "When Giants Fall" and "Financial Armageddon" I was able to understand the nature of present crisis. (He blogs here I start my day reading also his new post. )

So I will be trying to provide my perspective on this financial breakdown.

Only on Friday Polish government led by prime minister Tusk managed to widen deficit by almost half. There was not much discussion on that issue. Many Poles think that recession will somehow will omit their country. But what they should think if few days ago minister of finance Jacek Rostowski assured that economy will have "positive" growth of about 1 percent. He even said what seems to be unrealistic idea that Poland may enter ERM2 next year. I did not see in Polish media Nouriel Roubini prognosis.

Sadly to say only few print media were in Avant-garde of alarming about coming crisis.

Today only first successful but controversial former minister of finance Leszek Balcerowicz gives his recipe for dealing with financial crisis in Poland. Balcerowicz says:
1. To reform difficult branches of industry such as healthcare and heavy industry (mining, shipyards, etc) and to cut bureaucracy in government.
2. To cut expenses on social needs
3. To simplify taxing system
4. To privatize more
5. Simplify law and delete unnecessary regulations in trade

Polish banks do not seem to be in such a trouble as some in Scandinavia. But I am suspicious that some kind of earthquake is behind our door.

Juhan Tere of Baltic Course describes problem of major Swedish bank. It was a major source
of credit for Baltic states (Estonia, Latvia and Lithuania) :

Swedbank AB, the largest lender in the Baltic states, reported its second consecutive quarterly net loss after bad loans in Estonia, Latvia and Lithuania soared and said it will cut jobs. The Q2 net loss of 2.01 billion kronor (257 million U.S. dollars) compared with net income of 3.6 billion kronor a year earlier, the Stockholm-based bank said in a statement on Friday.

That missed the average estimate of a 1.27 billion-krona net loss of 10 analysts surveyed by Bloomberg. Loan losses soared to 6.67 billion kronor, from 423 million kronor a year earlier. The Baltic States are suffering the deepest recession in the European Union amid the fallout from a collapse in real estate prices and the global financial crisis, boosting loan losses at Nordic banks, writes ELTA/LETA.

Swedbank plans to lower its employee base by 3,600 people by the end of the second quarter next year, from the 21,000 employees it had at the end of 2008, it said. "The financial system has stabilized to some extent, but the recession is now making itself more visible, and all signs are that the downward trend will continue for some time," Chief Executive officer Michael Wolf said. In the first quarter, Swedbankhad a net loss of 3.36 billion kronor after loan losses and provisions rose in the Baltics and Ukraine. Swedbank said at that time that given the "low visibility" in the Baltics, it couldn't "rule out future impairment of goodwill related to the Baltic investment."

Swedbank said it plans to keep financing itself independently and that the maturity of its funding structure continues to improve by the sale of long-term loans backed by state guarantees. The bank said liquidity is "very good."

The lender is the first Swedish bank to report earnings for the second quarter. Nordea AB will probably say profit dropped 40% to 414 million euros when it reports earnings on July 21, according to the average estimate of nine analysts surveyed by Bloomberg. SEB AB's net income is likely to slump 55% to 1.27 billion kronor. The bank is to report its results on July 20. Svenska Handelsbanken AB, the only major Swedish bank without significant operations in the Baltic States, is likely to see its second-quarter profit drop 7% to 2.26 billion kronor, according to 10 analysts surveyed by Bloomberg. The Stockholm-based lender reports second-quarter earnings on July 21.

The revenue generated by the Estonian unit of Swedbank fell by 3.7% in the second quarter of 2009, writes theNational Broadcasting/LETA.

The bank’s operating costs fell by 2.1%. Due to the economic crisis, Swedbank Estonia earned a loss of 372 million kroons.

The volume of the bank’s loans portfolio fell by 1.9% and the savings volume by 0.3%.

Director General of Swedbank Estonia Priit Perens stated that the second-quarter results were to be expected. He added that the loss from the first half of this year forms less than a fourth of the profits earned during the entire last year.

In the first quarter of 2009, Swedbank Estonia earned a loss of 297 million kroons.

In comparison to the beginning of the year 2008, the number of employees in the bank’s Estonian unit has fallen by 18% and the number of bank offices by 21. At the end of June 2009, Swedbank had 73 bank offices in Estonia.

Swedbank Latvia closed the second quarter of the year with a loss of LVL 169 million, as the bank's press secretary Kristine Jakubovska informed LETA.

In the second quarter "Swedbank" had an operating profit of LVL 33 million, which represents a 25 percent increase over the result in the first quarter.

Collective provisions of LVL 78.5 million, which, in preparation of further economic recession, were formed in the first quarter at Swedbank"Group level, have been transferred to Latvia to buffer future loan losses.

In today's economic situation, provisioning for impaired loans is the key factor, which affects the profit. At Swedbank Latvia, provisions for impaired loans amounted to LVL 239 million in the second quarter. The development of impaired loans during the second quarter was in line with expectations in the Baltic countries, and Swedbank believes that the rate of increase in impaired loans will tail off during the second half of 2009.

Swedbank Latvia revenue increased by 8 percent to LVL 48 million, while operating expenses have been cut by 17 percent to LVL 15 million as a proof of successful cost management.

"Improving efficiency, optimizing expenses and finding opportunities to increase revenue at a time of recession presents a challenge to each and every player of the economy, and that is our primary task", said Swedbank LatviaCEO Maris Mancinskis.

Swedbank Latvia increased the subordinated capital and the process of increasing equity capital is now in the final stage, reaching the capital adequacy ratio of 12.55 percent, which considerably exceeds the 8 percent required by law.

This way Swedbank Latvia has made extremely cautious preparations for even the most bleak economic outlook. The bank's goal during these times is to work efficiently and, being at the forefront of the financial market, to set an example of improving productivity of work, as well as supporting and finding most suitable solutions for the bank's clients to help them weather the recession, said Mancinskis.

In the second quarter, the bank's credit portfolio shrank by 8 percent, while deposits dipped by 2 percent. Trends in deposits are in line with overall market development, considering the rapid fall in incomes experienced by households.

However, at the same time people are becoming increasingly aware of the importance of savings, and a growing desire to save is being observed - according to Swedbank's data, 60 percent of customers extend their deposits after they mature, keeping the money in savings and ensuring a greater financial stability in future for themselves.

The demand for new lending continued to sink in the second quarter, and Swedbank expects low demand to continue in coming quarters. New financing continues for viable projects, subject to more conservative lending conditions due to the increased risks related to the current economic situation, while demand in retail lending is subdued in connection with greater uncertainty surrounding the labor market.

During the second quarter Swedbank Latvia was able to better organize human resources costs with a 13 percent reduction on the first quarter. During the first half of the year the number of employees has decreased by 8.3 percent.

In the second quarter the number of Swedbank's customers in Latvia has rapidly come close to one million.

The share of electronic settlements in Swedbank has reached 97.42 percent. Also payments with Swedbank cards have increased - in the first six months of the year as much as 70 percent of all card transactions were purchases, not cash withdrawal.

As expected, the economy continued to shrink during the second quarter in all the Baltic countries. Although an extremely fast contraction at the start of the year was followed by a period of relative stabilization in the Latvian economy in the second quarter, unfortunately there is no doubt that a further slowdown in economic activity can be expected in the second half of the year.

Economic growth cannot be expected to resume any time sooner than mid-2010. Nevertheless, some positive signs of economic balancing have been seen in past months. It is largely related to the fact that the private sector in Latvia has been surprisingly fast in adjusting itself to a changed economic landscape, balancing costs and restructuring operations.