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. Last Updated: 07/27/2016

Large Banks Report Losses From Russia




Losses at the world's largest financial institutions continue to mount because of economic malaise in Russia and other emerging markets.


Dresdner Bank, Germany's second largest financial institution, announced that it has made provisions of 600 million Deutsche marks ($360 million) to cover 60 percent of its unsecured loans to the Kremlin and Russian companies.


Part of these provisions f 100 million marks f will help cover purchases of GKOs and other Russian bonds.


Even more shocking was the announcement that 12 major international banks would put up $3.5 billion to rescue Long-Term Capital Management, a high-risk U.S. hedge fund with over $80 billion in investments, a sizable portion of which was in Russian securities.


The potential fallout from the fund is so great that the Federal Reserve Bank of New York had to prod the consortium of banks toward the deal, analysts said. (See story, Page 13.)


United Bank of Switzerland has already lost $685 million due to its stake in Long-Term Capital Management.


Morgan Stanley saw its stock fall 11 percent on its announcement that third-quarter earnings would take a $110 million hit for bailing out one of its emerging market funds.


Lothar Gries, a spokesman for Dresdner Bank, disputed a Financial Times report Friday that a trader at a bank division had engaged in illegal trading in GKOs. "There have been some small losses on GKOs, in the double-digit millions of Deutsche marks," he said, "but the trader did not engage in 'rogue trading.' He only failed to assess the risk in investing in Russian securities."