Argentina's banks face losses of US$54 billion and may be taken over by the government to avert financial collapse, Moody's Investors Service said Friday.
President Eduardo Duhalde, who has devalued the peso, seized savings and prohibited most overseas money transfers, has left banks insolvent. The government probably will convert deposits into pesos or bonds, replenish banks' capital with government debt and then try to sell them, the ratings company said in a report.
"The banks will be nationalized, recapitalized with peso bonds and sold off," Jeanne Del Casino, a Moody's banking analyst, said in the report. That scenario seems "ultimately inevitable."
Moody's estimated loss for Argentina's 87 banks is more than twice some analysts' forecasts and equivalent to about 3.3 times the banks' equity. Because of the country's economic crisis, smaller banks may fail while larger ones, many run by international banks such as FleetBoston Financial Corp and Citigroup Inc, may reduce business or consider abandoning Argentina, analysts said.
"The banking system may regress to a very primitive state and there will be a lot fewer banks around," said Scott Grannis, chief economist at Western Asset Management Co, which oversees US$1.5 billion in emerging market debt.
The Moody's loss estimate assumes a 75 percent write-off of all government loans and securities, a 50 percent loss on private loans and a 100 percent write-off of all non-performing loans.
JP Morgan Chase & Co analyst Victoria Miles predicted yesterday that banks would lose more than US$20 billion in Argentina.
Earlier this week, Standard & Poor's calculated a US$6.2 billion loss.
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