Rosalie Berthier sur Twitter : “THREAD Lebanese banks, after accruing astronomical profits through government-sponsored schemes, are now cutting their losses at the expense of the state. Lebanese citizens, ultimately, will pay twice for such greed” / Twitter
▻https://twitter.com/RosalieBerthier/status/1225703920309166081
THREAD Lebanese banks, after accruing astronomical profits through government-sponsored schemes, are now cutting their losses at the expense of the state. Lebanese citizens, ultimately, will pay twice for such greed
For years, Lebanon’s government covered its deficit by borrowing billions of dollars, notably in the form of so-called Eurobonds—namely sovereign debt titles denominated in a foreign currency
Lebanese banks bought a majority of these, earning high annual interests (averaging 7%) pending repayment at maturity (typically after ten years). Banks thus racked up profits while bridging the state’s cash shortage
As Lebanon’s financial meltdown casts doubt on the state’s ability to repay, banks are eager to shed these billions of dollars in toxic assets
Increasingly, banks are seeking to offload this risk by re-selling Eurobonds on international markets, at a discount reflecting the increased risk of Beirut defaulting
Investment funds buy these Eurobonds based on the expectation that they can leverage international legal and financial institutions to force the borrower—that is, Lebanon’s government—to repay them in full
Lebanese banks incur a loss on the bonds’ original value. But they have already netted high yields and can now shield themselves from future losses, gain immediate dollar liquidity, and therefore consolidate their balance sheets and viability
In principle, this could serve their clients’ interests, if banks were to increase reserves and resume withdrawals, lending, and lines of credit for ordinary Lebanese. Yet that seems unlikely, given how consistently they favor shareholders and the biggest depositors
On the face of it, internationalizing Lebanese debt could also be beneficial given the downsides of Lebanon’s incestuous financial system, in which dodgy schemes maximize short-term profits at the expense of the country’s solvency
The problem is that the greatest loser is the Lebanese state—and, by extension, Lebanese society. Beirut now owes more and more dollars to outsiders who made no prior profits on these Eurobonds, and who will be far more demanding in any negotiation
This outcome could well have been avoided. Beirut had ample time to prevent banks from offloading these bonds, through capital controls extending to financial assets such as sovereign bonds
In that scenario, the government could have renegotiated its debt to Lebanese banks to mitigate the consequences for all concerned. The banks’ losses would have been justified by profits made over the years on risky lending
Instead, banks are shedding their responsibility and transferring the full burden to the state. The latter will now bleed dollars at a time when it desperately needs them—to fund imports, defend its currency, guarantee deposits, and so on
In other words, Lebanon is losing what few tools were at its disposal to manage the consequences of its financial meltdown, through an independent monetary policy
Instead, the government and the banks are making Lebanon into a hyper-indebted country vulnerable to foreign dictates—which they likely will blame when the costs are handed down to everyone