The implosion of Lehman Brothers, the fourth-largest investment bank in the US, with debts of $619bn was, of course, just the start. A staggering $10tr was wiped from global equity markets by the end of October as the full impact of the crisis swept through the financial world and, as a result, the wider economy.
The GCC didn’t have any direct exposure to the subprime mortgage catastrophe, but that didn’t prevent it from being caught off-guard by what had turned into a liquidity crunch cascading across global financial hubs. The effects were felt most prominently in Dubai 14 months later after Lehman Brothers collapsed, eight months after the US bear market had reversed course.
On November 25, Dubai’s investment vehicle, Dubai World, which held nearly three quarters of its $80bn debt at the time, asked all financiers to “standstill” for six months on bonds due to mature.
The world’s markets panicked – a day after the announcement, the Dow Jones Industrial Average fell 1.5 percent, European stock indices by double that, and safe haven currencies, the dollar and yen, spiked sharply. It wasn’t until a comprehensive restructure took place that Dubai World was able to pay off its most immediate obligations, renegotiate the rest with its lenders, and calm investors around the world. By that time, asset prices across the UAE had plunged as much as 60 percent, with Dubai World’s own portfolio declining in value by 35 percent to $12bn.
In this edition of Inside AB, Eddie Taylor and Shayan Shakeel look back at the events of summer 2008 to ask what lessons have been learned and whether such an event could affect this region quite as badly next time.
(Source: Arabianbusiness.com YouTube channel)