Erste Bank Makes $1 Billion Loss

October 11 00:00 2011

New York, October 11 ( – The second largest bank of emerging Europe, the Erste bank shocked investors as it announced its $1 billion (800 million Euro ) loss. Investors trembled as they believed that this was more than a mere monetary loss. This was actually a loss of confidence in the strength of the Eastern Europe economy. This had the potential to bring about a series of downgrades by credit rating agencies reversing the whole positive outlook on the economy of the region.

Erste bank faced this loss because of three reasons. Firstly it has taken major hits in its currency exchange and forex operations. This is no surprise given the fact that the Euro has been in a state of free fall for many days. Secondly, the bank also had a lot of exposure to sovereign debt of European nations. However, the bank has been quick to dispose off the debt and mark its losses as early as possible when the world is not so negative about the state of affairs. The bank now has only $10 m in exposure to sovereign debt. Thirdly, Erste bank had made loans to a Hungarian organization and this big loan has gone bad.

However, Erste bank may have seen the worst as the outlook ahead is positive.