Manama - Arabstoday
Arcapita, an investment bank based in Bahrain, filed for bankruptcy protection in the United States yesterday after the failure of talks with creditors over US$1.1 billion (Dh4.04bn) of debt.The move came as the credit rating agency Moody\'s Investors Service warned of a funding crisis brewing in the Gulf. Arcapita said it \"filed voluntary cases in the United States under Chapter 11 with the goal of developing and confirming a plan of reorganisation\". Negotiations to extend a $1.1bn debt repayment due this month over three years were \"negatively impacted\" by the euro-zone crisis, said Atif Abdulmalik, the chief executive of Arcapita. He blamed hedge funds for the failure to reach an agreement.\"The actions of certain non-bank creditors have precluded Arcapita from reaching such a consensual resolution before the March 28 maturity date, jeopardising Arcapita\'s ability to satisfy its fiduciary duties to its stakeholders. The filings offer Arcapita the necessary protection it needs to complete productive negotiations with all parties,\" Mr Abdulmalik added. Moody\'s warned that the Gulf was at risk of a funding shortfall while European banks deleveraged and built up their capital buffers to ward off future financial crises, with Bahrain\'s vast offshore banking sector looking particularly vulnerable. \"We expect the deleveraging to result in a sustained reduction of lending at a time when the GCC faces sizeable funding requirements, with an estimated $1.8 trillion of capital investments under way or planned over the next 15 years,\" Moody\'s said. The shortfall is expected to be less for Saudi Arabia, Oman and Kuwait, but other Gulf countries could struggle in the event of a sharp withdrawal of funds, the agency\'s report said. \"In the short term, both Qatar and the UAE have sizeable future refinancing and investment needs, but both governments currently have a high capacity and willingness to provide the necessary liquidity,\" it said. For Bahrain, which is home to a large banking sector and where European financing is equivalent to 75 per cent of GDP, the problem could prove more substantial. \"In the long term, for all three [Gulf] countries, a sustained withdrawal of foreign funding would be a structural issue necessitating a change in strategy and any gap would pressure the local economy without new sources of funds,\" the report added. Problems for the offshore wholesale banking sector in Bahrain, which reinvests international funds throughout the Gulf, could be even more acute. European banks\' deposits to this sector are equivalent to about two times Bahrain\'s total GDP and fell sharply during the Arab Spring European banks are racing to cover a capital shortfall sparked by the Greek sovereign debt crisis. Beginning late last year, the European Central Bank pumped €1.01tn (Dh5.31tn) into the European banking system via long-term refinancing operations, averting an immediate financial crisis. The effects of these funds would \"ease some funding pressures and thus help avoid fire sales of assets as well as reduce the likelihood of local short-term liquidity squeeze\", the report said. However, any further spillover from the euro-zone debt crisis would exacerbate an existing funding squeeze in the Emirates. International banks withdrew $19.9bn of deposits from the Emirates during the third quarter of the year, according to the latest available data from the Bank for International Settlements.