The bank said its ratio of non-performing loans has already rocketed from almost zero earlier this year to "nearer 1pc" in October as a result of the "current financial crisis", suggesting that recent expansion into Eastern Europe may have come at a price. A spokesman said the EIB could not elaborate until the audited books are published next year. Tucked away on the Kirchberg Plateau in Luxembourg, the EIB is a powerful arm of EU policy, using its AAA credit-rating to raise some €45bn (£38bn) a year on global bond market to finance ports, roads, sewers, and lately high-tech projects. Its loan portfolio is three times as big as the World Bank's. Italy's finance minister, Giulio Tremonti, has long sought to turn the bank into a sort of EU treasury, with the task of funding a "New Deal" for Europe. This is now becoming a reality as it takes on an ever bigger role in Europe's rescue plans. The mission creep is a risky game. What remains to be tested is whether investors will keep buying bonds from a body evolving into an all-purpose fireman. At the end of the day, the EIB has no sovereign entity behind it. Hedge funds are already on the prowl. The EIB must roll over €29bn in loans next year, mostly clustered in the first half. "We will be watching very closely to see what happens," said the manager of one US 'global macro' fund. A leaked draft of the European Commission's plan for the EU's €130bn fiscal stimulus plan includes proposals to boost the EIB's lending power and to use it for up to €15bn in soft loans to Europe's car industry. "Extraordinary circumstances require extraordinary measures," said the EU's industry commissioner Gunther Verheugen. The EIB is not allowed to plug the budget holes of EU states or cover balance of payments deficits, but this is a grey area. There are already signs that the EIB is being used for covert rescue missions. Latvia received approval for a €600m loan package on October 30, much of it on vague terms. It came after the economy contracted by 4pc in the third quarter. Latvia's government said today that it is seeking a joint EU/IMF bail-out. The EIB lent €45bn last year. It has €340bn of outstanding loans, based on call-able capital of €165bn from the EU's 27 states. This is mostly a promise by these states to provide the money – if push ever comes to shove. Fitch Ratings says the bank's AAA credit grade is still safe, but has expressed concerns over its expansion into the ex-Soviet bloc and its growing role as a lender to small business. "This could add pressure to the bank's risk profile," it said. The agency said the EIB has a "high gearing ratio", with a liquid assets portfolio of just 9.7pc of total assets. The credit default swaps (CDS) measuring bankruptcy risk on EIB debt have risen modestly since mid-2007, from 4 to 25 basis points. The spreads are lower that those of key states that underpin the EIB – Germany (31), France (45), and Italy (123). This is an anomaly, creating arbitrage opportunities for hedge funds. Marc Ostwald, a bond expert at Insinger de Beaufort, said the EIB needs to move with care in the current markets. "How much can the EIB borrow and still remain a viable institution? At some point people are going to say it is just leveraged capital," he said. The bank risks the fate of Fannie Mae, Freddie Mac, and other US chartered agencies. For a long time these bodies were able to borrow cheaply under an "implicit guarantee" from the US government. The guillotine has come down abruptly as market psychology shifts. Investors have decided for political reasons that $1.5 trillion of US agency debt is not the same as US Treasury debt at all. This has come as a brutal shock.Europe's superbank EIB enters perilous waters
The European Investment Bank, the world's largest multilateral lender, has seen its arrears rate surge over recent weeks, prompting concern over its ability to fulfil its new role as the spearhead of Europe's spending blitz.
Friday, 21 November 2008
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