Bahrain financial woes worsened by relationship with Libya

Special Report – Bahrain financial woes worsened by Libya
Published: July 11, 2011 at 6:21 PM

MANAMA, Bahrain, July 11 (UPI) — Bahrain’s financial problems from political unrest are being made worse by investment links to embattled Libya, a widely known issue in the financial industry that came to the fore as Moody’s downgraded Arab Banking Corp., the kingdom’s banking giant.

Earlier this year Bahrain suffered downgrades of its sovereign debt ratings by in response to the government’s violent crackdown on political activists.

The ABC downgrades could be more far-reaching, however, because of very large Libyan stake in the bank, analysts said.

Moody’s said it downgraded ABC to speculative grade because of the bank’s continued reliance on Libyan deposits and the potential constraints on its franchise given that its 59 percent majority shareholder, the Central Bank of Libya, remains subject to sanctions imposed by United Nations, the United States and the European Union against the Libyan regime.

European authorities froze unspecified Libyan state funds, believed to be tens of billions of dollars, in response to Libyan leader Moammar Gadhafi’s war on dissidents and then armed rebel groups, now grouped together in an interim Transitional National Council and poised to wrest power from Gadhafi.

The Moody’s downgrade had the dual impact of hitting an already nervous Bahraini banking sector harder and raising new questions about the status of Libyan assets abroad. …more