EASTERN EUROPE, NEARING COLLAPSE Banking shares crashed

• Shares of BRD dropped below one Euro

• Steep drop for bank shares and currencies of Eastern Europe countries

Bank shares plunged almost 15% yesterday, dropping for the second day in a row, following the latest report by rating agency "Moody"s", who announced it might cut ratings for Eastern European subsidiaries of the big Western banking groups.

According to analysts, the news overlapped with the fourth wave of foreign investors making their exit off the Bucharest Stock Exchange, as indicated by massive sell-offs ever since the beginning of this week. This caused the Bucharest Stock Exchange to drop 12,6% in just two days of trading.

Shares of "Erste" lost 14,91% on the Romanian stock exchange, reaching 34,33 lei, while in Vienna they dropped 13,8%, to 7,37 Euro.

Shares of "BRD Groupe Societe Generale" were also among the "victims" of the panic, dropping 13,22%, to 4,35 lei/share, being the most traded shares yesterday, on the BSE.

Analysts consider that the massive sell-off of BRD shares prove that one of the minority shareholders, most likely a foreign investment fund, was struggling to make an exit.

Octavian Molnăr, manager of "IFB Finwest" brokerage house, said: "Moody"s report did nothing else but stimulate the sell-off of BRD shares. SIFs don"t sell in this manner because they have set price limits. Judging from the manner of the sell-off, we"re probably talking about an investment fund that wants to make an exit regardless of the price".

Florin Cătinaş, broker at "WBS Romania", considers that the drops that hit the banking shares on the BSE have climaxed yesterday amid anticipation of banks" future earnings.

"The stock market anticipated the evolution of the banking system by 3-6 months. Whether it was right or not, we will know later", said Mr. Cătinaş.

Banks with Romanian majority shareholders were not spared by the drops seen in the last two days either, as shares of "Banca Comercială Carpatica" (BCC) had dropped yesterday by 5,56%, to 0,0818 lei, while shares of "Banca Transilvania" (TLV) dropped 9,4%, to 0,675 lei/share.

• Shares of banks in Eastern European banks - the largest drop in the last six years

Shares of Eastern Europe banks yesterday reached a six year low, amid fears that economies in the Eastern bloc might deteriorate and bank earnings in the region might shrink because of lack of support from their mother banks in Western Europe.

Michael Ganske, head of emerging markets research at Commerzbank AG in London, said: "Eastern Europe is in the middle of a storm. The region is more integrated into the real economy in western Europe, and the picture in entire Europe doesn"t look very good". At the end of last week, Ariel Emirian, deputy head economist of "Societe Generale", warned that country risk has returned to Eastern and Central Europe, and that investors are ignoring the Romanian stock market "as if it were closed".