Banks stock prices plunge as Dubai debt fears rattle global markets.

Banks fell on the Stockholm exchange Thursday after Dubai's shock call to delay debt payments for its troubled super project Dubai World. The move rattled investors seeking returns on emerging markets and stocks plunged all over Europe, especially in financial sectors.

“There is nothing investors dislike more than this kind of event,” said Norval Loftus, the head of convertible bonds and Islamic debt at Matrix Group Ltd. in London, which manages $2.5 billion of assets including Dubai credits, to Bloomberg News.

The Nordic region’s largest bank, Nordea, declined 5.80 percent at Thursday while Swedbank fell 4 percent, SEB 3.10 percent and Handelsbanken 2 percent. OMX Stockholm 30 declines 3.30 percent.

Dubai World is a state-controlled investment company burdened by $59 billion of liabilities with more than 70 creditors. The biggest creditors are said to be Abu Dhabi Commercial Bank and Emirate NBD PJSC. Other lenders include Credit Suisse Group AG, HSBC Holdings Plc, Barclays, Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc, according to Bloomberg.

“Dubai isn’t doing risk appetite any favors at all and the markets remain in a vulnerable state of mind,” said Russell Jones, head of fixed-income and currency research in London at RBC Capital Markets, to Bloomberg. “We’re still in an environment where we’re vulnerable to financial shocks of any sort and this is one of those.”

The news came the same day as Swedish Riksbank Governor Stefan Ingves said that the financial markets have begun to function better, the recession appears to have bottomed out and that Swedish bank’s credit losses are expected to be lower than previously assessed.

Stefan Ingves told business daily Dagens Industri that the crisis in Dubai won't have any major negative effect on Swedish banks as the banks have build up a solid infrastructure to handle credit losses.  

European banks are pretty lightly exposed in Dubai. They have 13 billion euros' worth of exposure to debt-laden Dubai, Swiss lender Credit Suisse estimated. Investments in the Middle East accounted for up to two percent of European banks' exposure to loans in the region, of which Dubai represented just a part.