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European banks bailed out as crisis spreads
Published in Saudi Press Agency on 29 - 09 - 2008


European governments announced a flurry of
bank bailouts from Germany to Iceland on Monday, but the
rescue deals only heightened fears that the contagion from
the U.S. credit crisis has much further to spread before
the financial system recovers, AP reported.
European shares fell heavily and money markets remained
frozen with banks refusing to lend to each other for all
but the shortest periods amid concern a planned U.S.
government US$700 billion (¤490 billion) bailout package
would not be enough to stem the crisis.
«In the near term, it will be the weak ones that will be
picked off,» said Global Insight chief European economist
Howard Archer of the expectation that more banks would
collapse or need rescue.
«But, obviously, the more the turmoil and dislocation
continues, the further this could spread,» he added. «We
live in vicious times.»
Even as U.S. lawmakers were preparing to vote on the
planned rescue of their own banks, the governments of
Belgium, the Netherlands and Luxembourg took partial
control late Sunday of struggling bank Fortis NV, while
Britain seized control of mortgage lender Bradford &
Bingley early Monday.
Germany organized a credit lifeline for blue-chip
commercial real estate lender Hypo Real Estate Holding AG,
while Iceland's government took over Glitnir bank, the
country's third largest.
Additionally, the European Central Bank joined with the
U.S. Federal Reserve in doubling the credit swap line that
makes dollars made available to cash-hungry banks from
US$120 million to US$240 million. The Bank of England
doubled dollar availability to US$80 billion, while other
central banks offered smaller amounts.
Renate Brand, a banking analyst at SNS Securities, said
that «it's getting difficult for a lot of banks at once
now, because mistrust is so great and so widespread.»
Ton Gietman from Petercam Securities said that markets had
become so jittery that rumor and fact were being treated
about the same.
«Take a company like Fortis, whose management swears high
and low that they don't have any solvency problem _ and
it's still an open question whether they did or not _ this
market doesn't care,» he said. «If you can't stop your
share price from falling with anything you say, you have to
take some action to reassure investors and depositors.»
Notably, the Fortis bailout took place across national
lines. For months, European officials have been concerned
whether governments would work together in a crisis. In
this case they did, with European Central Bank president
Jean-Claude Trichet attending the negotiations in Brussels
on the ¤11.2 billion euro ($16.4 billion) bailout package.
The three governments took a 49 percent stake in exchange
and demanded Fortis sell the stake it had bought in ABN
Amro a year ago for ¤24 billion euros _ a move that many
analysts believe started its troubles. However, , said some
positive news was provided by the joint action taken by
Belgium, the Netherlands and Luxembourg in agreeing
«The ability of the euro area fiscal authorities to
co-ordinate on a bailout for a bank with not-only strong
cross-boundary operations, but indeed with a strong
multinational (almost supranational) identity was untested
until today,» Willem Buiter, a professor at the London
School of Economics and a former Bank of England
policymaker, said in his blog.
«They passed the test.»
The government took over Bradford & Bingley's 50 billion
pound (US$91 billion) mortgage and loan books and paid out
18 billion pounds (US$33 billion) to facilitate the sale of
its savings business, including its entire retail branch
network, to Spain's Banco Santander.
Britain earlier this year nationalized Northern Rock, but
not until after the mortgage lender suffered a damaging run
on its deposits by spooked customers. The government's
desire to move quickly to avert any repeat was underscored
by its swift action on Bradford & Bingley _ a
systematically unimportant buy-to-let lender that is around
half the size of Northern Rock at its peak.
In Iceland, the government took control of Glitnir bank,
the country's third largest, buying a 75 percent stake for
600 million euros (US$878 million) in a move it said was to
ensure broader market stability. Central Bank of Iceland
chairman David Oddsson said that Glitnir, which has
operations in 10 countries, would have collapsed if the
authorities had not intervened.
In Germany, Hypo Real Estate Holding AG, the country's No.
2 commercial property lender, became the first German blue
chip company to seek a bailout in the global financial
crisis, securing a line of credit of up to ¤35 billion
(US$51.2 billion).
Despite the concerted attempt by European authorities to
shore up confidence, stock markets tumbled in response to
the series of measures _ the London Stock Exchange FTSE 100
dropped 4.7 percent, Germany's DAX fell 3.7 percent and
France's CAC 40 shed 4.6 percent.
«All banks are having difficulty with long term loans and
short term financing. It's difficult to say which could be
affected,» said UniCredit economist Alexander Koch in
Munich. «I see the problem flowing until late next year.»
The biggest U.S. bailout in history, which goes to the
House for a vote Monday and to the Senate later in the
week, would give the administration broad power to use
taxpayers' money to purchase billions of home
mortgage-related assets held by cash-starved financial
firms. Analysts said a decision to break up the total
amount into smaller stages may have limited its
effectiveness in reassuring markets.


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