Crisis slams European banks, stocks as world awaits US vote
Tuesday, 30 September 2008

AFP, NEW YORK- US lawmakers agreed a 700-billion-dollar bailout of financial groups, but the financial hurricane slammed into European banks and global markets Monday amid doubts over whether the deal would get through Congress.

The British government nationalised Bradford and Bingley bank, three governments rescued Dutch-Belgian giant Fortis and Belgian-French bank Dexia was the latest in line for attack.
Suspicion and fear swept on despite the revised bailout stitched together by US lawmakers Sunday, the European bank rescues and new central bank infusions. Stock markets slumped amid scepticism about prospects for the US deal and the global economy.
The US House of Representatives was to vote on the rescue package Monday, but it was not certain that it would be passed.
President George W. Bush said the rescue "sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system."
But some conservative Republicans and liberal Democrats steadfastly oppose the plan, which includes the immediate release of 250 billion dollars to enable the government to buy up troubled assets.
The US bailout would be the biggest state intervention since the Great Depression, but the wave of failure and distress in European banking is also assuming unprecedented proportions.
-- The British government announced the nationalisation of Bradford & Bingley. Its savings business -- with 20 billion pounds of savings and 2.7 million customers -- will be sold to Spanish bank Santander for 612 million pounds (773 million euros, 1.1 million dollars), while its mortgage and loans book will be nationalised.
-- Fortis was rescued by the Belgian, Dutch and Luxembourg governments with 11.2 billion euros (16 billion dollars). Fortis shares slumped 18.9 percent in Amsterdam on Monday after crashing last week.
-- The Belgian government said it would stand by Dexia bank, a leading European lender to municipalities, as its shares plunged by 23.0 percent and it rushed out a statement assuring "our liquidity is very good."
-- German banks extended a life-saving multi-billion-euro credit line to Hypo Real Estate (HRE), and small Danish bank Bonusbanken was rescued by Vestjysk bank.
-- Iceland's government said it would buy a 75 percent stake in one of the country's largest banks, Glitnir, for about 600 million euros (860 million dollars) to ease its liquidity problems.
In a new bid to stabilize markets, the European central Bank announced a special 38-day loan to eurozone banks, and the Bank of Japan injected 1.9 trillion yen (17.8 billion dollars) in Tokyo.
But interbank lending rates rose even further, in defiance of the agreement in Washington.
European political leaders are now nervous and French President Nicolas Sarkozy called a meeting of senior EU leaders and for a global summit on the state of the international financial system.
Financial shares led European stocks downwards. Shares were down 2.49 percent in London, 2.83 percent in Paris and 2.84 percent in Frankfurt, after falls of 4.3 percent in Hong Kong and 1.26 percent in Tokyo.
In Paris, shares in Credit Agricole fell 6.84 percent and in BNP Paribas by 6.27 percent. In Zurich, UBS was down nine percent.
In London, Royal Bank of Scotland stock shed 13 percent, HBOS dived 8.94 percent, and Barclays dipped 6.55 percent.
Analysts highlighted doubts about the US package as well as the renewed turmoil in Europe.
Barclays Capital analyst David Woo said the US bailout deal "reduces the risk of a systemic collapse" but "many downside risks remain -- not least those related to a protracted slowdown in the global economy."
In addition "financial market turbulence is seriously affecting the European financial system" and "weakness in equities ... suggests the market is pessimistic about the likely effectiveness of the (US) Treasury's plan."
UniCredit economist Marco Annunziata said in London that Congressional approval could take a few days and although the package "pulls us back from the brink," extreme dislocations in money markets were a source of "serious stress in the financial sector."
"In this market, no-one is taking any chances and we must wait until the vote to confirm it (the plan) has passed," said City Index market strategist Joshua Raymond.
"Then we must see if it ticks all boxes for a recovery, and that means the market understanding how it is going to work fundamentally."
Fortis's problems are "weighing on European banking stocks," a Zurich-based trader told AFP, adding "UBS is much more exposed than Fortis."
Motomi Hiratsuka, a trader at BNP Paribas, said: "We know that we are most likely to avoid a meltdown in the US financial sector, but what matters now is negative news from new regions."

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