The credit crunch and the sharp loss of confidence since the failure of Lehman Brothers a fortnight ago claimed four victims in the European finance sector over the weekend and another major US bank.
In the latest of a stunning series of rescues, the Belgium Government and the regional administrations in that country, are reported to have agreed to rescue the Dexia bank, a Franco-Belgian financial group. Dexia has a big funds management business in Australia.
There’s no sign of a cost figure as yet, but local media said it could be as high as 7 billion euros, or close to $A12 billion.
It came 24 hours after the Belgium Government was involved in the rescue of Fortis, which also has operations here. That will cost 11 billion Eurosa for the Belgian, Dutch and Luxembourg governments.
Fortis, the Dutch-Belgium giant was bailed out, Hypo Real Estate, a big German property lender was also rescued by emergency funds from competitors and Bradford and Bingley in the UK was nationalised after parts were sold off.
The Icelandic Government took over Glitnir, the country’s third largest bank which had expanded via short term borrowings, setting off the biggest fall in the country’s stockmarket in its history and forcing an associated investment company in Britain into administration. That was the bankl’s biggest shareholder and its failure threatens other companies in which it had shareholders.
And as the debate in the US Congress unfolded, Wachovia, the country’s sixth-largest lender, was rescued by Citigroup, with the US government take a $US12 billion stake in the country’s largest bank.
The German government bailout of Hypo Real Estate will cost an incredible €35billion, or around $US55 billion.
Central banks, led by the Fed revealed more liquidity swaps around midnight last night, our time.
A total of $US330 billion in swaps was done with major central banks to boost the amount involved since Lehman Brothers failed to a massive $US630 billion.
The Fed also boosted its inter US domestic funding system called Term Auction Facilities to its banking system, increasing the amount to $US75 billion for each auction and revealing a total of $US350 billion in special auctions in November.
Australia’s RBA did a $US20 billion US dollar swap with the Fed in addition to the $US10 billion swap done last week.
All the new swaps are timed to end next March as central banks seek to calm markets and provide enough liquidity to handle the end of the quarter (today) and then the end of the year.
Fortis was the biggest shock, a mystery as the Financial Times put it this morning.
An apparently sound financial group with no real problems except one of confidence, plenty of assets and liquidity, but suddenly weak. .
And the worrying thing about the these near misses was the speed by which they emerged: it’s clear the credit crunch post the Lehman failure is gathering pace around the world and moving offshore from the US where the attention has been.
The Fortis rescue saw a horrible word revealed: ‘multinationalised’ which means a company taken over by more than one national government.
Given the way the credit crisis is going, it could very well become a word we hear more of.
It popped up yesterday to describe the way that Fortis was rescued from probable collapse by a trio of European governments that joined together in a rare cross-border move to bail it out.
Belgium, the Netherlands and Luxembourg are pooling 11.2 billion euros ($US16.3 billion) to rescue Fortis, which late last week was feared to be on the brink of insolvency following large credit-related write-downs and heavy selling of the group’s shares, even though short selling is banned in Belgium and Holland.
Each country’s government will take equal-sized stakes in Fortis’ banking operations in that particular country: Belgium will acquire a 49% stake in Fortis’s Belgian banking units for 4.7 billion euros (or $US6.8 billion), and the Netherlands will buy a similar-sized stake in Fortis’s Dutch banking operations for 4 billion euros ($US5.8 billion).
Smaller Luxembourg is extending a loan of 2.5 billion euros ($US3.6 billion) that can be converted into a 49% interest in Fortis’ banking business in that tiny country.
And, under the terms of the bailout, Fortis will have to sell off the pieces of ABN Amro it acquired last year in a joint bid with RBS of the UK and Santander of Spain.
That triumvirate was the antithesis of the move by the three governments to save Fortis, which would have never found itself in this position, had it withdrawn from the ABN adventure when the credit crunch started.
Similarly, RBS has been forced to sell assets, raise new capital and cut costs because of a combination of subprime losses and the cost of funding its share of the ABN bid, which remains unfinished.
RBS has raised over $US30 billion and it now seems that a buyer for Fortis share of the ABN assets will have to be found.
RBS has no resources and Santander has just helped rescue the depositors in mortgage banker Bradford and Bingley after buying Alliance and Leicester a few months ago, also in the UK. It is also coping with a property crunch in its home market of Spain.
So Fortis might not be out of the woods yet, unless one of the governments wants to buy the ABN assets (highly unlikely).
Fortis is the largest European company so far to be dragged down by the credit crunch.
The bailout will hurt Fortis’ largest shareholder, China’s Ping An Insurance which
