Europe forced into bank rescues as crisis spreads
BRUSSELS/AMSTERDAM (Reuters) - European governments scrambled to shore up banks on Monday, carving up firms and committing billions of euros as the credit crisis tore through Germany, Britain, Belgium and beyond.
The moves came as $700 billion bailout plan for U.S. financial firms faced a vote by the House of Representatives on Monday and Citigroup (C.N) said it would buy the bulk of fourth-largest U.S. bank, Wachovia Corp WB.N.
Lawmakers hope to unfreeze global markets gripped by the worst crisis since the Great Depression of the 1930s.
In the biggest European bank bailout since the credit crisis began, the Belgian, Dutch and Luxembourg governments took a 49 percent stake in Fortis FOR.BR FOR.AS with a 11.2 billion euro ($16.4 billion) injection.
The rescue of Fortis, the biggest private employer in Belgium, followed emergency talks with European Central Bank President Jean-Claude Trichet on Sunday. The bank employs 85,000 staff globally.
"The question was whether Fortis would have survived on Monday," Dutch Finance Minister Wouter Bos told reporters. The firm's chairman, Maurice Lippens, resigned.
The German government and a consortium of banks said they would provide 35 billion euros ($51.2 billion) in credit guarantees to lender Hypo Real Estate HRXG.DE, whose shares plunged more than 60 percent in morning trade.
"The purpose of the whole operation is to allow an orderly winding down of Hypo Real Estate," a German finance ministry spokesman said.
In Britain, the government was forced to buy up the 50 billion pounds of loans, mostly mortgages, held by Bradford & Bingley BB.L. The government brokered a takeover of lender HBOS HBOS.L earlier this month and nationalized Northern Rock in February.
B&B's 200 branches and deposit portfolio were bought up by Spain's Santander (SAN.MC) for some 400 million pounds.
Iceland was also forced into action as emergency measures to cope with the credit crisis spread across Europe, forcing the government to take a 75 percent stake in third-biggest bank Glitnir GLB.IC in a move that sent the Icelandic crown to a fresh record low against the euro.
World stock markets fell, with the MSCI main world equity index down 2 percent .MIWD00000PUS to its weakest in more than a week. In Europe, the FTSEurofirst 300 index .FTEU3 of top companies was down 3 percent while bank stocks shed 5.4 percent .SX7P.
U.S. futures indicated a sharply lower opening. Shares of Wachovia sank 60 percent in early electronic trading on concerns about its portfolio of illiquid assets and ahead of the Citi announcement.
Despite the European Central Bank injecting extra billions hoping to spur lending, banks continued to hoard cash but not lend, sending the interbank rate for borrowing euros for three months to a lifetime high.
The euro fell nearly 2 percent at one point while the dollar and safe-haven government bonds surged.
The Fortis deal followed failed efforts to sell a stake to French bank BNP Paribas (BNPP.PA), a source said.
Fortis will sell the parts of Dutch bank ABN AMRO it bought last year to ING (ING.AS) in a deal expected to be finalized within two weeks, sources familiar with discussions told Reuters. ING declined comment.
The problems at Fortis, whose shares dropped by a third last week, were partly blamed on its taking a slice of year's 70 billion euro purchase of ABN with partners Royal Bank of Scotland (RBS.L) and Santander.
"Integrating ABN AMRO was a step too far for this company to do," Fortis CEO Filip Dierckx told a conference call.
The European Commission said Competition Commissioner Neelie Kroes was consulted on the Fortis rescue.
"We will look at any state aid involved as a matter of urgency," EU spokesman Jonathan Todd said. Under EU rules, rescue aid must be limited to six months and to the minimum required to ensure the company's survival.
The involvement of Trichet, who as ECB head is responsible for safeguarding financial stability in the euro zone, was unprecedented in a commercial bank rescue and underlined the concern for the integrity of the banking system.
Chinese insurer Ping An (2318.HK), a 5 percent stakeholder in Fortis, fell nearly 10 percent.
(Additional reporting by Paul Carrel in Berlin, Natsuko Waki and Sumeet Desai in London, Mark John, Marcin Grajewski and Antonia Van De Velde in Brussels, Matthieu Protard in Paris, Michele Sinner in Luxembourg; Writing by Jason Neely and Paul Taylor; Editing by Andrew Callus)
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