Europe's financial crisis spreads

Stock markets plunge as attempts are made across continent to bail out banks.

    Bradford & Bingley is the second bank the UK government has nationalised this year [AFP]

    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 lender.

    Howard Archer, the chief European economist at Global Insight, an economics research company, said: "We live in vicious times.

    "In the near term, it will be the weak ones that will be picked off.

    "But, obviously, the more the turmoil and dislocation continues, the further this could spread."

    Market plunges
     
    Despite the concerted attempt by European authorities to shore-up confidence, stock markets closed down heavily on Monday.

    The London Stock Exchange FTSE 100 dropped 5.3 per cent, Germany's DAX fell 4.23 per cent and France's CAC 40 shed 5.04 per cent

    The series of bail-outs began over the weekend when Fortis, the Dutch-Belgian banking giant, was partially nationalised.

    The $16.4bn rescue package was organised by the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in Fortis disappeared last week.

    Reflecting the seriousness of the bail-out, Jean-Claude Trichet, the European Central Bank president, attended the negotiations in Brussels.

    In the UK, the government took over Bradford & Bingley's $91bn of mortgage and loans and paid out $33bn to facilitate the sale of its savings business, including its entire retail branch network, to Spain's Banco Santander.

    It is the second bank that the British government has had to nationalise this year. 

    Collapse fears

    In Iceland, the government took control of Glitnir bank, buying a 75 per cent stake for $878m.

    David Oddsson, the chairman of the country's central bank, said the bank, which has operations in 10 countries, would have collapsed if the authorities had not intervened.

    Meanwhile, in Germany, Hypo Real Estate Holding AG, the country's number two commercial property lender, was forced to secure a line of credit of up to $51.2bn.

    Analysts are closely watching Dexia, a French-Belgian specialist in lending to local governments, that ran up huge losses in its US operations.

    The bank had no comment on a report it was planning a rapid capital increase but said the board would meet Monday night to assess the situation.

    Yves LeTerme, Belgium's prime minister, called a cabinet meeting on Monday to discuss the company's future.

    SOURCE: Agencies


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