Rescue Package Approved German Cabinet Agrees on Conditions for Bank Bailouts
Angela Merkel's cabinet on Monday pegged strict conditions to the massive 500 billion rescue package for Germany's banking sector, including caps on executive salaries. The government has also criticized the CEO of Deutsche Bank for publicly refusing to sign up for the bailout.
German Chancellor Angela Merkel and Deputy Chancellor and Foreign Minister Frank-Walter Steinmeier before the cabinet meeting Monday.
The bailout plan includes up to 400 billion ($538 billion) in lending guarantees for banks, plus as much as 80 billion ($107 billion) to recapitalize banks and, if necessary, buy up risky assets. Each bank will be allowed a maximum 10 billion for recapitalization while the state would spend up to 5 billion per bank to assume bad securities. However, unlike the packages in the United States and in the United Kingdom, in Germany it is up to the banks themselves to request state support.
Any bank that signs up will have to put up with the government having a say in how it does business and will be required to set "appropriate" salaries for its top managers. On Monday the cabinet decided that salaries above 500,000 would be deemed inappropriate, although exceptions could be made. Banks would also have to scrap many severance and bonus packages.
In exchange for the bailout the banks would also be required to allow the government to examine their business policies and give it the right to force institutions to reduce risk-taking activities. Any dividends paid by participating banks would have to go back to the state rescue fund.
Banks Take Closer Look at Offer
The Dutch government is providing a 10 billion bailout for financial services company ING.
Government Criticizes Deutsche Bank CEO
The German government lashed out at Deutsche Bank CEO Josef Ackermann on Monday for criticizing the rescue package. Chancellor Merkel's spokesman Thomas Steg said that Ackermann's comments that he would be "ashamed" if Deutsche Bank had to accept state aid were "incomprehensible and unacceptable."
Steg said that Ackermann's comments could dissuade other financial institutions from signing up for the rescue package. He pointed out that, in fact, companies that did so would be acting very responsibly. Steg said the fact that Ackermann had called for a systemic solution made his criticism of it all the more incomprehensible.
Bailouts across Europe
Meanwhile, across Europe governments continue to try to shore up their banking industries, with the Dutch government on Sunday agreeing to make 10 billion available to the Netherlands' largest financial services company ING. The company had suffered a battering on the markets on Friday, with shares plummeting by 27 percent. The capital injection seemed to have worked on Monday, with shares rebounding by more than 20 percent at the start of trading.
On Monday the Swedish government outlined its plan to support the country's financial institutions, including credit guarantees and a bailout fund. Stockholm announced that financial firms' liabilities would be guaranteed up to a level of 1.5 trillion Swedish crowns ($205 billion) while 15 billion crowns would be set aside for a stabilization fund.
In France the crisis claimed its first scalps on Monday when the top three executives at Caisse d'Epargne, one of the country's biggest banks, were forced to resign under pressure from the government. Chairman of the board Charles Milhoud, CEO Nicolas Merindol and chief financial officer Julien Carmona, announced they would step down late Sunday night after the board met to discuss the 600 million lost in trading derivatives during the stock market collapse earlier this month. President Nicolas Sarkozy said the bank's top management should "face the consequences" of the heavy losses which were announced on Friday. Last week the French government put in place its own 360 billion rescue package to ensure its banks would not collapse.
smd -- with wire reports