As Washington lawmakers came to an agreement on an unprecedented $700 billion taxpayer-funded financial market bailout aimed at bringing the current crisis under control, Europe saw three massive bank bailouts on Monday. A consortium of banks has stepped in to save Germany's Hypo Real Estate, the British government has nationalized mortgage lender Bradford & Bingley and the governments of the Netherlands, Belgium and Luxembourg have taken 49 percent stakes in the national assets of Fortis, the largest European bank to be hit by the global crisis yet.
In Germany, a consortium of banks has stepped in to save Europe's largest mortgage lender from collapse. On Monday morning, the Deutsche Bundesbank, the German central bank, and the financial supervisory authority BaFin said the German finance sector had provided Munich's Hypo Real Estate with a credit line "sufficiently high" to save the company from insolvency.
The previous evening, Hypo Real Estate announced it would have to write down the goodwill in its stake in Depfa, an Irish bank, and would forego a dividend payment. The company did not state the scope of the write down. "This impairment will have a significant material effect on our profit and loss calculations for the group," Chairman Georg Funke said.
However, the Bundesbank and BaFin said the rescue package would be sufficient to save the company from failing as a result of problems created by the turmoil in the international financial markets. The organizations did not state which banks were involved in the bailout. Kerstin Vitvar, an analyst with UniCredit, told Reuters she estimated the value of the credit line at between €25 and €30 billion ($43 billion).
On Monday, Hypo Real Estate's Funke said the package would cover the group's refinancing needs for the foreseeable future, and that the short- and middle-term credit lines of "more than several billions of euros" would be enough to shield the company from the influence of the "currently largely inoperative international money markets."
As late as Sunday evening, the company -- the first amongst Germany's DAX index of blue chip firms to fall into the grip of the worldwide financial crisis -- appeared on the verge of declaring insolvency.
Nationalizations of Bradford & Bingley and Fortis
Meanwhile, underscoring the Europe-wide exposure to the crisis, the British government on Monday announced it would nationalize mortgage lender Bradford & Bingley. The Treasury said it would take over the troubled company's mortgage and loan books for £50 billion (€62.7 billion or $89.8 billion). The government said it would take over the company's mortgages and facilitate the sale of its £20 billion pound savings and branch network to Spanish banking giant Santander.
"We are standing behind the system to stabilize it because to let Bradford & Bingley go down would have destabilized the entire system, especially given what's gong on in the world at the moment," British Finance Minister Alistair Darling told BBC radio.
The bank focused on so-called buy-to-let mortgages for rental properties, whose owners have been hit hard by troubles in the United Kingdom's housing market, where falling property prices and rising mortgage rates have left many unable to cover their monthly mortgage payments.
The news came one day after the Dutch, Belgian and Luxembourg governments announced an €11.2 billion bailout of troubled Fortis bank, which saw a partial nationalization of the company. Fortis is Belgium's largest bank, and the government in Brussels is providing €4.7 billion for a 49 percent stake in the company's Belgian operations. Luxembourg is providing €2.5 billion for 49 percent of Fortis Bank Luxembourg, and the Dutch are investing €4 billion for 49 percent of Fortis Holding Netherlands.
Negotiations over the partial nationalization were led by Jean-Claude Trichet, the president of the European Central Bank, underscoring his concern over the financial stability of the euro zone, the area where Europe's common currency is used, if Fortis were to collapse. With over 85,000 global staff and cross-border structures, the governments felt it could not be allowed to fail.
The company's chairman has resigned and the governments are also forcing it to sell its stake in ABN Amro, the bank's main competitor, which it purchased as part of a consortium with Royal Bank of Scotland and Spain's Santander one year ago. The consortium paid €70 billion, the greatest amount ever paid to acquire a bank. Since the purchase, Fortis shares have lost more than three-quarters of their value. Last week the company's shares dropped by a third over investor concern about its liquidity.
Fortis itself paid €24 billion for its share in ABN Amro, reducing its available capital. As a result of the current credit crisis, the company has had trouble getting capital increases or selling off assets.
-- dsl, with wire reports