The World From Berlin Gordon Brown's Future at Stake in Credit Crisis
The Bank of England (BoE) has launched an unprecedented £50 billion ($99.8 billion) plan today to bail out Britains ailing banking system and help to ease the tightening mortgage market. The BoE confirmed on Monday morning that it would allow lenders to swap assets for government-backed bonds in an attempt to restore confidence and ease the effects of the global credit crunch.
The BoE will let banks swap United Kingdom and European mortgage-backed assets in for safer government bonds, which banks can then use to raise money.
The program coincides with media reports that Britain's second-largest bank, Royal Bank of Scotland, is expected to announce writedowns of up to £7 billion and a major capital hike in the wake of the credit crisis.
German business newspapers say the latest intervention by British authorities in the banking system, which followed the nationalization of troubled mortgage lender Northern Rock earlier this year, shows that Prime Minister Gordon Brown's political future is on the line as a result of the credit crunch.
The commentators also say that the days of so-called universal banks, which offer the full range of banking services from investment banking to asset management, may be numbered. In the world of finance, the shots are henceforth going to be called by the financial investors who have been bailing out troubled banks around the world, and these investors will ruthlessly split up institutions and sell off parts of them in order to get a decent return on their investment.
Business daily Financial Times Deutschland writes:
"Now it's finally official: the credit crisis has reached the British government with full force. The banks are negotiating unorthodox emergency measures with the government -- as has been happening on Wall Street for months."
"For the first timer a major British commercial bank is joining the club of the worst victims of the crisis: Royal Bank of Scotland (RBS) is likely to announce losses of around €5 billion and a record capital hike of more than €12 billion."
"So far the government and the Bank of England have given a confused picture: Central Bank governor Mervyn King initially refused to provide emergency loans in the crisis and stressed the need for market solutions, but he ended up having to intervene. BoE was forced to step in to rescue mortgage lender Northern Rock, which has since been nationalized."
"The plan now negotiated in 10 Downing Street shows the extent to which the other, more solid financial institutions are creaking as well. The banks are having big problems refinancing themselves through medium-term debt. As a result, mortgages have become scarce and expensive, which in turn is hurting the real estate market which is already cooling off after a long boom."
"The central bank and government now want to help restore the banks' mortgage lending business. They want to refrain from taking on any credit risks but it is already foreseeable that the government will intervene more heavily if it has to. After all, Gordon Brown's political future as British prime minister is on the line."
Business daily Handelsblatt writes:
"So far, bankers have only been whispering it. But at the annual general meeting of the Royal Bank of Scotland next week it will emerge as fact: The British, one of the big players in the European banking market, need money. That in itself is nothing new these days -- and yet it is the harbinger of a new and different banking world from the one we have known. In the future a new set of people will be giving the orders in the world of banking: the financial investors."
"The investors who have taken stakes in financial institutions in the course of this crisis, such as state investment funds for example, have been bitterly disappointed by the performance of share prices so far. They will be tough and ruthless in ensuring that universal banks with investment banking, private and corporate banking and asset management businesses will be split up and partly sold off. The only thing that will matter is the return they were hoping for."
David Crossland, 12.30 p.m. CET