This is starting to sounds like something from a film. Banks are falling like dominoes.
1. We’ve all been worried about Kaupthing Edge and IceSave but here we are witnessing the nationalisation of Glitnir Bank. The Icelandic Government has taken a 75% stake in Glitnir for around £468 million after the company faced funding problems.
Given that Iceland is a small nation – something like 300,000 people – whose banks rely on getting funding from international money markets, the news that the Icelandic Crown is down even further today will not help. The remaining banks will effectively have to pay even more for their borrowing than before. If Kaupthing Edge or IceSave need to borrow any money in the short term where will it come from? I had some of my savings in IceSave but have transferred them to a UK bank.
2. Bradford & Bingley nationalised. The government provided a £14bn loan to protect customers’ deposits but the interest charged on this loan will have to be paid by other UK banks. In other words the bank that goes bust leaves a mess that the more prudent banks have to pay for.
3. The Netherlands, Belgium and Luxembourg have all chipped in to prop up Fortis with £8.9bn. Smaller nations like Belgium and Iceland bailing out huge banks – I wonder how much money they have left to keep doing it if required. Come to think of it, how will we keep doing it? More borrowing.
Also in Europe:
Munich, Sep 29, 2008 – Hypo Real Estate Group has secured a major new credit facility which is designed to shield the company from the impact of the current malfunctioning of the international money markets.
Hypo Real Estate Group, Press release, 29.09.08
Did they say “current malfunctioning”? I think they mean the current rationalisation of an industry that has been malfunctioning for at least a decade. Also today, Hypo got rid of quite a few of its directors – strange if it’s just a malfunctioning market. Anyway, the $50bn loan guarantee should keep afloat Germany’s second biggest commercial property lender.
4. Citigroup is rescuing Wachovia, the fourth largest US bank. Citigroup is in no great shape itself but if it survives this era of financial meltdown it will be another banking giant. This period of consolidation is likely to result in some truly enormous banks.
5. $620 billion pumped into the market from the Federal reserve but still markets around the world are today in turmoil. The $700 billion rescue package or criminal misuse of public funds, depending on your opinion, has just been rejected although no doubt it will be back tomorrow in a different form. Regardless of whatever measures are taken I am certain that more banks will fall.