Banks are falling over like kingpins. Not good at all.
First, on the Fortis salvage operation:
Belgium, The Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis, Belgium’s biggest financial-services firm, to restore confidence in the bank after shares fell 35 percent last week.
Belgium will buy a 49 percent stake in Fortis’s Belgian banking business for 4.7 billion euros, the Belgian government said in a statement yesterday. The Netherlands will pay 4 billion euros for a similar stake in the Dutch banking unit, while Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis’s banking division in that country.
Fortis came under pressure because of speculation the company would struggle to replenish capital depleted by the 24.2 billion-euro takeover of ABN Amro Holding NV units last year and credit writedowns. Fortis will sell its stake in ABN Amro’s consumer banking unit, though the buyer wasn’t identified.
“Confidence in Fortis needs to be restored,” Corne van Zeijl, a senior portfolio manager at SNS Asset Management in Den Bosch, the Netherlands, who oversees about 750 million euros and owns Fortis shares, said.
Fortis Chairman Maurice Lippens will resign and be replaced by someone from outside the company.
I have not been able to find much on Hypo, since the articles are in German. which sadly I do not read). However, this report comes from a reader:
There are reports that the German Hypo Real Estate (part of the DAX) is in trouble and the German government is not willing to help out. It might file for BK on Monday. Apparently it invested too much in US subprime and it is not able to refinance.
However, Hypo appears to be a sizable player (reader Steve corrected our misinterpretation of a comment in a Reuters story), with a 400 Euro balance sheet (versus market value of equity of $4 billion). This would make of a similar scale to the Lehman bankruptcy were it to go under, but query whether it has anywhere near the tight linkages that Lehman had (in particular, credit default swaps written on its debt) to make a collapse create greater shock waves. But regardless of the factors that might amplify the damage, a failure of this magnitude is going to create even more reluctance of banks to lend to anything other than stellar credits.
There is no news on Bloomberg; I found older stories noting is that it is Germany’s second largest commercial property lender and JC Flowers has a 24% interest.
Reuters has a bit of G2:
Hypo Real Estate is in urgent talks with German banking regulator Bafin and the finance ministry about solving a refinancing squeeze at the bank….
The bank, which lends money for property projects and to governments, is examining measures including the sale of assets such as loan portfolios to circumvent the squeeze, one of the sources said…..
Talks, which began over the weekend following a sharp fall in Hypo’s share price, are continuing, the sources added.
Hypo is especially vulnerable to the freeze in interbank lending, which worsened after the collapse of Wall Street investment bank Lehman Brothers.
Unlike its bigger rivals such as Commerzbank, Hypo does not have any customer deposits to fall back on as banks grow increasingly reluctant to lend to one another.
Hypo relies on this interbank market to borrow as well as on money lent by Germany’s central bank to refinance roughly 50 billion euros ($73 billion) yearly, according to a company figure released earlier this year.
Most of the demand for this short-term unsecured refinancing comes from Hypo’s business of lending to governments, who often require help bridging temporary holes in their budgets.
The bank lends to such clients as Italy, Japan, Tokyo and Istanbul among others, according to information on its website.
Short-term finance such as this often expires at the end of the quarter — next Tuesday — and this is placing pressure on Hypo to find a solution fast, one of the sources told Reuters.
Earlier this year, German watchdog Bafin had examined an emergency takeover of Hypo in the event that the bank ran into refinancing difficulties, sources familiar with the matter have said.
It had lined up Commerzbank as a would-be buyer, they said, but the plan was never used.