Credit Crisis Update: Foreign Stocks Dive Monday on Trio of European Bank Bailouts

By Jennifer Yousfi
Managing Editor

World markets plunged today (Monday) after several European governments had to step in and prop up three key banks as the confidence crisis that has hammered the U.S. financial markets finally jumped across Atlantic.

The MSCI All-Country World Index of 48 nations lost as much as 4.5%, according to Bloomberg data, its sharpest decline since the "Asian Flu" mini-crash in 1997.

"Investors are fearful, frenetic, especially when it comes to banking shares. They want to get out now and see the after effects from afar," Frank Geilfuss, head analyst at Bankhaus Loebbecke, told Reuters. "This is a market running on fears at the moment and not on fundamentals."

In overseas markets, Japan's Nikkei 225 Index had a 1.3% loss, plunging 149.55 points to close at 11,743.60. Hong Kong's blue-chip Hang Seng Index plunged 4.3%, nose-diving 801.41 points to close at 17,880.70.

European bourses sank with the very bank shares that led the declines. The FTSEurofirst 300 index fell more than 5.2%. The Paris-based CAC40, London's FTSE 100, Madrid's IBEX 35 and the Frankfurt-based DAX all posted triple-digit losses.

Europe's Banking Bailouts

A trio of European banks received government assistance today, sending European shares into a tailspin.

Shares of Belgo-Dutch financial powerhouse Fortis NV plunged over 23% today, despite an emergency cash infusion of $16 billion (11.2 billion euro) from the governments of Belgium, the Netherlands and Luxemburg, The Financial Times reported

"In a situation where you have so much unrest we felt that in the interest of our clients it was absolutely necessary to restore confidence," Filip Dierckx, the newly appointed Fortis chief executive, said about that bank's partial nationalization. "With this capital increase, this has been achieved."

In the United Kingdom, the British government stepped in and took over Bradford & Bingley PLC (PINK: BDBYF) after concerns about the mortgage-lender's health induced retail customers to withdraw "tens of millions of pounds," The FT reported.

The U.K. Treasury said it had made the decision in order "to maintain financial stability and protect depositors, while minimising the exposure to taxpayers. [The government] has worked over the weekend to bring about the part public, part private solution which best meets those objectives."

The British government will sell Bradford & Bingley's mortgage portfolio and retail-bankingf branches to Spain's Banco Santander SA (ADR: STD) for approximately $1 billion (600 million pounds). 

And in Germany, the government pledged to back Hypo Real Estate Holding AG (PINK: HREHY), a Munich-based bank facing its own confidence crisis. The German Finance Ministry pledged $38.3 billion (26.6 billion euro) in emergency credit to Germany's second-largest commercial property lender.

"Admitting [Hypo's] liquidity problems is no real surprise, as the severe funding problems were already rumored in recent days," Kerstin Vitvar, an analyst with UniCredit told the International Herald Tribune. "However, the amount of funding needed is very high and will lead to lower interest income in the future."

Hypo shares sank 69% — despite the German government's intervention – as the bank announced plans to slash the dividend.

News and Related Story Links:       

• Bloomberg News:
  Stocks Worldwide Tumble Most Since 1997, Bonds Rise on Bailouts

• USA Today:
  U.S., foreign stocks drop as financial problems spread

• Reuters:
  Europe bank consolidation arrives, not as planned

• Reuters:
  Global stocks and euro engulfed in spreading bank crisis

• The Financial Times:
  UK nationalises Bradford & Bingley

• The Financial Times:
  Fortis shares fall despite rescue

• International Herald Tribune:
  Hypo Real Estate secures major credit line

• Reuters:
  Stock Market News & Quotes