Monday, September 29, 2008

First Euro Bank Nationalized

The British press (Yahoo!News UK & Ireland) was the first early this morning to announce what has been negotiated behind closed doors all weekend without so much as a by your leave: the Belgian, Dutch and Luxemburg governments pumping 11.2 billion Euros worth of tax payers' money into an over greedy and over prestigious bank, for years high in overdrive on testosterone: Belgium 4.7 billion Euros, the Netherlands 4.0 billion and Luxembourg 2.5 billion.

Mind, unlike Fannie Mae and Freddie Mac this was not a bank force-fed by politically correct government policies (and their community organizing enforcers) on quotas of toxic loans! The bank went down because its eyes were not on the bottom line, but indulged in irrational behavior, notably in buying the unaffordable Netherlands major bank - ABN AMRO - out of old world prestige. Investor confidence simply collapsed, shedding three quarters of the value.

The contrast with the US could not be greater. Whereas swathes of the Republican Party as well as a number of Democrats had qualms about handing over vast amounts of tax payers money to market parties, the silence in Europe is deafening. While the bailout bill is hugely unpopular in the US, the Netherlands only Libertarian magazine today sings the praises of the Fortis deal, calling it "a good move" (link in Dutch).

- Cartoon by Gary Varvel - more on Townhall -

The idea you see, that government money is brought up by all of us - the tax payer - refuses stubbornly to sink in. This is the defining difference between the US and Europe. Whereas Americans own their politeia and their politicians are voted in to handle the business of government on their behalf, in Europe the shoe is on the other foot.

Like the Old Testament Jews wandering in the desert, fighting to shed the mind-set of slaves and to become a free people, Europeans are wandering the continent in blind servitude to the state under a inequitable social contract: freedom in lieu for a risk-free life under a cheese-dome. The wards-of-state find their system vastly superior, not realising that that is precisely what betrays their inferiority: the inability to accurately assess value.

Yahoo!News UK & Ireland: "Benelux Governments Rescue Fortis", by Antonia Van De Velde and Marcin Grajewski

Benelux financial group Fortis underwent a shotgun nationalisation on Sunday after emergency talks with European Central Bank President Jean-Claude Trichet to prevent U.S.-style financial contagion engulfing one of Europe's top 20 banks. The Belgian, Dutch and Luxembourg governments agreed to inject 11.2 billion euros (8.9 billion pounds) into the banking and insurance company, which will sell the parts of Dutch bank ABN AMRO that it bought last year, precipitating its troubles. (...)

Trichet, who as ECB head is responsible for safeguarding financial stability in the euro zone, joined Belgian PM Leterme and Dutch Finance Minister Wouter Bos in Brussels in a frantic drive to secure the future of the cross-border group. The presence of the ECB chief -- unprecedented in a commercial bank rescue -- underlined the seriousness of concern for the integrity of the euro zone's financial system. (...)

Fortis' size, with 85,000 staff worldwide, and its cross-border structure made it too big to be allowed to fail. Its nationalisation dwarfs Britain's state takeover of fallen mortgage lender Northern Rock last year. Fortis Chairman Maurice Lippens, accused by shareholders of concealing the bank's troubles for too long, resigned.

Fortis' precursors traded with Catherine the Great and financed the U.S. purchase of Louisiana from Napoleon. Its main constituent bank, Societe Generale, was the chief financier of the industrialisation of Belgium and the Netherlands. BNP Paribas and ING Group declined comment on reports that they had bid for all or part of Fortis. (...)

New Fortis CEO Filip Dierckx joined the Belgian and Dutch finance ministers and central bankers meeting with Trichet at the Belgian parliament. Dierckx inadvertently gave an insight into rescue plans when a document he took into the meeting was photographed by Reuters. It listed a range of options including "Fortis sells its stake in ABN AMRO for x billion euros to xx" and "governments of Belgium and Luxembourg to invest xx billion euros in Fortis". Fortis' portfolio of structured credit would be written down by an unspecified number of billions of euros, it said. There was no confirmation of any write-off in the official statement.

(...) The problems at Fortis, whose shares dropped by a third last week on investor concerns about its liquidity and funding, stem from last year's 70 billion euro purchase of ABN with partners Royal Bank of Scotland and Spain's Santander. Fortis has been weighed down by its 24 billion euro outlay for ABN in a market that is neither conducive to more capital increases nor willing to pay for the assets it wants to sell.

Its shares plummeted more than 20 percent to 15-year lows on Friday despite a statement that its position was strong and a pledge to expand asset sales to as much as 10 billion euros. The group's market capitalisation slumped from 50 billion euros after the ABN purchase to just 12 billion euros on Friday. The stakes were high in Belgium, where Fortis is the biggest private sector employer and more than 1.5 million households, roughly half the country, bank with the group.

(...) Financial players around the world were hoping that U.S. lawmakers would finally sign off on a deal to create a $700 billion (381.4 billion pound) government fund to buy bad debt from ailing banks in a bid to stem a credit crisis threatening the global economy. (...) >>>


Yesterday in "Credit Cruch Critical for Survival Capitalism" we remarked that under pressure, politicians would resume the default positions of their natural philosophical alignment ... enjoy David Cameron ...

Yahoo/ITN: "Cameron slams 'banker bashers'"

- Filed on Articles in "The Ethics of Capitalism" -


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