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Contagion Spreads To Europe As Governments Bail Them out

30 September, 2008

The financial contagion continues to spread. The European financial institutions also being highly leveraged are increasingly finding themselves vulnerable to the crisis.

European governments come to the rescue of Fortis, Bradford & Bingley and Hypo Real Estate as credit conditions continue to devastate the banking sector.

The governments of Belgium, Luxembourg and the Netherlands stepped in to inject €11.2bn into Fortis after the banking and insurance group’s share price plunged more than 25 percent in recent days. This is the largest eurozone bank rescue since the credit crunch began, is the starkest evidence yet that the region’s banking system is not immune to the problems which have recently hit the US and UK.

In India, Fortis has 26% stake in a life insurance JV with state-run IDBI and Federal Bank, the maximum a foreign firm can own in insurance firms. IDBI holds 48% while Federal Bank holds 26% in the joint venture.The bailout has happened only in the banking as well as asset management ventures of the company, leaving the insurance venture unaffected by it.

Belgium also agreed to invest €4.7bn in the Belgian-Dutch group, while the governments of the Netherlands and Luxembourg are to spend €4.0bn and €2.5bn, respectively, in the bank’s units in those countries.

Reports also suggest that The Franco-Belgian bank Dexia is planning an emergency capital raising.

Nomura, Japan’s largest brokerage, said that it would buy the European and Middle Eastern operations of Lehman Brothers — just a day after disclosing it had acquired the Asian units of the failed U.S. investment bank. The deal includes the investment banking and equities business of Lehman offices in The Netherlands, Qatar, Dubai, Kuwait, the U.K., Spain, Italy, Germany and Sweden.

Separately, French power giant Electricité de France SA has agreed to buy Lehman’s Houston gas and power marketer, Eagle Energy Partners I LP, aiming to optimize its gas supply, EDF unit EDF Trading Ltd.

 


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Contagion Spreads To Europe As Governments Bail Them out

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