Huge European bank fails

[BelgianMadCow]

Source: CNN

European financial giant Fortis partially nationalized. Three governments to pour 11.2 billion euro ($16.4 billion) into the bank.

BRUSSELS, Belgium (AP) -- The Belgian prime minister says the troubled Dutch-Belgian banking and insurance giant Fortis NV will be partially nationalized.

Prime Minister Yves Leterme says the deal was reached during talks Sunday between EU and national banking officials and ministers from the Belgian, Dutch and Luxembourg governments.

The deal will see the three governments pour 11.2 billion euro ($16.4 billion) into the bank.

Fortis will also be forced to sell off its stake in Dutch bank ABN Amro, which it partially took over last year.



Read more: http://money.cnn.com/2008/09/28/news/international/fortis_nationalized.ap/?postversion=2008092818

---

The "partial" refers to each government owning 49 % of their respective Fortis branch. I have no english link for that part yet.

ON EDIT: Fortis isn't just "huge" - it's the world's second largest after ING and before Citigroup.

GD thread: http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4113324

[Peterbrownie]

1. Oh boy. Its the domino effect

Expect the Asian markets to suffer the same consequences.

[FreakinDJ]

6. Asian markets open BEFORE European Markets

[AlphaCentauri]

21. just as expected when a small group control the world economy

[roamer65]

2. The contagion is spreading and there is nothing anyone can do to stop it.

Nothing.

[izquierdista]

8. Oh shut up

Lemmings like you should be locked in a theatre to watch "It's a Wonderful Life" over and over until you understand the stupidity of bank runs. A bank holiday will stop it every time, and President Obama's first week may just be like President Roosevelt's.

[clear eye]

16. Roosevelt didn't come into office with our borrowing power tapped out

and our currency, though troubled, hadn't been over-produced into worthlessness.

[Zhade]

31. It's not tapped out. That's the propaganda, though.

In actuality, in the REAL world, smaller banks have plenty of cash and are actively loaning it.

[clear eye]

35. By "our borrowing power" I meant the Treasury's.

Sorry I wasn't clearer. You could be right that Treasury is actually only worried about large financial institution failures, and not "frozen credit". My distress centers around the fact that it looks as though Congress is going to give Treasury its blank check and the attempt by the gov't to borrow all that money will crash the dollar. Seems the only thing the House leadership has done is to insist the oversight is done by Bush administration appointees so no one else's fingerprints are on it when it creates an economic disaster. If they gave a fig about us they'd be more concerned that the oversight committee be made of independent people of integrity who would want to make sure the purchases are being correctly evaluated, and if the troubled institution didn't want to sell anything but garbage, would insist on a purchase of equity in the institution instead. I guess it will take making something like 15% of us, especially older people, homeless and freezing to death on the streets before they'll find their consciences.

[ohio2007]

3. bet they bought into all the 'get rich quick' in the US real estate market schemes

they were in tooooo deep.
Now they went under.

greed

[BelgianMadCow]

4. Our three main banks have been VERY obfuscating when it comes to their exposure

to the schemes you refer to.

I think they can't even estimate their losses themselves. The only thing we hear now is how much they wrote off - but that is arbitrary I would say, and the amounts have been substantial anyway.

[WriteDown]

7. Don't be fooled...

European property values and mortgage lending and even Australia's markets are going through the same thing. Not exclusive the US at all.

[girl gone mad]

37. Yes, the bubble was international.

My friends in the UK tell me housing was even more inflated there.

[WriteDown]

42. I looked at houses in the UK last year....

mostly for fun. They make houses on Long Island and in San Fran look reasonable.

[rayofreason]

12. No, they just bought mortgage backed securities...

...that were issued by Fannie Mae and Freddie Mac, and so seemed to be good because those are government companies.

Meanwhile Fannie Mae and Freddie Mac were cooking the books, hiding the fact that these investments were based on subprime mortgages. In fact, they encouraged MORE subprime lending, and the banks went ahead. After all, Fannie Mae and Freddie Mac would buy the paper, bundle it as a mortgage backed security, and sell it. So the fats cats at top of Fannie Mae and Freddie Mac got big bonuses, MILLIONS in bonuses, for generating all of the "profits."

Meanwhile, banks worldwide bought this stuff, sold this stuff, marked this stuff up, generating imaginary wealth that ginned up their own market valuations as well.

Every aspect of this mess points to Fannie Mae and Freddie Mac as the epicenter of the disaster. And they who aided and abetted Fannie Mae and Freddie Mac need to be brought to account.

[FarCenter]

14. It wasn't Fannie & Freddie; it was Countrywide, Golden West, WaMu and friends

[rayofreason]

20. Those guys...

...issued all these subprime mortgages because they could unload them on Fannie Mae and Freddie Mac, who would buy anything anyone brought them, bundle, pretty it up, and sell it.

That said, you bet Countrywide was playing games. And they new it. Why do you think that all those folks like Chris Dodd go such sweetheart mortgage deals? Because Countrywide just wanted to be nice? I bet you or I walking in off the street would never get the deal Dodd did.

http://www.msnbc.msn.com/id/25140560/

http://www.nytimes.com/2008/06/18/washington/18dodd.html

http://www.nytimes.com/2008/06/18/washington/18dodd.html

Classic corruption.

[happyslug]

17. Fannie and Freddie did NOT do sub-prime, their problem is prime mortgage are bad

The problem started with Sub-prime, but given that the main secondary market for mortgages, Freddie and Fannie, could NO take them, the affect on Fannie and Freddie of the sub-prime debacle was minor (if it had any effect). The problem was the Sub-prime was adopted by the banks to keep the housing bubble going up after the price market had peaked. Thus sub-prime really only came into its won since 2005. The problem was Sub-prime was sub-prime for a reason, and sooner or later the sub-prime market would fail AND THE UPWARD SURGE IN HOUSING PRICES WOULD DIE WITH THEM. Fannie and Freddie were big into prime, and thus NOT affected by the sub-prime mess, but the sub-prime mess started the housing bubble to burst and that bursting lead to low end prime mortgages (Which Fannie and Freddie did do) to start to go under. People who purchased them with plans to sell them when the price went up (Or use the increase in value to borrow money for other things) found their housing values DROPPING. Many found out that they own more then the house was worth. To keep the house they had to abandon it OR pay the mortgage even through their income was marginal to do so (As I said these were marginal prime but a serious factor). Given Freddie and Fannie high leverage position (80 to 1) even a small increase in defaults would bankrupt them (and that is what happened). The Prime Market is what is under attack now, Countrywide etc died do to Collapse of Sub-Prime mortgages, Fannie and Freddie died do to the collapse of low end prime mortgages. I know technical difference more the a real one for the people involved but an important difference for it shows that this problem is accelerating NOT declining.

[rayofreason]

25. The data do not support you.

The greatest growth in subprime lending occurred before 2005.

http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf

By 2006 the number of foreclosures began to rise sharply.

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

But the time bomb had already been set. Fannie Mae and Freddie Mac had already converted much of this bad debt into mortgage backed securities that had been injected into the financial bloodstream, acting like a poison.

You wrote The problem started with Sub-prime, but given that the main secondary market for mortgages, Freddie and Fannie, could NO take them, the affect on Fannie and Freddie of the sub-prime debacle was minor (if it had any effect).

If that is true, why did Freddie Mac announce on 2/27/07 that they were RAISING STANDARDS FOR BUYING SUBPRIME LOANS?

http://www.freddiemac.com/news/archives/corporate/2007/20070227_subprimelending.html

There is no question that Fannie Mae and Freddie Mac ARE THE EPICENTER of this crisis.

[happyslug]

27. Foreclosures always follows about a year price have peaked

The main reason is it takes, in most states, six or months to actually foreclose on someone (Some states permit quicker foreclosures, but in my area there is no way you can be foreclosed on in less then 5 months, and most are much longer 9 months to a year).

Thus you have that one year delay, thus most sub-prime started to go bad 2005 even through not foreclosed on till 2006. The same with the prime, it took another year to hit and a second year to hit hard.

[rayofreason]

28. Exactly my point.

The greatest growth in subprime loans occurred before 2005.

And Fannie and Freddie were in the thick of it, stoking the fire. By 2007 Freddie has realized there was a problem - so they were "tightening restrictions" on the subprime junk they were buying and repackaging.

[creeksneakers2]

18. That's right wing propaganda

Nobody lost any money to Fannie and Freddie except stockholders. And the stock could come back. They paid 1/7th of the normal dividend last time but they paid a dividend. Any loans Fannie and Freddie sell or insure are guaranteed, so nobody else is losing money.

Losses at Fannie are running $2 billion a quarter, but they have assets and/or reserves to cover them. Fannie and Freddie only put a small portion of their holdings into subprime loans to begin with.

Nothing Fannie and Freddie did encouraged banks, other than Fannie and Freddie buying the loans, in which case the banks haven't lost anything. If banks wanted to invest in subprime mortgages that was their own choice.


A meltdown occurs when A can't pay B so B can't pay C and it ripples out. Such conditions cause mass panic and economic collapse. Fannie and Freddie have nothing to do with any of that.

In fact, when the rest of the mortgage market disappeared, Fannie and Freddie kept operating, saving us from a total collapse.

[rayofreason]

26. Nonsense

Fannie Mae and Freddie Mac created a market for subprime debt by buying so much of it, as much as companies like Countrywide could produce, then bundling it up into seemingly sound mortgage backed securities that were sold on the market, injecting bad debt throughout the financial system.

The evidence for this is easy to find.

http://www.signonsandiego.com/uniontrib/20070722/news_1h22fanniee.html

Freddie Mac had already acquired $120 Billion in subprime crap in 2007

http://www.iht.com/articles/2007/07/30/business/bxprime-web.php

Even when they knew there was a problem, they were driven to do more out of greed and government regulation

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/18/AR2008081802111.html

There is no question. Fannie Mae and Freddie Mac are at the epicenter of this mess. Without them, this bad debt would never have gotten out of hand the way it has and all that extra liquidity would not have flowed back into the market to push house prices up even farther, fueling the fire.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a.6kKtOoO72k&refer=home

[creeksneakers2]

29. Information at your links doesn't support your conclusions

I'll say it again. Any debt instruments sold by Fannie and Freddie were insured. No bad debt was injected into the system by Fannie and Freddie. Read all your links. You won't find anywhere where it says anybody besides Fannie and Freddie shareholders lost money on Fannie and Freddie securities. In fact, Fannie and Freddie are losing $7 or $8 billion a year but they have $47 billion to fall back on.

Its nuts to blame Fannie and Freddie for creating the market. Any market Fannie and Freddie created was either consumed by Fannie and Freddie or guaranteed by them, so there were no other victims of what happened. And its stated at your links that Fannie and Freddie only made up 25% of the market at the most.

Its also true, according to your links, that Freddie and Fannie refinanced lots of those subprime loans that borrowers held at more favorable interest rates. So Fannie and Freddie saved losses at other entities.

You can't blame Fannie and Freddie for the real estate boom. It was caused by low interest rates and easy credit. Fannie had nothing to do with the first and little to do with the latter. If Fannie and Freddie hadn't bought subprime loans, somebody else would have.

There is a sophisticated effort by those in power, the people who stole and lost all this money, to blame someone else for what they did. The right wing is involved in this hoax and wants to blame everything on Democrats. Its BS. Way way more money was lost at private entities. For example, Wachovia bank just had to write off $31 billion in value on their new purchase, the bankrupt Washington Mutual. AIG lost far more. So did the other bailout companies. This crisis was caused by Wall Street and they think they they continue to keep control and steal more by spreading lies like the one you have here.

Some of your other points are off too, but if I can't convince you that Fannie and Freddie injected no bad debt into the system I don't know how I can convince you of anything else.

[rayofreason]

30. OK...

...I guess that we will have to agree to disagree.

Perhaps you should take a look at these Wikipedia articles-

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

http://en.wikipedia.org/wiki/Federal_takeover_of_Fannie_Mae_and_Freddie_Mac

They don't seem well aligned with your point of view.

[Zhade]

32. WIKI? LOL!

NT!

[rayofreason]

34. Actually...

...well-referenced articles on Wikipedia can be quite good. Take a look for yourself. If you disagree, follow the reference or provide an alternative.

[BelgianMadCow]

40. Fortis CDS exposure: 40 Billion Euro (doink!)

read this morning in online papers.

[AlphaCentauri]

22. As far as I know there was heavy investment from the middle east

They are gaining from the government bailout

Gulf Shares Gain on U.S. Bank Rescue Plan; Emirates NBD Rises

By Zainab Fattah

Sept. 28 (Bloomberg) -- Persian Gulf shares advanced after U.S. lawmakers said they made a breakthrough in talks on a $700 billion plan to revive the credit markets and as the United Arab Emirates' central bank allowed lenders to withdraw 100 percent of their reserve requirements to ease liquidity constraints.

http://www.bloomberg.com/apps/news?pid=20601087&sid=acbjyLPuEpMQ&refer=home

[redqueen]

5. Yup... this is the one they mentioned was likely next on BBC World News last week. (nt)

[704wipes]

9. maybe Luxemborg will tax all the numbered American accounts

to pay for their part....That would be funny.

[alfredo]

10. I thought you were talking about this bank.

http://edition.cnn.com/2008/BUSINESS/09/28/bradford.bingley.nationalization.ap/index.html

LONDON, England (AP) -- The troubled mortgage lender Bradford & Bingley is to be nationalized and sold off in parts, British media reported Sunday.


Bradford & Bingley has already cut 370 jobs.

Treasury officials and financial regulators have held talks all weekend over the future of the bank. Bradford & Bingley spokesman Tony McGarahan said an announcement would be made before the stock market opened Monday but the company would not comment Sunday on the media reports.

The British government is likely to take on the bank's toxic loans and fold them into Northern Rock, another mortgage lender nationalized by the British government in February, the BBC and other media reported. The BBC said the Treasury will then try to sell the company's 200 branches and savings business to other banks.

[MadrasT]

11. It's become obvious that this crisis is global.

Largely due to foreign investments in our markets.

How much of our "bailout" is going to stop the worldwide domino effect? :shrug:

Will it be enough?

Aw, man, I am so tired of thinking about this...

[clear eye]

19. Global contagion is not our worst problem

What is worse is that we are trying to rescue the economy by borrowing at a time when the international financial community is going to be less than trusting of U.S. government bonds. So the Fed will be forced to print money to cover the debt, and the dollar will crash. This is a one, two, three connect-the-dots conclusion. There is no other way this thing can play out, unless the people can somehow force Congress to change the bailout to equity purchases like all the other countries are doing.

[Zhade]

33. Very, VERY good point.

One that keeps getting missed in the hysteria.

[OhioChick]

13. And so the domino effect begins...... n/t

[clear eye]

15. Notice the Benelux nations didn't buy the bad assets, they bought the BANK

so when times improve, either the equity will be bought back, repaying taxpayers, or the taxpayers will get a % of the bank's net profits. The headline is a distortion of the truth. Fortis is still operational as a multi-national bank. It wasn't allowed to fail, and the countries involved didn't pour their whole national Treasuries into bad paper. Japan also nationalized its two largest investment banks in 1991. In the past other countries and the U.S. have issued loans to troubled banks with money the Treasuries had, not borrowed, and even then those programs for the most part failed. Japan tried that before they nationalized the banks.

We need to absolutely overwhelm Congress with the demand that the bailout be changed to equity purchases in the troubled financial institutions, not a plan to use our total borrowing capacity for bad paper. The current draft is a recipe to crash the dollar, as the international community will see us as basically taking all the money we can borrow and throwing it in the garbage. Who would buy the bonds of a government that acts like that?

[BelgianMadCow]

36. That's a big part of why I posted - yes I now co-own Fortis

The fact that the govt here is spending 10 percent of our annual budget to rescue a bank is painful, but if it had to be done, I'm glad they did it the way they did...

[KakistocracyHater]

23. It isn't as bad-if they

comprehend that they have put in "dials" that distort (like gravity does with light) a whole lot of this "debt" is as real as the "wealth"-paper troubles. The "dials" I mention are interest rates & they have more dials I just haven't looked very much. This was the problem with the Bankruptcy Act, they didn't want to put a cap/limit on interest; also they make it a cascading problem & it's probably at the opposite end Bank-to-Bank. Late payments on 1 item, interest gets hiked on home mortgage, cars, credit cards, etc.

I think they want something very big, it's why the banks resisted taxes on theose hedge fund managers, which is a shame because that would have created a cushion & helped to backstop some of this mess. I would start to look around to see what highly exotic unregulated NEW finance "doohicky" has arrived that few know about & fewer recognize. The missing money-minus the interest, will be found there.

Remember that as PM Thatcher revealed, "there are no countries, just families"; this is another milestone. Bankrupt all democracies & let the multi-national corps rule, with private security forces, private fire fighters, gated communities, private doctors, etc.

[dchill]

24. Looks to me like these bankers...

finally figured out that they just can't trust each other. (No joke.)

[BelgianMadCow]

38. Update: Fortis shares down 18 % in Holland this morning.

and the next big Bank, Dexia (world's 5th biggest acc. to Fortune 500) is in the picture.

[BelgianMadCow]

39. and Dexia (-22% at noon, world's fith) will also be helped if need be

says the Belgian finance minister.

http://www.standaard.be/Artikel/Detail.aspx?artikelId=DMF29092008_027&ref=front (sorry, dutch)

[BelgianMadCow]

44. UPDATE: and indeed, Dexia gets 6.4 billion, govt gets equity

http://www.standaard.be/Artikel/Detail.aspx?artikelId=DMF30092008_005&kanaalid=9

6,4 Billion has to save Dexia.

Hoe groot het aandeelhouderschap van de betrokken partijen na de kapitaalsverhoging wordt, is nog niet duidelijk. Daarover communiceert de raad van bestuur van Dexia later, liet Reynders weten. De minister van Financiën kon wel al zeggen dat de Franse regering en CDC samen goed zijn voor iets meer dan 25 procent. Op die manier beschikken ze over een blokkeringsminderheid.

My translation: How big the share of the involved parties will be, is as of yet unclear. The Board of Dexia will communicate about that later, said (finance minister) Reynders. The minister could disclose the French government and CDC will have some 25 % together, giving them a minority blocking vote.

At least, we're getting equity.

[RainDog]

41. From what I remember

tho I love Belgium - the people, the cities, the witloof, potaten croquettes - Sint Nikolas feest - mijn (ex) schoenmoeder - it is my understanding that Belgium is one of the most politically and financially corrupt nations in Europe.

this economic mess will no doubt hurt the global economy as the banks that invested in these mtg ponzi schemes are revealed. I still think that Europe is better situated to deal with what's ahead b/c of its infrastructure and its strong unions and its continued emphasis on national well being. All of these things have been and are anathema to too many Americans.

Did you ever read "After the Empire" by Emmanuel Todd? I recommend it.

Dag.

[Pterodactyl]

43. It looks like greed and fraud are not just for America!