Credit crunch hits European banks

Top officials from Belgium, the Netherlands, Luxembourg and the EU held emergency meetings over the weekend to prevent bank and insurance giant Fortis from becoming the eurozone’s first major victim of the global financial crisis.

Meeting with European Central Bank chief Jean-Claude Trichet and EU Competition Commissioner Neelie Kroes, the three neighbouring countries last night (28 September) agreed to throw an €11.2 billion lifeline to the embattled bank in a bid to restore confidence before the reopening of markets this morning. 

The deal came after a tumultuous week in trading which saw Fortis shares drop to a fifteen-year-low of €5.18 – down more than 75% compared to last year. 

Despite the bank’s insistence that it is not in any imminent danger of insolvency, Fortis’s liquidity has been called into question, notably following its participation in a three-bank consortium that last year paid a massive €72 billion to buy ABN Amro in the largest takeover battle in the history of the banking sector (EURACTIV 04/05/07). 

The crisis meeting came amid fears that if Fortis were to be dragged down by the financial crisis, it could take other European banks down with it. 

As part of the bail-out plan, Belgium will invest €4.7 billion, the Netherlands €4 billion and Luxembourg €2.5 billion in Fortis’s banking operations in their respective countries in return for a 49% ownership stake in their national arms of the bank. Fortis will also have to sell its stake in ABN Amro, with press reports citing Dutch bank ING or the French BNP Paribas as potential buyers. 

“We have taken up our responsibility. We did not abandon” account holders, Belgian Prime Minister Yves Leterme told reporters. 

Last week, when the US announced plans for a massive $700 billion US government rescue plan to buy back some of the “toxic” mortgage-related assets, owned by banks, which caused the collapse of the financial system, EU leaders had insisted that similar major rescue plans were not on the European agenda as EU money markets had been much less affected by the global credit crunch than their US counterparts (EURACTIV 23/09/08). 

But Fortis’s woes show that the US financial crisis is starting to spread to continental Europe. “What is happening in the US has most certainly had an impact on the financial sector in the rest of the world,” said Dutch Central Bank chief Nout Wellink. “It will hit first banks in a special position,” he said, adding: “Due to rumours, I have to say, Fortis became a bank in a special position.” 

The weekend also saw the UK government prepare to nationalise British mortgage lending bank Bradford & Bingley, amid fears it could become another ‘Northern Rock’ (EURACTIV 10/10/07). 

After much deliberation, the US bail-out package could be approved by Congress this week, with EU officials hoping its approval will help to ease tensions. “My hope is that they will do it quickly because, when I look at financial and stock markets, exchange rates and global confidence indicators, the Americans’ hesitation over their intentions deepens uncertainty,” said Luxembourg Prime Minister and chairman of eurozone finance ministers Jean-Claude Juncker. 

Read more with Euractiv

Calls for ‘Eurobond’ resurface as crisis threatens EU finances

With investors increasingly risk-averse due to the financial crisis, the idea of a European bond to finance large infrastructure projects of common European interest is coming back in Brussels circles and some national capitals.