Germany offered a blanket bank deposit guarantee as it clinched a deal to rescue lender Hypo Real Estate, while regulators from Washington to Seoul took their own steps to ensure the stability of financial firms.
Officials across the globe are scrambling to contain the fallout from the deepest financial crisis since the 1930s amid continued debate about whether a fragmented European response could keep pace with a fear-driven market. Germany’s pledge on Sunday was part of a series of sweeping moves to shore up the global banking sector. As Asian markets opened on Monday, South Korea pledged to use its $240 billion in official reserves to help its banks secure enough foreign-currency liquidity.
It came as German officials clinched a renewed rescue deal for lender Hypo Real Estate, Belgium and Luxembourg found a buyer for troubled financial group Fortis in BNP Paribas, and UniCredit, Italy’s second-biggest bank, announced plans to raise new capital. Meanwhile, the US Federal Reserve is pushing for Citigroup Inc and rival Wells Fargo & Co to reach a compromise over their competing bids to acquire hobbled US bank Wachovia Corp that could result in them carving up its branches, the Wall Street Journal reported.
In a sign that the credit crunch is being felt in Asia, South Korea’s finance minister said Korean banks were having trouble securing funds in foreign currencies and that it would dip into its foreign exchange reserves, the world’s sixth-largest, to help with loans. “The government judges that we need to deal with the situation preemptively while assuming the worst-case scenario,” said Minister Kang Man-soo. He said it would take a long time until a US financial bailout plan starts to help ease the credit squeeze in emerging markets.
Asian shares fell 2-4% on Monday on concerns about whether the $700 billion US rescue plan, which was approved by the US Congress last week, would be quickly implemented and whether it would be enough to shore up the economy. Japan’s Nikkei share average fell 3.6% to the lowest level since October 2004, while Hong Kong’s Hang Seng index fell 2.9%. South Korean stocks tumbled 4.2%, and the won sank as much as 5%.
GOING OWN WAY
In the course of a hectic weekend, leaders of Europe’s four biggest economies -- Germany, France, Britain and Italy -- decided against a coordinated bank bailout, while vowing to stabilize markets. But in what would mark a stunning reversal after just a day, Italian Prime Minister Silvio Berlusconi said Italy would revive the idea of a common bank bailout fund at a meeting of finance ministers on Monday.
Instead, Germany took its own measures with the blanket deposit guarantees, which was followed by similar moves by Austria and Denmark. Ireland issued the first such guarantee last week. “We say to savers that their deposits are safe,” German Chancellor Angela Merkel said at a news conference in Berlin. “The federal government is also committed to that.”
Expectations are building that finance leaders from the Group of Seven scheduled for this week in Washington could set the stage for coordinated interest rate cuts. The bailout approved by Congress authorizes the US Treasury to begin buying up bad debt from banks. But questions abound about how successful that will be in unblocking credit markets as the economy slips into a deeper downturn.
The banking upheaval that began on Wall Street has effectively shut down interbank and other loan markets, pushing industrialized countries closer to recession. European banks have been hit hard by the fallout from a crisis that began in the United States when the housing market collapsed and bad mortgage debts multiplied.
The German government and banks agreed to a new rescue package for Hypo Real Estate under a revised deal that will see commercial banks and insurers provide an extra €15 billion ($20.8 billion) in liquidity for the lender, in addition to an initial pledge of €35 billion. Meanwhile, BNP Paribas took control of the Belgian and Luxembourg businesses of troubled financial group Fortis on Sunday, in a complex cross-border rescue that will make Belgium the French bank’s biggest shareholder. (Reuters)