BNP takes over Dutch-Belgian bank Fortis

From Credit Writedowns (BNP takes over Dutch-Belgian bank Fortis), Oct 5, 2008


Fortis, the nationalised Belgo-Dutch bank and largest private employer in Belgium. This is a good thing as I have a distinct preference for mergers over bankruptcy or long-term nationalisation as a way to hep consolidate and rationalize the global financial services industry. Let's hope that the new BNP Paribas, an amalgamation of Banque Nationale de Paris, Paribas and now Fortis, is a strong institution.

BNP Paribas, the French bank, will take control of the remaining assets of Fortis after the Belgian government was forced to find a buyer following the shock Dutch nationalisation of its part of the troubled banking and insurance group.

The all-share deal, announced on Sunday night by the Belgian government, is set to make BNP the biggest bank in the eurozone by deposits and will over time make Belgium and Luxembourg shareholders in the French bank.

There was no immediate word on how much BNP will pay for Fortis Bank in Belgium, Luxembourg, the Belgian insurance operations and its Turkish banking unit.

The Belgian government is to keep a blocking minority of 25 per cent in Fortis Bank and its subprime and related assets will be moved into a special vehicle, according to Belgian media.

There had been fears that the Dutch nationalisation would cause a fresh rout in shareholder confidence unless a solution was found by the opening of trading on Monday.

In a second weekend of tumult for Belgian banks, Dexia, which was bailed out by France, Belgium and Luxembourg last week, was forced to state that its credit links to Hypo Real Estate, the crisis-hit German company, would have ”a very limited impact” on the group’s solvency.

Belgium’s race to sell Fortis followed the controversial decision on Friday by the Dutch government to take full control of all of Fortis’s operations on its side of the border for €16.8bn ($23.2bn, £13bn), including the parts of ABN Amro bought by Fortis last year.

That left in tatters an agreement drawn up the previous weekend that had been heralded as an example of harmonious co-operation by the Dutch, Belgian and Luxembourg governments.

Under the initial deal, each country was to take a 49 per cent stake in the respective country banks of Fortis, leaving the healthy insurance operations fully owned by shareholders.

But the Dutch government managed to renegotiate on Thursday and Friday as, unlike Belgium and Luxembourg, it had not yet paid the €4bn for its share.

Source
BNP to take control of Fortis - FT

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Did JPM Cash Call Bring Down Lehman ?

From The Big Picture(Did JPM Cash Call Bring Down Lehman ?), Oct 5, 2008


This continues to become ever more interesting . . .

"Lehman Brothers Holdings Inc.'s main lender and clearing agent, JPMorgan Chase & Co., caused the liquidity crisis that led to Lehman's collapse, creditors said.

JPMorgan had more than $17 billion of Lehman's cash and securities three days before the investment bank filed the biggest bankruptcy in history on Sept. 15, the creditors committee said in a filing Oct. 2 in bankruptcy court in Manhattan. Denying Lehman access to the assets on Sept. 12, the bank ``froze'' Lehman's account, the creditors claimed.

JPMorgan, the biggest U.S. bank by deposits, financed Lehman's brokerage operations with daily advances, while money market funds and other short-term lenders provided overnight loans, according to bankruptcy court documents. When JPMorgan shut Lehman off from funds, Lehman ``suffered an immediate liquidity crisis that could have been averted by any number of events, none of which transpired,'' according to the filing.

The creditors asked the judge in charge of the case to let them interview a witness and request relevant documents from JPMorgan and to pursue possible legal claims. U.S. Bankruptcy Judge James M. Peck is scheduled to hold a hearing Oct. 16 on that request, the creditors said."

The Times of London added:

"Lehman’s collapse is fast emerging as the single biggest event of the credit crunch, sparking a number of unexpected effects. The unravelling of the firm’s prime brokerage operations has already forced a number of hedge funds out of business."

Stay tuned -- this charge may have legs . . .

UPDATE: October 5, 2008 10:38am


Ron Kirby notes: "I wrote about a very strange occurrence – the reporting of J.P. Morgan “transferring” 138 billion dollars to Lehman, after Lehman had already filed for Chapter 11 bankruptcy early last Monday morning...It is highly likely [or a certainty on my planet] that J.P. Morgan was INSOLVENT and was “BAILED OUT” last Monday, September 15, to the tune of 138 billion dollars. This would explain why the Fed and Treasury dictated that Lehman fail – to disguise or otherwise obfuscate the recapitalization of or illicit transfer of 138 billion to A MUCH SICKER, TEETERING ENTITY, J.P. Morgan Chase."


Sources:
Lehman Cash Crunch Caused by Lender JPMorgan, Creditors Say
Linda Sandler and Jeff St.Onge
Bloomberg, Oct. 4 2008
http://www.bloomberg.com/apps/news?pid=20601109&sid=aOBEg1wAitck&

JP Morgan ‘brought down’ Lehman Brothers
Iain Dey and Danny Fortson
The Sunday Times, October 5, 2008
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4882281.ece

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5. Lehman(LEH) Becomes A Penny Stock
6. Michael Hecht Cut His Estimates and Price Target on Lehman Brothers (LEH)
7. Lehman (LEH) May Sell Neuberger In Emergency Cash Raising Move
8. Lehman and Merrill Lynch Default Risk Charts
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10. Lehman: Death Spiral?

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Graphic Depiction of Finance Crisis

From The Big Picture (Graphic Depiction of Finance Crisis), Oct 5, 2008



Source:
Finance crisis: in graphics
BBC, Friday, 3 October 2008
http://news.bbc.co.uk/2/hi/business/7644238.stm


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German Gov Guarantees All Private Savings Accounts

From The Mess That Greenspan Made Blog (Merkel guarantees the money), Oct 5, 2008 10:34 am


The BBC is reporting that the German government has now guaranteed all private savings accounts as they continue to try to find a way to salvage their second largest commercial property bank Hypo Real Estate after a previous rescue attempt failed.

Chancellor Angela Merkel is shown to the right pointing at the piles and piles of money that will be handed out to Hypo depositors on Monday morning.

This follows action by the Irish and Greek in recent days to guarantee savings deposits, actions that have been greeted with scorn by other European nations, up until the time that they take similar actions themselves.

From the BBC:

BBC business editor Robert Peston says the German decision is momentous, and that all other EU countries - including the UK - will almost certainly follow suit.

"We tell all savings account holders that your deposits are safe. The federal government assures it," Ms Merkel said.

"We will not allow the distress of one financial institution to distress the entire system. For that reason, we are working hard to secure Hypo Real Estate."
...
Finance Minister Peer Steinbrueck said he was "appalled" that the problems at Hypo had not been revealed earlier.
...
On Saturday, leaders of the major European economies met in Paris for talks hosted by French President Nicolas Sarkozy.

Britain, Germany, Italy and France all agreed to work together to support financial institutions - but stopped short of agreeing US-style bank bail-out plan.

Just ten days ago, citing Anglo-Saxon greed and poor regulation, German finance minister Peer Steinbrueck said the U.S. was in the process of losing its "superpower status" due to the financial crisis that we Americans caused.

So the pot says to the kettle...

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Why are real interest rates rising?

From Greg Mankiw's Blog (Why are real interest rates rising?), Oct 3, 2008


One might have thought that widespread fear in financial markets would cause a flight to quality, driving the price of safe assets up and their yields down. That certainly has been happening with short-term Treasury bills. But look above to see what's been happening to the yield on 5-year inflation-adjusted government bonds. (Click on the graph to enlarge.) If one wants to flee risky assets and invest safely, for many investors these securities are a pretty good place to be. But their yields, rather than falling, have been rising sharply of late. It's a puzzle.

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Now CALIFORNIA Needs An Emergency Bailout

By Henry Blodget, ClusterStock, Oct 3, 08 8:59 AM

LA Times: California Gov. Arnold Schwarzenegger... warned Treasury Secretary Henry M. Paulson on Thursday that the state might need an emergency loan of as much as $7 billion from the federal government within weeks.

Click to Enlarge

Letter from Schwarzenegger to

The warning comes as California is close to running out of cash to fund day-to-day government operations and is unable to access routine short-term loans that it typically relies on to remain solvent.

The state of California is the biggest of several governments nationwide that are being locked out of the bond market by the global credit crunch. If the state is unable to access the cash, administration officials say, payments to schools and other government entities could quickly be suspended and state employees could be laid off.

Plans by several state and local governments to borrow in recent days have been upended by the credit freeze. New Mexico was forced to put off a $500-million bond sale, Massachusetts had to pull the plug halfway into a $400-million offering, and Maine is considering canceling road projects that were to be funded with bonds.

California finance experts say they know of no time in recent history when the state has sought an emergency loan of this magnitude from the federal government. The only other such rescue was in 1975, they said, when the federal government lent New York City money to avoid bankruptcy


Source : Los Angeles Times (Schwarzenegger to U.S.: State may need $7-billion loan)

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2. The Dollar Rally and Deflationary Imbalances in the US Dollar Holdings of Overseas Banks

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