European govts race to help banks amid crisis

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Oct 6: European governments from Brussels to Copenhagen to Berlin rushed to shore up their faltering banks as the credit crunch worsened in Europe. BNP Paribas SA agreed to buy Fortis's units in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion) after a government rescue failed, while the German state and financial institutions put together a 50 billion-euro rescue package for Hypo Real Estate Holding AG. Denmark and Germany said they will guarantee all their countries' bank deposits.

Financial shares tumbled in European trading on concern the hurried actions will fail to unlock bank lending. The leaders of Europe's four biggest economies were unable to agree on joint responses at an Oct. 4 meeting, pledging instead to work together to limit the economic fallout, ease accounting rules, and seek tougher financial regulations. The governments' plan for individual action "is a failure,'' said Pio De Gregorio, head of equity research and trading at Centrobanca SpA in Milan. "This is a systemic crisis and it warrants a systemic solution. We need a European fund that will recapitalize banks.''

The escalation in the cost of rescuing Hypo Real Estate and Fortis, just a week after the initial bailouts were announced, also undermined confidence, analysts said.

The Bloomberg 500 Europe Banks and Financial Services Index dropped 7.3 %. The euro slid to a 14-month low against the dollar and Treasuries rose as the crisis spread outside the US, prompting investors to opt for less risky investments.

The cost of borrowing in euros for three months rose to a record for a seventh day, according to the European Banking Federation. Commercial banks are hoarding cash and refusing to lend to each other after the collapse of New York-based Lehman Brothers Holdings Inc.

French President Nicolas Sarkozy, who convened the Oct. 4 meeting, called for a global summit "as soon as possible'' to implement "a real and complete reform of the international financial system.'' He said "all actors'' must be supervised, including credit-rating firms and hedge funds. Executive-pay systems must also be reviewed, he said. Finance ministers from the Group of Seven industrialized nations meet in Washington later this week. German Chancellor Angela Merkel' s opposition to collective action underscored the hurdles to a united European front. "Each country must take its responsibilities at a national level,'' she told a joint press conference after the summit.