European govts move to rescue Fortis and B&B

Sep 29 | Updated: Sep 30 2008, 08:01am hrs
European governments stepped in to rescue Fortis, Bradford & Bingley Plc, and Hypo Real Estate Holding AG as tremors from the US credit crisis reverberated around the world.

The UK treasury seized Bradford & Bingley, Britains biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2-billion euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.

The interventions exposed how fallout from the crisis that drove Lehman Brothers Holdings Inc into bankruptcy and prompted a $700-billion US bank rescue package has gone global. It also added urgency to negotiations among European policymakers as to how they deal with banking collapses.

The precarious global environment means the weakest links in Europe are now falling, said Mamoun Tazi, an analyst at MF Global Securities Ltd in London. If banks continue not to lend to each other well see more failures.

Tightening credit is casting a pall over the European economy with UK growth the weakest since the early 1990s and the 15-nation Euro Zone on the edge of its first recession. The pound tumbled by the most against the dollar in 15 years and the euro slid.

To head off the collapse of its biggest bank, Belgium agreed to buy 49% of Fortiss Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch business, the governments said in a statement. Luxembourg will provide a 2.5-billion euro loan convertible into 49% of Fortiss banking division in that country.

Bradford & Bingley was saved as tighter credit made it impossible for it to operate. Deposits at the bank amounted to slightly more than half of its loans outstanding, forcing it to depend on frozen capital markets for support. Banco Santander, Spains biggest lender, will pay 612 million ($1.1 billion), including a transfer of 208 million of capital.

Hypo, Germanys second-biggest commercial-property lender, received a 35 billion euro loan guarantee to fend of insolvency.