European Governments Rescue Banks

Monday, September 29th, 2008

European governments have acted to prevent the demise of some of Europe’s largest insurance and banking companies. The U.K. treasury took hold of Bradford & Bingley, Britain’s biggest lender to landlords. Governments from the Netherlands, Belgium and Luxembourg took over parts of Fortis, which has seen its share price drop dramatically over the last few months. Belgium paid 4.7 billion-euro, the Netherlands 4 billion, and Luxembourg 2.5 bilion to keep the company from collapse. Customer confidence in Fortis has been at a record low. The Associated Press reported that ING might buy ABN-AMRO from Fortis for an estimated 10 billion-euro.

Fortis Rescue

To head off the collapse of its biggest bank, Belgium agreed to buy 49 percent of Fortis’s 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 late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis’s banking division in that country.

The talks to rescue Fortis involved European Central Bank President Jean-Claude Trichet. Former Bank of England policy maker Willem Buiter said today on his blog that the rescue of Fortis showed “the ability of the euro-area fiscal authorities to coordinate on a bailout for a bank with not only strong cross-boundary operations, but indeed with a strong multi- national identity.”

Full article here.

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Oil, Fed Causes Rally

Wednesday, August 6th, 2008

Steadily decreasing oil prices and positive signals from the Federal Reserve have caused a rally on the Dow Jones, rising at the fastest rate since April 10 of this year. Investors feel that with oil prices falling, and no interest rate hikes by the Fed in sight, the US recession is going to be a light one. The Dow Jones rose almost 3% to 11615.77 points. European stock indexes responded positively to the Dow Jones’ performance, with all major indexes rising.

Plunging oil prices and reassuring signals from the Federal Reserve combined to spur hopes that the worst could be over for stocks, driving the Dow Jones Industrial Average on Tuesday to its sharpest one-day gain since April 1.

This was hardly the first time since the bear market began in October that stocks have staged a strong rebound. Skeptical investors warned that this could be another false start: A potential recession is looming, the financial system is in disarray and housing prices continue to fall amid mounting foreclosures.

Full article here.

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