Banks are falling over like kingpins. Not good at all.
First, on the Fortis salvage operation:
Belgium, The Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Fortis, Belgium’s biggest financial-services firm, to restore confidence in the bank after shares fell 35 percent last week.
Belgium will buy a 49 percent stake in Fortis’s Belgian banking business for 4.7 billion euros, the Belgian government said in a statement yesterday. The Netherlands will pay 4 billion euros for a similar stake in the Dutch banking unit, while Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis’s banking division in that country.
Fortis came under pressure because of speculation the company would struggle to replenish capital depleted by the 24.2 billion-euro takeover of ABN Amro Holding NV units last year and credit writedowns. Fortis will sell its stake in ABN Amro’s consumer banking unit, though the buyer wasn’t identified.
“Confidence in Fortis needs to be restored,” Corne van Zeijl, a senior portfolio manager at SNS Asset Management in Den Bosch, the Netherlands, who oversees about 750 million euros and owns Fortis shares, said.
Fortis Chairman Maurice Lippens will resign and be replaced by someone from outside the company.
I have not been able to find much on Hypo, since the articles are in German. which sadly I do not read). However, this report comes from a reader:
There are reports that the German Hypo Real Estate (part of the DAX) is in trouble and the German government is not willing to help out. It might file for BK on Monday. Apparently it invested too much in US subprime and it is not able to refinance.
However, Hypo appears to be a sizable player (reader Steve corrected our misinterpretation of a comment in a Reuters story), with a 400 Euro balance sheet (versus market value of equity of $4 billion). This would make of a similar scale to the Lehman bankruptcy were it to go under, but query whether it has anywhere near the tight linkages that Lehman had (in particular, credit default swaps written on its debt) to make a collapse create greater shock waves. But regardless of the factors that might amplify the damage, a failure of this magnitude is going to create even more reluctance of banks to lend to anything other than stellar credits.
There is no news on Bloomberg; I found older stories noting is that it is Germany’s second largest commercial property lender and JC Flowers has a 24% interest.
Reuters has a bit of G2:
Hypo Real Estate is in urgent talks with German banking regulator Bafin and the finance ministry about solving a refinancing squeeze at the bank….
The bank, which lends money for property projects and to governments, is examining measures including the sale of assets such as loan portfolios to circumvent the squeeze, one of the sources said…..
Talks, which began over the weekend following a sharp fall in Hypo’s share price, are continuing, the sources added.
Hypo is especially vulnerable to the freeze in interbank lending, which worsened after the collapse of Wall Street investment bank Lehman Brothers.
Unlike its bigger rivals such as Commerzbank, Hypo does not have any customer deposits to fall back on as banks grow increasingly reluctant to lend to one another.
Hypo relies on this interbank market to borrow as well as on money lent by Germany’s central bank to refinance roughly 50 billion euros ($73 billion) yearly, according to a company figure released earlier this year.
Most of the demand for this short-term unsecured refinancing comes from Hypo’s business of lending to governments, who often require help bridging temporary holes in their budgets.
The bank lends to such clients as Italy, Japan, Tokyo and Istanbul among others, according to information on its website.
Short-term finance such as this often expires at the end of the quarter — next Tuesday — and this is placing pressure on Hypo to find a solution fast, one of the sources told Reuters.
Earlier this year, German watchdog Bafin had examined an emergency takeover of Hypo in the event that the bank ran into refinancing difficulties, sources familiar with the matter have said.
It had lined up Commerzbank as a would-be buyer, they said, but the plan was never used.
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Hypo’s balance sheet is Eur 400B, not 4B.
That’s about USD 600bn at current exchange rates … To put things in perspective Wells Fargo’s balance sheet was USD 468bn as of 12.31.2007 and Wachovia’s USD 653bn also as of 12.31.3007.
Have corrected the post. Eeek! I misinterpreted something in Reuters and don’t know where to access German financial statements.
This makes it almost as big as the Lehman BK ($691 billion total assets, $668 in liabilities). Presumably as a bank, Hypo is less geared, (I’d assume 8% in book value of equity, but that may have been reduced by losses, so say 5%), but it still gets you to roughly the same place
yves,
Congressional candidates have started to run ads attacking their incumbent opponents for supporting the Paulson bailout/handout.
http://www.politico.com/blogs/scorecard/
As of 12.31.2007, Hypo Real Estate had EUR 6bn of equity against an EUR 400.2bn balance sheet … That’s quite some leverage (understatement). Hypo has been aggressively expanding in the Real Estate market in Ireland (that’s where the current troubles, potentially leading to bankruptcy, are coming from) as well as into low quality Real Estate in Germany … J.C. Flowers is a major investor in Hypo. The German regulators and government are apparently ready to let Hypo go down tomorrow morning …
Because Paulson’s foundation The Bobolink Foundation owns $100M of Goldman Sachs stock, he has a legal duty to protect it and thus its investments. Paulson has a legal duty to uphold the Constutution as Secretary of the Treasury. Paulson seems to have conflicting duties with respect to Goldman Sachs, and Congress should investigate whether his decision to assist Goldman Sachs by bailing out AIG resulted in Paulson puting his legal duty to his foundation above his legal duty to the public/government.
No gov’t announcement yet on Hypo. J.C. Flowers bought a 25% stake in May, by the way. Die Welt alludes to fears of a severe sell-off on the DAX. Hypo can’t roll its paper.
Sheesh, Hypo was more geared than Lehman and Bear. That’s an accomplishment of sorts.
The BK amount would be less than Lehman, but it is still a similar order of magnitude….
Yves,
On a percentage of GDP basis, the Hypo situation for Germany is an order of magnitude greater than Lehman (as is Fortis for Benelux).
MSNBC poll now underway (8:51 pm Eastern)
As Congress moves closer to a deal on the $700 billion bailout plan, do you think lawmakers should approve it?
YES: 35.8% (56,011 votes)
NO: 64.2% (100,350 votes)
Steve,
Agreed completely, but since Hypo apparently is not a depositary institution, query how much of its funding came from German versus other Euro/international investors. If it is funding sources are broadly distributed, Germany might not be the right axis of comparison.
Steve,
The right benchmark for Hypo as a percentage of GDP is the EU plus East Europe. Hypo is active all across the EU plus East Europe (aN EUR 10TN plus GDP region) and actually the current troubles are coming out of Ireland … Still a mess though and European banks are more leveraged that US ones, even if the lending standards on average are more prudent .. Should be an interesting ride.
BTW, as of 12.31.2007 the top 9 banks in the world by assets where all in Europe, led by RBS USD 3.8TN balance sheet and Deutsche Bank USD 3.0TN balance sheet.
Top 10 Banks WW by Assets
The Royal Bank of Scotland Group 3,782,880
Deutsche Bank AG 2,953,727
BNP Paribas 2,477,272
Barclays PLC 2,442,996
Crédit Agricole SA 2,067,577
UBS AG 2,007,224
Société Générale 1,566,904
ABN AMRO Holding NV 1,498,849
ING Bank NV 1,453,382
The Bank of Tokyo-Mitsubishi UFJ Ltd 1,362,598
APM
Matt Dubuque
Trichet, head of the ECB, has to go. He’s doing an ABYSMAL job.
It’s a crying shame he’s getting a free pass from the press….
Matt Dubuque
mdubuque@yahoo.com
apm: you’re absolutely right on the GDP comparison.
Anonymous said…
September 28, 2008 8:42 PM
"Hypo has been aggressively expanding in the Real Estate market in Ireland (that's where the current troubles, potentially leading to bankruptcy, are coming from)"
Bye Bye Celtic Tiger
Bye Bye Bnak of Ireland
Bye Bye Allied Irish Bnak
Bye Bye Irisr Life & Permenant
Bye Bye Anglo Irish Bank
Anon post from 8:56PM.
Where is this poll? The one I’m showing on msnbc is much closer.
http://mhwolk.newsvine.com/_question/2008/09/28/1926787-is-the-congressional-compromise-on-the-bailout-bill-a-good-deal
2006 One fool Vs. Smart Bunch of People.
2008 One very smart Fool Vs. Bunch of People who probably lost their shirt.
Watch for yourself
http://www.youtube.com/watch?v=EoB4BS7CGAw
Jewish holiday means US Senate won’t vote on $700billion bailout …
Mail on Sunday, UK
Here is the link for the poll:
http://sfomurchu.newsvine.com/_question/2008/09/25/1910444-as-congress-moves-closer-to-a-deal-on-the-700-billion-bailout-plan-do-you-think-lawmakers-should-approve-it
or if you like them shorter:
http://tinyurl.com/4hyusp
Still running 64.2% opposed to the bill. I don’t expect that will change much, with a sample size of over 150,000 votes.
If it’s just short-term funding issue and not an asset quality/solvency issue then it seems either the Germany government (as it has recently) and/or the ECB could and should do something…
Hello,
this is KJ from Germany. Focus Online is saying, that a pool of other banks is giving mid term credit to HRE to avoid bankruptcy.
http://www.focus.de/politik/schlagzeilen?day=20080929&did=917922&gn=0
Belgium (4,7 bn EUR) an Luxembourg invest (2,5 bn EUR) in Fortis. ING buys the shares of ABN Amro.
http://www.ftd.de/unternehmen/finanzdienstleister/:Staatsintervention-Belgien-springt-Fortis-zur-Seite/419559.html
Your blog is great.
KJ
Yves,
Here is a link to a current article on Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601085&sid=ajEcFjp85SDY&refer=europe
in addition to my earlier comment:
according to a company statement HRE gets a 10 bn EUR mid term loan from other banks.
Now I have to go to bed.
OT: there was a call by the Treasury for analysts about Paulson’s plan, I managed to listen in.
Takeaways from the Analyst Call:
Broad Discretion for Treasury Secretary
Almost impossible to stop immediate allocation of all $700B, especially if Paulson asks for all of it immediately after Congress goes on break!
Purpose was to maximize the liquidity boost (wealth transfer) to the system, not to optimize for the taxpayer. No requirement that banks relend cash they receive.
Will wait a few weeks before anything is done (weak banks can fail), even then prefer to deal with strong banks than rescue weak ones.
Exec comp. provisions won’t really affect strong banks.
Pricing TBD
All matters of implementation will be done as “guidelines” meaning they are exempt from public review and comment.
PLEASE try to get thru to your Representatives by phone or fax. They will be reporting to the floor at 8am tomorrow to vote on two bills, the second is this Bailout Bonanza, then they recess for the year. They should know what was said in that call!
Anon of 10:09 PM,
I wish I could hoist your recap into a post, but I cannot verify that either the call was real (I am really bothered that the Treasury is giving analysts info it is not sharing with the media or public at large) or to be blunt, whether you are real.
If you have a suggestion as to how to get around those problems (any evidence of the call?) e-mail me. Click on my name under “Contributors” and it takes you to a bio page with an e-mail link.
yves,
According to dealbreaker, Treasury sent this memo regarding the conference call to SIFMA and others.
MEMORANDUM
TO: SIFMA Government Reps Committee
FR: SIFMA Washington Office
DA: September 28, 2008
RE: Conference Call w. Treasury / 9:00PM TONIGHT
At 9:00pm tonight, Sunday, September 28th, there will be a call with Treasury officials to discuss the Troubled Asset Recovery Plan. This call is specifically for analysts. Please distribute ASAP to analysts in your firm who might be interested in participating. We have also distributed this call notice through various SIFMA Committees to solicit analyst participation.
Please find the conference call information below:
Date: Sunday, September 28th
Time: 9:00PM ET
Toll-free Dial-in: 1-866-843-0890
Entry Code: 1812173#
Several years ago I began to notice Hypo’s name on the sighns outside of New Yrok City building projects and wondered how much such a European Bank really knew about the New York City real estate market. Well now we know; not enough.
Please seed and spread around! My Internet connect sucks, but this should be available to people!
This is an audio recording of the conference call with the US Treasury Department, giving information for financial analysts regarding the planned financial bailout legislation. Apologies for the audio quality – it was recorded using a mini digital recorder, half with the microphone and half with an inductive pickup. The first minute or so is cut off (we were too slow!), but the rest is intact through the end.
http://thepiratebay.org/torrent/4418763
*update: now also posted on youtube in five parts*
If one understands the meaning of the adjectival ‘hypo-,’ this is, is _destiny_. Hypo named their end years ago, must tread that stony path . . . .