Pip's Comments: This is now a global epidemic. Expect to see more failures worldwide. Governments around the world are now bailing out their domestic finance industries. This world-wide phenomenon will lead to the unprecedented creation of money, which will devalue all currencies at an alarming rate. Gold will now see a stratospheric rise brought on by unprecedented demand from the ENTIRE WORLD. This is no longer a crisis localized to the United States.

I continue to see great opportunities, however, in the developing world (BRIC nations) and will be keeping some powder dry for the rational (and some phenomenal) values we are now seeing on some exchanges.


From BusinessWeek.com:

Bank Bailouts Come to Europe

The rush to save four banks signals a more aggressive policy stance. But Europe's many regulators will make it tough to form a coherent strategy

In a stunning series of moves engineered over the weekend and announced Sept. 29, six European governments are collectively committing nearly $150 billion to rescue four troubled financial institutions. Coming on the back of the U.S.'s $700 billion toxic mortgage bailout plan (BusinessWeek.com, 9/28/08), which was thrashed out over the weekend but defeated in a surprise vote Sept. 29, the move likely foretells a more proactive approach among European politicians and regulators to combating threats to the EU economy.

With their high-profile moves to save Britain's Bradford & Bingley (BB.L), Belgium's Fortis (FOR.BR), Germany's Hypo Real Estate Group (HRXG.DE), and Iceland's Glitnir Bank government officials are changing the rules of the game in Europe. Until now their primary policy response has been to inject billions into the Continent's credit markets via central banks—but rarely to intervene on behalf of specific troubled institutions. Now policymakers in the EU and its member states are signaling a more aggressive stance that mirrors the speed of U.S. actions.

"The entire financial system was coming under pressure, so of course European governments had to get involved," says Richard Portes, president of the Centre for Economic Policy Research in London. "The situation was becoming untenable; they had to respond immediately."
Saving Bradford & Bingley

The largest deal involves British mortgage lender Bradford & Bingley, whose shares have plunged 93% in the past year on concerns about its loan portfolio. Unlike in late 2007, when the British government dithered over plans to rescue ailing mortgage lender Northern Rock, regulators moved swiftly this time to nationalize Bradford & Bingley's £50 billion ($90 billion) in loans. At the same time, Spain's Banco Santander (STD) will pay $1.1 billion to assume Bradford & Bingley's 197 branch offices and £20 billion ($38 billion) in customer deposits.

Just across the English Channel, policymakers in Benelux spent the weekend hammering out a very different rescue package for banking giant Fortis, whose operations are concentrated in the Low Contries. The bank, one of the three institutions that took over and carved up Dutch investment bank ABN Amro earlier this year, saw its shares plunge 35% last week alone on concerns it was overleveraged from the $34.5 billion it spent on the deal.

With Fortis nearing paralysis, regulators devised a plan to partly nationalize it. The governments of Belgium, the Netherlands, and Luxembourg each will buy 49% stakes in local Fortis subsidiaries, for a combined price of €11.2 billion ($16.2 billion). Fortis also will sell its share of ABN Amro, which it bought alongside consortium partners RBS (RBS) and Santander, and write down a further $7.2 billion of assets. Wire services reported on Sept. 29 that the most likely buyer for the ABN Amro assets is the Netherlands' ING Group (ING.AS)—no doubt for a price well below what Fortis paid.

While both Bradford & Bingley and Fortis were publicly suffering in recent weeks and days, a bigger surprise emanated from Germany the morning of Sept. 29: the sudden rescue of Munich-based commercial real estate lender Hypo Real Estate Group, whose business model had relied heavily on borrowing money in the now-frozen wholesale capital markets.

Germany's central bank organized a $50 billion state-backed credit line, $12 billion of which will come from local banks and the rest from the government—and taxpayers.
Iceland Takes Over Glitnir

Even as investors were busy digesting all that news, word came of yet another national bailout: Moving to prevent a collapse of the country's third-largest bank, Glitnir, the government of Iceland said it would spend $865 million for a 75% stake. The takeover is intended to be only temporary.

In a statement, Glitnir said its funding position had deteriorated in just a matter of days. "The events unfolding in international financial markets in the past two weeks have had unforeseen consequences, drastically changing the conditions of Glitnir's short-term funding," the bank said. News of the takeover sent the Icelandic crown plunging to a fresh low against the euro.

These aggressive government actions may not be the end of the line if the credit crisis claims other European institutions. According to analysis by Standard & Poor's, Deutsche Bank (DB) and Dresdner Bank—a unit of Allianz (AZ) that is being acquired by Commerzbank (CBKG.DE)—are the most vulnerable among German banks due to their continued heavy exposure to volatile capital markets.

Britain's RBS, whose shares fell 13% on Sept. 29, might have to write down a further $14 billion related to its portion of the ABN Amro carve-up. Shares in Belgium's Dexia (DEXB.BR) plunged nearly 30% on Sept. 29 on concerns over its health. And Switzerland's UBS (UBS), the European bank most affected by the subprime crisis (BusinessWeek.com, 8/12/08), continues to suffer from a decline in its investment banking operations and weakened customer confidence that has hurt its wealth-management business.

While it's still unlikely that Europe would see a coordinated, Continent-wide bailout on the scale of the proposed U.S. plan, market watchers reckon tighter financial regulations and stricter bank lending practices soon will be introduced at the European Commission. Only last week, French President Nicolas Sarkozy—currently the head of the EU—called for more global regulation (BusinessWeek.com, 9/25/08), adding the financial industry had "perverted the fundamentals of capitalism."
"Too Many Chefs"

With domestic populations fearful of pending recession and already suffering from soaring food and energy prices, European politicians are scrambling to respond more publicly when banks get in trouble. But the fragmented nature of the European Union and its financial institutions make it more difficult than in the U.S. to put forward a coherent strategy.

For one thing, Europe has relatively weak central regulators—including a central bank whose mandate is more tightly proscribed than the Fed's—and dozens of national regulators who continue to exert control over their domestic financial-services sectors. "In Europe, there are too many chefs in the kitchen, all with different economic proposals and no concerted voice speaking for them," says Kully Samra, British director for stockbroker Charles Schwab (SCHW) in London.

Any pan-European strategy to deal with the Continent's growing financial woes (BusinessWeek.com, 8/6/08) also must tackle the diverging economic problems facing different countries in the EU. According to Morgan Stanley (MS) estimates, the euro zone's GDP growth will be halved next year, to 1.3%. This reflects deteriorating housing markets in Spain and Ireland, a manufacturing and export downturn in Germany, and an overextension of credit in Italy and Greece.

According to Pete Hahn, a fellow at City University's Cass Business School and a former managing director at Citigroup (C), each problem requires individual solutions that could be difficult to include in an EU-wide package. "It's not going to be a one-size-fits-all deal," he says. "The incredible multitude of regulators involved will make any European strategy a tough proposition."

Despite the difficulties inherent in any government-backed bailout of Europe's financial-services industry, politicians may have little choice but to inject taxpayer dollars into struggling banks. British, Benelux, German, and Icelandic authorities have blazed a path with their rapid interventions. It may represent just the start of European attempts to stave off a Continent-wide recession.

__________________
Pip Tradewell
Editor in Chief
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