Monday, 29 September 2008

Fortis, Bradford and Bingley, Glitnir, Hypo Real Estate...Who's Next?


"The Netherlands, Belgium and Luxembourg agreed to inject €11.2 billion ($16.37 billion) into Fortis NV on Sunday, after France's BNP Paribas SA and Dutch financial firm ING Groep NV walked away from talks to acquire the company over the weekend.

The rescue effort came after Fortis's shares came under heavy selling last week
."

I suppose they look at the balance sheet and discovered massive amount of toxic assets. The CEO has been fired and replaced. So the contagion is spreading even before the real problems in Europe have even begun (i.e generalized housing slump)

"In the U.K., mortgage lender Bradford & Bingley PLC, which helped fuel a property boom in Britain, is being nationalized, in what is the second British bank to be taken under government control this year"

That is something I never understood. It was pretty clear that such institution was participating into making the housing market a speculative one. Price were pushed way out of their fundamentals, why so much institutions were blind? where was regulation?...you wonder.

17 comments:

Andrew said...

Who's next?

Hard to keep up but i see Hypo Real Estate mortgage bank of germany is needing a rescue.

And Nordea has now got 9 new Zealand branches:-)

"Nordea has signed an agreement to acquire nine branches from "Bankaktieselskabet af 24. august 2008" (Roskilde Bank).

Thereby Nordea further strengthens its position in the Zealand region in Denmark."

HousingFinland said...

Hypo real estate falling by 74% in values this morning...being downgraded by rating agency...

HousingFinland said...

Fortis got massive cash injection but still their share price is sinking : -16%

Dexia in France is in Free fall : -30%

For sure the future financial landscape is changing and fast.

Andrew said...

Thinks are looking a bit better so far this morning. The chaos is organised so far.

The whole idea of organised chaos is an interesting one. I think you need a certain amount of organised chaos to push thru the bankruptcies and force owners to face realities they wish to avoid.

But the name TARP for a trouble assett relief program is an odd name. A tarp is an abbreviation for one of those tar based fabric clothes or tarpaulins that you use to cover building materials or engines to keep them from the weather or from the puplic eye.

I am surprised nobody has come up with the "Tarpaulson" yet to cover this mess. According to Google it does not yet exist.

HousingFinland said...

When I saw "TARP", I though about the word "TRAP" instead...

andrew said...

more European Bank and housing woes

Iceland govt buys 75 pct of Glitnir, crown skids

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSLT50878820080929

"increasingly sharp downturn in the Danish real estate market coupled with a squeeze on liquidity may mean the end for many of the dozens of small, regional banks that handle the savings of hundreds of thousands of Danes"

http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSLT45013020080929

Meanwhile there is some evidence that Euro overnight lending is beginning to fall back from the highs of recent weeks/months

http://www.homefinance.nl/english/international-interest-rates/eonia-interest-rate.asp

Current rate according to bloomberg is 4.11

andrew said...

or did you have the same title of glitner, hypo real estate who's next and i just missed it!!??

HousingFinland said...

...just updated it ;->, just hope that will be enough space in the title ....

Anonymous said...

can anybody tell what is the situation of finnish banks, and Nordea in particuly?

Anonymous said...

I have found financial information at the www.fin-fsa.fi site (In Finnish, Swedish and English), but detailed figures for banks are only to 31.12.2007. This is useful (it shows my local bank has a CAR % of 48%, and less loans than deposits so it looks safe-ish), but it is months old and we are in a fast moving environment.

Any good sites for more current data?

"IslandCrow"

Andrew said...

"can anybody tell what is the situation of finnish banks, and Nordea in particuly?"

As far as i can tell personally, Finnish banks are quite conservative. I am with Nordea only because it is the strongest bank here. They once refused me a transfer from finland because i was in NZ but i can accept they were protecting me. This year I found it very difficult to open a bank account here because they are so conservative and strict on applying the rules. My working partner applied for a mortgage and was given a max 5 times loan and this was i think levered off me having a good deposit. I applied to buy a house with separate flats and rental possibilities and the bank was very cautious about the loan even though most of the risk was mine given the LTV. People have said that Finnish banks are lending inprudently but it is not my experience. Even so debt per household is high here by historical levels but relatively low compared to some other countries. Nordea has recently arranged to sell some of its local authority loans back to the government so we can see they are looking forwards to when they might need that capital. Also Nordea has changed its mortgages being issued to better protect Nordea. After 3 years Nordea can change those mortgage terms after giving 3 months notice *if* its viability is threatened. So we can reason that for 3 years Nordea sees no problems and if we are going to find out about problems we will get 3 months notice from July 2011;-) This makes sense as banks tend to take out shorter term loans as deposits on which they pay interest and lend out that money at longer term at higher rates. Banks generally are not in trouble now. They are in trouble when it comes time to renew the shorter term loans. Nordea is signalling it is good for 3 years at least.

Nordea just took over some branches of one of the Danish banks that had to go into administration. In the 1990's crisis that is regarded as a text book way of how to deal with a banking crisis (The Swedish or Skandanavian solution) the Nordic banks began saving themselves at the expense of their borrowers before the governments intervened. No depositors lost any money.

Nordea is owned mainly by Swedes with i think royal family type connections. They are regarded as the most solid even if you talk to other bankers in Finland who are rivals who dont even like them.

I am pretty sure Finland does not have any of the none recourse walk away type ability of the USA and that people here have integrity and will do what they say they are going to do and say what they mean as a national trait. As for example school shooters! :-( Where curiously the police did not believe that this man had made those terrible threats that he did carry out to the letter. Finns are proud of something called i think Sisu? or inner strength.

But dont please trust me. Find out for yourself.

HousingFinland said...

Andrew, as always very good and reasearched comment!

I think after all it's all about the equilibrium price. If it happen that banks lent to price that were inflated, then there are risks.

The issues, I could see with Nordea is their expansion in the Baltics especially in Estonia. You could see that as the "Subprime" of Nordea.

Even sound bank could run into trouble if suddenly the credit market deteriorate and there is a run on the bank.

I do not think that such event could happen to Nordea although smaller banks could run into trouble if the situation doesn't improve fast.

Now it's all about the economy. We all understand that we are in a Domino game. If a big one fall, then the other will be affected in a way or another.

The big domino is the U.S., it has had only very shallow recession during the past half century. If they happen to fall into a serious recession the consequence will be dire...

China is already trying to ramp u internal consumption as they started to cut interest rates. They clearly understand that the US is slowing fast and that export could slump.

Commodity prices are all in free fall, signs that a global recession is not out of the question.

If, by chance the US doesn't fall into a recession, then the global growth could recover faster than anticipated...then it's more dangerous... here is why:

-Commodity price will spirale up. Petrol price will shoot up

-Wage will spirale up as shortage will be felt hard, especially in country where ageing population is an issue...

->what you will get is a sharp rise interest rates, maybe 10% or higher...

So indeed then 2010-2011, you will get a big housing slump as default will soar...

So maybe U.S. going into a recession is not a bad thing for inflation and commodity prices ....

Andrew said...

"So maybe U.S. going into a recession is not a bad thing for inflation and commodity prices"

There is nothing at all good about this. It is an unmitigated disaster.


Ford: Sales Decline 34.6% in September

U.S. Sept. ISM manufacturing index plunges to 43.5%

http://4.bp.blogspot.com/_pMscxxELHEg/SOODqhUoKdI/AAAAAAAADhA/szetpcL-T-M/s320/ConstructionSpendingAug08.jpg

http://www.rgemonitor.com/roubini-monitor/253818/roubini_sees_silent_run_on_banks_urges_triage_bloomberg_radio_interview

And the human cost is shocking to me. I cried after watching this.

http://corgiguy.gohds.net/?ch=1.0.143.0.SOCAL:FORECLOSURE-ALLEY

And look at all the job losses coming here locally already!

The only good piece of news is this:

http://www.bloomberg.com/apps/quote?ticker=EUSOC%3AIND

The following series of videos is a bit scary but worth watching

http://www.youtube.com/watch?v=gX9aKDeAOz4&feature=user

HousingFinland said...

Andrew,

A recession is inevitable. What is at stake today is to avoid a depression.

So a recession is mechanism that allow to clean the system from excess...and excess there was.

Now regarding the video you gave as a link. I share totally the sadness of the situation.

On thing you have to remember is that in the U.S. any one can run away from his debt- they just have to send the key to the bank and that's it.
In Europe, you are liable until you pay back all your debt.

That could explain why some people are just running away from their house.

Obviously it's a disaster, especially for communities over there.

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