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Europe rescues more banks as U.S. rejects bailout

The international crisis is being sensed in Romania too, the first consequences becoming visible in the local currency exchange rate against the EUR, the RON dropping yesterday to a seven-month minimum of 3.73.

Bank rescues spread in Europe on Tuesday after U.S. lawmakers' unexpected rejection of a USD 700 billion bailout. French President Nicolas Sarkozy began talks on the crisis with finance executives on Tuesday and has said he will meet this week with officials from Europe's G8 member states - Germany, France, Britain and Italy, Reuters reports. "Market meltdown is likely to continue unless an alternative (U.S.) plan is passed, which may or may not happen this week," Dariusz Kowalczyk, chief strategist at CFC Seymour in Hong Kong, said in a note. Facing the worst financial crisis since the Great Depression, global central banks scrambled again to try to relieve a severe squeeze in money markets by more than doubling the amount of dollar funding to USD 620 billion. Among European banks top losers were Royal Bank of Scotland, Britain's HBOS, and Italy's UniCredit.

Bush: Bailout plan would help reduce crisis

U.S. President George W. Bush said yesterday the United States are facing a difficult situation, but Monday's rejection of the bailout plan by Congress is not the end of the legislative process.

The U.S. Congress must act immediately because what is at stake is the very stability of the country, the American president said. Estimated losses following the crisis are of USD 1,000 bln, which makes the current situation even more severe. In Bush's opinion, if Congress approves the bailout plan, that will significantly reduce the effects of the crisis. In his speech, the U.S. president admitted that the country "is facing a difficult situation, a critical moment."

Bans on short-selling stocks spread to Russia, South Korea and Taiwan. Nervous investors piled into gold and U.S. Treasuries. Oil fell on fears of further economic slowdown, and the Japanese yen hit a 4-month high. Wall Street suffered its worst fall since 1987 on Monday, but stock futures indicated a higher opening on Tuesday. With Tuesday's end of the financial quarter, Christian Noyer, a European Central Bank governing council member, sought to reassure investors. "There is no reason to be frightened and to give in to panic," Noyer said on France's RTL radio. "I don't say there won't be things that will appear in the accounts that are published in the next weeks or months but there is no drama in front of us. "A week that started badly with the rescue of three banks in Europe and the distressed sale of big U.S. lender Wachovia to Citigroup grew worse after the U.S. Congress was unable to agree on a rescue package. Treasury Secretary Henry Paulson said he would continue to work with Congress to formulate a bill that could pass after lawmakers rejected the plan he put together with Federal Reserve Chairman Ben Bernanke. The Senate returns on Wednesday and the House on Thursday after a break for the Jewish New Year holiday of Rosh Hashanah. No laws can be passed in their absence but their staffs could work on a revised plan.

Obama, McCain, support for bailout

U.S. presidential candidates Barack Obama and John McCain had both offered qualified support for the bailout, which now dominates the election just over a month away. Obama, a Democrat, said he believed lawmakers would regroup to pass a financial rescue plan. "I'm confident we're going to get there," he said as he campaigned in Colorado. "It's going to be a little rocky. Republican House members voted against the rescue package by a more than 2-to-1 margin. A majority of Democrats voted in favor. Global central banks scrambled to relieve a severe squeeze in money markets by more than doubling the amount of dollar funding to USD 620 billion as banks hoarded cash, bracing for more trouble ahead in the worsening credit crisis. In moves to arrest market slides, regulators in South Korea and Taiwan clamped down on short selling, while Hong Kong said it was ready to take aggressive measures against abusive shorts. The shakeup in the financial landscape spread to Europe from the United States, with Belgian-French financial services group Dexia the latest to receive a bailout when three governments and key shareholders on Tuesday injected EUR 6.4 billion (USD 9.18 billion) into the firm. Dexia chairman Pierre Richard and chief executive Axel Miller resigned on Tuesday, the company said after receiving a EUR 6.4 billion state bailout.

That followed government rescues of Belgian-Dutch group Fortis NV, Germany's Hypo Real Estate Holding AG, British mortgage lender Bradford & Bingley Plc and bailout deals in Iceland, Russia and Denmark. Latin American stocks tumbled 13 percent, their biggest decline in more than a decade. Russian shares fell six percent on Tuesday, chasing Monday's biggest ever one-day fall in the Dow industrials, when trade resumed after a two-hour suspension, though traders said the time-out had prevented panic. "Many market collapses are self-sustaining, but you can stop the chain reaction by suspending trade," Prospekt brokerage head of equity sales and trading Alexander Lobanov said. World stocks were at near three-year lows on Tuesday but fears of a major market meltdown failed to carry through from Wall Street to Europe as confidence in bank rescue packages persisted. Money markets remained on life support with benchmark rates continuing to climb, albeit distorted by the final day of the third quarter. European stocks fell as much as 2 percent in early trading and Japan's Nikkei closed 4.12 percent lower after the deep losses on Wall Street in the wake of Congress's failure to agree a USD 700 billion plan to buy up toxic debt from the financial industry. Other Asian stocks recovered, however. Hong Kong's Hang Seng index closed 0.8 percent higher, while South Korea's KOSPI pared losses to end down 0.6 percent. Both had fallen more than 5 percent early in the day. The dollar was up 1.1 percent against the yen to 105.19, according to Reuters data. The euro fell 0.6 percent to USD 1.4416 and by 0.1 percent against the yen to 150.27. Euro zone government bond prices eased, sending yields slightly higher. Oil recovered to trade above USD 99 a barrel after slumping almost 10 percent in the previous session.

RON and stock exchange in free fall

The international crisis is being sensed in Romania too, the first consequences becoming visible in the local currency exchange rate against the EUR, the RON dropping yesterday to a seven-month minimum of 3.73. The Bucharest Stock Exchange (BVB) nosedived by 5.35 per cent within minutes of opening but redressed a little around noon to a loss of 4 to 7 per cent. The shares of the five financial investment companies went into a freefall losing almost 9 per cent in the morning, taking down with them the enlarged bourse index that plunged 5.73 per cent in the first trading minutes. The most affected were energy stocks that lost 7.37 per cent in the selling deluge.

MEF: Romania must remain on alert

Yesterday, at a seminar on constructions, Finance Minister Varujan Vosganian warned that, given the developments in the world financial crisis, Romania must stay on alert. According to him, crises can be prevented in Romania as long as the country does not depress the pedal of mortgage loans through commercial banks too much. ‘So far, Romania has been able to absorb the shock and they are not visible in the actual economy. Any derailment at this point would become very difficult to manage. Foreign investments have not been affected, in fact the global crisis has made Romania even more attractive as the foreign investment seems to have grown here while the high economic growth keeps going' said the official. Last week, the Romanian Central Bank (BNR) Governor, Mugur Isarescu, stated in Cluj that the international financial crisis had put BNR ‘on alert,' ready to mitigate any possible bad effects of the crisis upon Romania.

 

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