European banks sucked into US financial crisis

FRANKFURT: European banks were sucked Monday into turmoil spawned by the US financial crisis, with bailouts, sales and attacks on the shares of financial institutions multiplying across the continent.

Banks in Germany, Belgium and the Netherlands suffered brutal attacks on the stock markets, with investors hammering shares in small and large financial institutions alike.

In Berlin, authorities issued guarantees worth 35 billion euros (50 billion dollars) for an emergency credit line by a consortium of private banks to Hypo Real Estate, a specialist in property lending, a government spokesman said.

The measure, agreed over the weekend, was to "prevent the danger of the (US) crisis spreading to Germany," spokesman Ulrich Wilhelm told a news conference.

Shares in HRE had lost three-quarters of their value in early trading Monday after the bank said it had been thrown the lifeline while also issuing a profit warning and saying it would not pay a dividend this year. They traded at 5.23 euros in midday deals, down by a massive 61.23 per cent.

"It is the job of a government to protect the country from dangers," finance ministry spokesman Torsten Albig said, adding that the potential danger of not rescuing Hypo Real Estate would have been "enormous."

In Amsterdam, shares in the Belgian-Dutch financial group Fortis shed 20.9 per cent to 5.18 euros despite the annoncement late Sunday of a multi-national bailout.

France and Belgium will step in to support Dexia bank, the countries' finance ministers said, as it saw a fifth of its stock market value wiped out in morning trading in Brussels.

French President Nicolas Sarkozy was to meet Tuesday with the bosses of leading French banks and insurance companies to discuss the global financial crisis, his office said.

British authorities confirmed meanwhile that they would nationalise a second bank, Bradford & Bingley, while Roskilde Bank, which was rescued by the Danish central bank in August, said it had been sold to the Nordic bank Nordea and two regional Danish lenders.

The chronic financial market turmoil was met with fresh refinancing operations by the European Central Bank, which reported strong demand for a renewal of its one-day loans of 30 million dollars (21 million euros). Eurozone banks had requested nearly twice that amount, the ECB said.

It also announced a special 38-day euro loan to provide eurozone banks with more cash in a bid to balance conditions on extremely tense interbank money markets.

The amount of the ECB refinancing operation was not immediately specified, but the central bank said it "will be renewed at least until beyond the end of the year."

At UniCredit Markets, chief eurozone economist Aurelio Maccario said: "Financial conditions keep tightening and the massive liquidity injections guaranteed by the ECB had done little to alleviate the problem.

"All eyes are turned on Washington to see if a rapid approval of the TARP will restore some confidence and help banks' balance sheets."

In Washington, US lawmakers had stitched together an agreement on the Troubled Asset Relief Program (TARP), to allow the government to buy troubled assets from banks, pension plans, local governments and other firms.

The plan marks the biggest state intervention since the Great Depression of the 1930s. Despite the apparent agreement however, German financial stocks were slammed by heavy selling.

The second biggest bank, Commerzbank, saw its shares fall by 15.41 per cent despite announcing that its refinancing needs for this year were covered, in large part by customer deposits in its retail banking division.

Number one Deutsche Bank posted a loss of 6.89 per cent, while Postbank, which has the country's largest retail network, was down by 9.38 per cent. Insurance group Allianz, which owns a large stake in the troubled Dresdner Bank, showed a drop of 6.33 per cent, while the reinsurance group Munich Re was off by 2.84 per cent.

The Dax index of leading shares was down by 2.92 per cent to 5,886.73 points, after losing almost 2.0 per cent on Friday.