Translated material
Merkel collects shards
The rescue plan for Hypo Real Estate did not work, and Fortis will be saved through nationalization
German Chancellor Angela Merkel, who recently participated in the anti-crisis summit in Paris , yesterday was forced to comment on the scandalous situation in the German banking sector. The Munich banking holding Hypo Real Estate, seemingly saved from bankruptcy a few days ago with the participation of the government, nevertheless found itself on the verge of collapse. The banks that decided to guarantee the line of credit for Hypo Real Estate abandoned their intentions: the problems turned out to be more serious than they expected.Mrs Merkel said yesterday that the government "will not allow the plight of one financial institution to become the plight of the entire system" and assured that the authorities were "working hard" to save Hypo Real Estate. The news from Munich, apparently, came as a surprise to the authorities, since German Finance Minister Peer Steinbrück said yesterday that he was “outraged” by the actions of the holding’s management.
As you know, the rescue plan assumed that HRE would receive a credit line of 35 billion euros, of which 26.6 billion were planned to be provided by the federal government, and another 8.5 billion by private banks. But on Saturday the bank issued a statement: “The proposed rescue package included a line of credit to be provided by a consortium of several financial institutions. Now this consortium has refused to provide this line.” The reasons for the failure are not indicated in the bank’s statement, but it is obviously about the creditors’ lack of faith that the 35 “guaranteed” billions will be enough and the bank will be able to stay afloat thanks to these injections. In any case, Sunday's Welt am Sonntag reported that Deutsche Bank analysts have learned that HRE will be short 50 billion euros by the end of this year, and by the end of 2009 the volume of problems could increase to 100 billion.
A representative of Hypo Real Estate itself hastened to call such conclusions “ridiculous.” However, he immediately confirmed that the liquidity situation of the Irish subsidiary Depfa, “thanks to” which the concern found itself drawn into the whirlpool of the crisis, had worsened even further. Depfa has an image of being a significant and “exceptionally reputable” public infrastructure finance institution. In recent years, Depfa has systematically refinanced long-term securities with short-term funds from the market. When this funding mechanism ceased to function, Depfa faced a huge liquidity shortage.
Due to the fact that Hypo Real Estate and Depfa still need to service current financial obligations, experts believe that “very soon” - perhaps even today - the concern faces imminent collapse.
Under these conditions, the federal government does not hide its resentment towards the “deferred” banks. “We need to think about how we can again sweep away the shards that they (i.e. the private banks - Ed. ) have thrown at our door,” lamented an official representative of the Federal Ministry of Finance in Berlin over the weekend, where the crisis council met saving HRE. - This is exactly what the government has been concerned about since Sunday morning. At the same time, experts who have already dismantled Hypo Real Estate piece by piece, in order to put the concern back together after pouring fresh money into it, must first understand the new situation.”
However, there is very little time for reflection. After all, the final solution to the bank’s problem will only have at least some weight if it is made before the Asian stock exchanges open early in the morning. So yesterday, representatives of the German federal government used all their eloquence in an attempt to once again inspire the “refuseniks” to help HRE. "Now is the time when we all have to show our responsibility," said the spokesman for Germany's Federal Finance Minister, Thorsten Albig, yesterday. Everyone must, he continued, correspond to his level of responsibility - depending on his “proximity to responsibility.” In plain text, what was said means that it was none other than the financial industry itself that, through its actions, caused an international crisis and the possible collapse of Hypo Real Estate. Therefore, it is up to the banks themselves to decide how to deal with this problem.
Meanwhile, the authorities of Belgium, Holland and Luxembourg did not rely on partners from the banking sector and decisively took up the task of saving the Fortis financial holding. It was decided to divide this Belgian-Dutch banking group, whose depositors began to intensively cash out their accounts, “on a national basis” and nationalize it. The Belgian government will become a 100 percent shareholder of Fortis Belgium, and the Dutch government at a special meeting on Friday decided to buy out the Dutch part of the group, which includes, in particular, ABN Amro bank.
These decisions also represent a dramatic change from the original plan to support Fortis. A week ago, the governments of Belgium, the Netherlands and Luxembourg decided to invest 11.2 billion euros in the group (Brussels intended to invest 4.7 billion euros in the Belgian Fortis Bank, The Hague - 4 billion euros in Fortis Bank Nederland, and Luxembourg - 2.5 billion euros at Fortis Banque Luxembourg). At the same time, 49% of the shares in all three banks were to become state property. However, this plan involved the sale of ABN Amro, which the Dutch signed in the expectation that it would be bought by the Dutch ING. When he refused the acquisition, the Netherlands tried to replay the entire plan.
Now the Fortis group will be transformed from a Belgian-Dutch to a Belgian-Luxembourg group, and the Dutch government will buy Fortis Bank Nederland (Holding) NV, ABN Amro bank and the insurance company Fortis Insurance Netherlands NV for 16.8 billion euros. According to RIA Novosti, a representative of the Dutch ministry Finance reported that this is a temporary measure and Fortis will be sold back into private hands as soon as calm is established in the financial markets. In turn, the head of the Dutch Central Bank, Nut Wellink, said that as a result of the deal, “two systemic banks, which are part of the circulatory system of the Dutch economy,” will be saved.