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The Financial Times – Swiss banks get major rescue package
Switzerland on Thursday joined the list of countries taking unprecedented measures to strengthen their banks with the government taking an indirect SFr6bn (US$5.3bn) stake in UBS and Credit Suisse raising SFr10bn from private investors and the Qatar Investment Authority. UBS, one of the largest casualties of the US credit crisis, would also transfer $60bn, the overwhelming majority, of its illiquid US securities to a new entity owned and controlled by the Swiss National Bank. -
The Wall Street Journal – U.K. Bailout Plan Shows Some Cracks
The U.K.’s $697 billion financial-rescue plan — hailed as a model for other countries trying to stem the banking crisis — is starting to show some cracks. Some banks are pushing back with complaints that the conditions are too harsh, especially after seeing the more generous terms of the U.S. bailout. They are concerned the price the government plans to charge to guarantee their debt is too high — in some cases more than they earn on their loans. “It’s going to become another hit on earnings,” says Citigroup analyst Tom Rayner, who says the fees could reduce earnings by 10% to 15%. U.K. banks in line to take government funding — Royal Bank of Scotland Group PLC, and the soon-to-be-combined HBOS PLC and Lloyds TSB Group PLC — also can’t pay shareholders dividends until they have bought back the preferred shares sold to the government, unlike in the U.S. plan. That could take years and make their shares less attractive than banks getting U.S. funding. Banks are especially nervous after watching their share prices fall since the U.K. said Monday it would buy up to £37 billion in bank stakes. -
The Financial Times – Lex: You gotta have a plan
It may be carnage out there, but the important thing is to have a plan. Europe and the UK each have one; the US has been through several. Now Asia, home of the strongest banks and most trashed markets, wants one too. It is hard to see any coherent plan meeting the need of such a diverse group of countries. Asia lacks a common currency, capital market and even growth trajectory. Half-baked plans hatched in the wake of the Asian financial crisis of 1997-8 are less appropriate today. Then, the big fear was currency runs. Today, with an aggregate $4,400bn parked in Asian central banks, the region has ample firepower to defuse that particular risk. For the few central banks with smaller kitties, bilateral agreements – say, with China – would be simple enough to implement. Precedent for this exists: Saudi Arabia has deposited funds in Lebanon’s central bank. And China can point to Africa to show that financial assistance, in the form of soft loans, can bring political and economic benefits. -
The Financial Times – An exit strategy
Governments may hold ordinary shares, but they will never be ordinary shareholders. Public recapitalisation is a vital part of the solution to the banking crisis, but the two-tier, part-nationalised banking system it creates carries its own problems – and may be a lasting legacy. The Swedish government has yet to sell off all the stakes it took following its 1992 banking crisis. Some problems of public ownership seem insurmountable. Governments must insist that they will recover their investments – and help must initially be offered on terms that make it preferable to seek private sector support. Expensive preference shares and restrictions on dividends are prudent steps to protect taxpayers, but make it difficult for part-nationalised banks to attract new private investment. A further intractable problem comes from states’ seemingly bottomless pockets.
Comment A few weeks ago we started keeping a list of the major bailout announcements. It is a subjective list and includes events relating to the credit crisis since September 1. We believe each entry would qualify as one of the biggest stories of any other year and this list has 67 separate entries over 25 different days! Just looking at the sheer size of the list tells you how amazing this last month has been.
Since it is a subjective list, drop us a note if you think we missed anything. It is hard to believe a list this long might be incomplete.
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Sept 7th – Fannie Mae, Freddie Mac put into conservatorship
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Sept 14th – Bank of America buys Merrill,
– Lehman files for bankruptcy -
Sept 17th – AIG Bailout,
– Lloyds buys HBOS in UK government-engineered deal -
Sept 18th – FSA announces short selling restrictions,
– Liquidity added through record system repos of $110 billion -
Sept 19th – Treasury guarantees money market assets,
– SEC announces new short selling rules,
– TARP plan unveiled,
– FTSE has biggest one-day gain ever -
Sept 22nd – Goldman Sachs and Morgan Stanley convert to banks.
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Sept 23rd – Berkshire Hathaway invests in Goldman Sachs
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Sept 25th – Washington Mutual (WaMu) taken over by JP Morgan
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Sept 27th – Bradford & Bingley nationalised,
– Fortis bailed out by Dutch, Belgian, Luxemburg, governments -
Sept 28th – Hypo Real Estate bailed out by German government-sponsored lenders,
– Glitnir bailed out by Icelandic government -
Sept 29th – Citigroup takes over banking business of Wachovia with FDIC guarantees,
– Ireland guarantees all deposits,
– House rejects TARP plan,
– DJIA falls a record 777 points -
Sept 30th – Belgian government bails out Dexia
– Fed pumps a record $630B of liquidity into swap lines with foreign central banks,
– Senate passes revised TARP plan -
Oct 1st – Berkshire Hathaway invests in GE
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Oct 3rd – UK lifts depositor guarantee to £50,000 from £35,000,
– Well Fargo takes over Wachovia despite Citigroup deal 4 days earlier,
– Fortis bailout amended,
– Dutch government buys Dutch businesses,
– TED spread hits record of 340 bps.
– House passes revised TARP plan -
Oct 5th – BNP buys rest of Fortis,
– Germany guarantees all individual savers,
– Hypo Real Estate bailout re-negotiated,
– Denmark and Sweden guarantee deposits,
– Unicredit bailed out in Italy -
Oct 6th – FTSE has worst day in over 20yrs,
– Dow trades down over 800pts at one stage,
– Federal Reserve boosts TAF auctions to $900bn
(last Dec started with $50bn as a ” temporary measure”),
– Iceland takes control of banking system,
– UK government meet with bank CEOs to discuss capital injection -
Oct 7th – RBA cuts rates by 100bps,
– RBS trades down 40% on talk of UK government injection into banks,
– Federal Reserve to buy commercial paper direct from companies -
Oct 8th – UK bank bailout plan,
– Coordinated rate cuts with Fed, ECB, BoE, BoC, Riksbank, SNB and PBOC
– Dow completes worst 6 days in history.
– European stocks endured worst 3 days since 1987 -
Oct 9th – The DJIA falls 7.33% for its 13th worst day ever,
– UK announces plan to recapitalize banking system -
Oct 10th – Stock markets complete their worst week since 1933,
– The G-7 holds emergency meeting in Washington,
– Corporate spreads reach widest levels since the Great Depression. -
Oct 12th – EU countries agree to capital injections into banks, guarantee deposits
and inter-bank loans.
– UK offers details on capital injection plan, takes major stakes
in HBOS, Lloyds and RBS -
Oct 13th – MUFG agrees to $9 billion capital injection into Morgan Stanley,
– S&P 500 up 11.08%, its best day since 1933.
– TED spread hit record wide of 436 basis points.
– World central banks offer “unlimited” liquidity to banking system -
Oct 14th – U.S. Treasury agrees to inject $125 billion of capital into nine banks,
increases guarantee on bank deposits and bank debt.
– Iceland stock market re-opens and falls 76% -
Oct 15th – The DJIA falls 7.87% for its 11th worst day ever
(and worst since October 1987).
– ECB expands collateral framework , accepts lower-rated
credit instruments and also instruments denominated in $, £ and yen -
Oct 16th – Swiss government injects $5 billion in UBS and could own 9%.
It will also acquire $60 billion of illiquid assets.
– Credit Suisse raises SF 10bn,
– French President Sarkozy calls for a “revamp of capitalism”
– Bank of England eases rules for borrowing at the discount window