Europe Acts To Stave Off Financial Collapse Europe is engaged in its own bank rescue bailouts. The governments of Belgium, Netherlands and Luxembourg rescued financial firm Fortis over the weekend to prevent a domino-like spread of failure. Britain is nationalizing mortgage lender Bradford & Bingley.

Europe Acts To Stave Off Financial Collapse

Europe Acts To Stave Off Financial Collapse

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While the U.S. faces a market meltdown as Congress attempted to pass a $700 billion bailout plan — and failed — Europe is engaged in its own bank rescue bailouts.

The governments of Belgium, Netherlands and Luxembourg rescued financial firm Fortis over the weekend with $16 billion to prevent a dominolike spread of failure after no serious commercial bidder could be found.

And Britain nationalized troubled mortgage lender Bradford & Bingley. With that move, every single one of the country's "building societies," or smaller regional banks, has now been taken over either by the government or another big traditional bank.

The only cries louder than those of the shareholders who have lost everything are the sounds of the analysts shouting: "I told you so."

British Prime Minister Gordon Brown sought to soothe troubles nerves by reiterating that his government will stand as the bank of last resort.

"The first economic duty of government is the stability of the system, and I have said, 'We will do whatever it takes to ensure the stability of the British financial system,' " Brown said.

The History Of Building Societies

At one time in Britain — as in so many places — the building societies helped people buy a house.

Like the old savings and loans in the U.S., they existed on a quaint old-fashioned idea, whereby for every pound of sterling of hard-earned savings deposited with them, they would lend out one pound sterling, and make a profit on charging more to their borrowers than they offered to their savers.

Then, in the go-go days of the '80s and '90s, fast-money men came along and said the quaint old-fashioned building societies should become banks, and then they'll be able to raise money on international capital markets. And so they did.

"It was clear they would expand their balance sheet fast, which took place," said Will Hutton, a columnist for The Guardian. "It was clear they'd be so hungry for short-term profit that they'd make mistakes. It was clear they'd get taken over, and we'd lose our regional financial system. And it's happened."

Contagion Spread To Europe

All of this came just as the contagion spread to continental Europe with the news that banking and insurance giant Fortis will also be partially nationalized.

Fortis' Chief Executive Filip Dierckx said rumors and speculation were partly to blame, but he did admit the bank had overreached itself.

"But I'm also not going to deny that if you look at some of the decisions, which were taken in the past, then you can say that probably they were done at the wrong moment. That the timing was not correct," Dierckx said.

Elsewhere in Europe, Germany's No. 2 commercial property lender became the first German blue chip company to seek a bailout from the government. The government in Iceland said it has taken control of that country's third-largest bank.

Not All Doom And Gloom

But on Monday, on the streets of the financial district in London, known as the Square Mile, it wasn't all doom and gloom.

City workers Sergio Baratesta and Tom Hodges even suggested that the worst may have have passed.

"I don't think it will get any worse," Baratesta said. "I think we got to the bottom at the moment. It cannot get worse. It's looking like its going to be tough — hard to recover — but I think it is going to get better, from now on."

Hodges said he thinks people are getting used to not borrowing and spending as they used to.

Perhaps banks are even returning to some of those quaint, old-fashioned concepts of banking.

A Look At The European Banking Situation

In Depth

Your questions answered on:

European governments moved to rescue some major banks over the weekend, in an effort to contain the financial turmoil that has spread from the U.S.

Here's a list of some of the banks that got lifelines, some that may be struggling, and some that may stand to profit from the mess in the long run.

Fortis

Fortis — The giant European banking and insurance company was partly nationalized this week by the Benelux countries, Belgium, the Netherlands and Luxembourg. Finance ministers from the three countries agreed to rescue the failing giant with an investment of more than $16 billion. Fortis' CEO Filip Dierckx said the company got in over its head when it bought part of a struggling Dutch bank last year.

Bradford & Bingley

Bradford & Bingley — The British government has confirmed that it will take over the major mortgage lender Bradford & Bingley. The government is buying about $92 billion worth of B&B's mortgages and loans, and it is selling the bank's branches and its savings deposits to the Spanish bank Santander. Officials say people who put their savings into the bank will be protected.

Hypo Real Estate

Hypo Real Estate — The German government agreed to back a consortium of banks that put together a $51 billion bailout package for Hypo, the second-largest commercial-property lender in Germany. Analysts said Hypo was likely to suffer big losses on its real estate loans.

Glitnir — Iceland's central bank bought a 75 percent share in the country's third-largest bank, saying that Glitnir was about to collapse. The government put nearly $900 million into the bank, which has operations in 10 countries.

And here are some other banks and institutions feeling the pinch:

Dexia — Rumors swirled through the European banking sector that this Brussels-based bank could be looking for a rescue. Dexia shares dropped more than 28 percent in trading on Monday. Other banks drawing investor scrutiny were the Royal Bank of Scotland, whose shares fell more than 8 percent, and Swiss-based UBS, which was down more than 5 percent.

Ping An Insurance — Analysts say Fortis' troubles will hurt its biggest shareholder, the Chinese insurance company Ping An. Its shares fell nearly 10 percent on Monday.

HSBC — The London-based bank HSBC announced that it will cut about 1,100 jobs worldwide, about half of them in the United Kingdom. The bank, which has a global workforce of around 335,000 people, announced the cuts after it was forced to write off about $14 billion in bad debts, most of them in the U.S. In February 2008, The Banker magazine declared HSBC the world's most valuable banking brand.

And some banks may be poised to get bigger by absorbing weaker banks:

Banco Santander — This Spanish-based bank got a bargain by picking up Bradford & Bingley's 197 branches for about $1.1 billion. The branches come with nearly $30 billion worth of deposits. Santander is the second-largest bank in Europe, and analysts say it is well-capitalized and could expand further.

Barclays Bank — Barclays shares were down nearly 9 percent on Monday, but analysts say the London-based company is among Europe's better-capitalized banks and could be among the bargain hunters as weaker banks are sold off. Barclays picked off some of the operations of the bankrupt Lehman Brothers.

BNP Paribas — The giant French bank was hit by the subprime mortgage crisis last year but remains the second-largest bank in the Eurozone in terms of market capitalization, according to The Banker. There has been speculation that BNP Paribas could be looking at a merger with Societe Generale, the France-based bank that was shaken last year by a fraud case.

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