Banks A Worry Again

Sydney, Nov 24, 2008 (ABN Newswire) - Not the best of times for US bank regulators to be closing busted banks, but that's what we saw with three small domestic banks shut at the weekend, ending a week when we also saw Citigroup lose 60% of its value as nerves were again stretched about the health of the global banking system.

No matter where you looked around the world, banks were losing money, being closed, looking for help or just wondering what hit them.

A rare standout though was the faltering Bank of Ireland in Dublin where it's expected more government help will be provided: the bank's shares jumped 24% Friday after it said it had received 'unsolicited advances'. That left the shares up more than 15.7%.

That was a rare bright spot in a banking market that had started the rush to mass guarantees of deposits and loans that spread like wildfire across the world, forcing virtually all the major banking systems of the world to be backed by their national governments.

It hasn't helped the Irish banks which remain weak, with unexplained rumours of huge losses in foreign-owned groups like Depfa Bank (owned by Hypo Real Estate).

HVB's (a Munich-based subsidiary of UniCredit of Ital) local banking subsidiary in Dublin has a string of problem deals, one of which is said to be at the root of the problems at Babcock & Brown, the floundering investment bank.

Other Irish banks remained under pressure, with Allied Irish Banks down more than 29% for the week and Anglo Irish off a similar amount as well. The rush to provide that guarantee clearly hasn't helped.

The London Times reported overnight that the Irish government had agreed to take part in a 3 billion euro ($A5.8 billion) bailout of Bank of Ireland that will be led by private equity. The deal would be the first state aid for an Irish bank.

The paper said a number of private-equity groups will make proposals to the Bank of Ireland and its advisers.

A condition of the government cash injection will be that new investors are locked in for a set time to ensure they don't try to sell quickly and make a big profit.

Ireland was one of the first countries to respond to the credit crisis with a guarantee for bank liabilities worth some €440 billion (over $A1 trillion), but until now it has not bailed out or nationalised any banks, and they have not raised equity themselves, unlike some banks in Australia, the US, Japan, UK, France and Germany.

Interestingly, with the UK Government having supported, guaranteed and invested in most of Britain's biggest banks, the shares were not sold off last week.

Barclays though has a contentious meeting of shareholders tonight to approve the issue of shares to a group of investors, including some in the Middle East. The bank is doing this rather than take up the government aid.

Elsewhere in Europe, Switzerland's UBS finished down more than 21%, France's Credit Agricole, 27% and BNP Paribas shed 23% of its value. All three have been supported by national governments with capital and guarantees.

Macquarie Group was a rare stand out, rising 19% after posting a smaller-than-expected drop in profit and saying earnings may not be as badly hurt as expected by the credit crunch.

Other Australian banks were weak, but not as bad as those in the US or Europe.

Three US banks were shut and seized by regulators at the weekend in an active day for regulators.

So far this year, 22 banks have failed. That already represents the most bank failures in the US since 1993, when 50 banks failed.

US banking regulators seized California banks Downey Savings and Loan and PFF Bank & Trust late Friday as the housing crisis claimed two more victims from the financial crisis. 

Georgia's state banking regulators closed a small bank in that state when they took control of the small Community Bank and sold it to a nearby operator.

The Californian banks reopened as part of US Bancorp on Saturday.

As of Sept. 30, Downey Savings had total assets of US$12.8 billion and total deposits of $US9.7 billion. PFF Bank had total assets of $US3.7 billion and total deposits of $US2.4 billion.

Community Bank had $US681 million of assets and $US611 of deposits. All up the bill will be more than $US2.5 billion to regulators.

With these failures, five California banks and three Georgia banks have been among the 22 forced to shut down in the current crisis.

The biggest was the failure of Washington Mutual, America's biggest Savings and Loan institution. The multi-billion dollar bill for that rescue is still coming in.

Weekend reports claimed Citigroup had begun talks with the US government. That was after Friday's 20% fall. Citigroup's market value fell to $US20.5 billion on Friday.

That's less than the $US25 billion injection that Citigroup just received from the federal government. It's a smaller value than the Commonwealth Bank, the NAB or Westpac.

The US media reports said the bank last week met officials from the Federal Reserve and the US Treasury Department to discuss its options, which include an endorsement from the government and another capital injection from the Treasury.

The bank's management was also reportedly discussing selling off units or finding another bank to merge with.

Chief Executive Vikram Pandit said on a company-wide conference call on Friday that the bank does not want to change its business model and plans to keep its Smith Barney brokerage, despite news reports to the contrary.

He also reportedly said Citigroup had a solid capital position and that employees should not focus on the bank's falling share price because that is not what regulators and credit rating agencies worry about.

The bank was planning to run ads in major US and international newspapers on Sunday emphasizing its stability, noting that "200 million people around the globe have put their trust in Citi to take control and secure their futures".

In Indonesia, the country's state-owned deposit guarantee agency took over Bank Century on Friday, the first such bank collapse in Indonesia since the Asian financial crisis of a decade ago.

Boediono, the Bank Indonesia governor, said the decision to take over the listed Bank Century, which has assets of about $US 1.6 billion and is the 13th largest by market value, was to "make it better and more professional" until a buyer could be found.

Media reports quoted him as saying that "There are interested investors but the government and Bank Indonesia saw that people needed immediate certainty so [we decided] the best way out was to take it over".

And in Germany Landesbank Baden-Württemberg's (LBBW) offered "concrete merger talks" with its Bavarian Landesbank counterpart, BayernLB, a move that could create one of the country's three largest banks with a balance sheet of around $US1.1 trillion.

The move could see a banking giant that would dominate two of Germany's best performing and richest regions, Baden Wurttemberg and Bavaria.

But there was a reason for the offer. LBBW said it would make a loss this year, and its mostly local and state government owners committed 5 billion euros to shore up the bank's capital. LBBW said it might also seek guarantees for up to 20 billion of euros of debt from the federal government's bailout fund.

BayernLB has already asked for 5.4 billion euros of new capital from the government-led bank bail-out fund.

SachsenLB, which nearly collapsed last year because of its large subprime exposure, was merged into LBBW (and has helped generate the losses and capital pressures while WestLB, which has lost billions of euros in dud loans and trading mistakes and other problems, is looking for a merger partner. It is based in and around Dusseldorf in the Rhineland.

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