Banking on a bailout, Europe joins the party

As Congress approaches the bailout vote, credit markets are still frozen. Belgium and the Netherlands bail out Fortis, and Britain takes over Bradford and Bingley. And hedge funds are facing a small showdown tomorrow.


Congress, spooked markets await bailout vote

As Congress prepares to vote on a finalized $700 billion deal to buy toxic mortgage-backed assets from Wall Street, the European Central Bank moved to inject yet more liquidity into the region’s banking sector. The pending U.S. bailout has not yet started unfreezing credit markets, and the partial nationalization of two European banks didn’t help market sentiment. “The crisis has taken on a more international complexion,” said Calyon analyst Daragh Maher. “There is a worry whether there is the ability or the willingness within Europe for a U.S.-style response.” (Reuters) European and Asian markets were sharply lower early today, with Japan’s Nikkei closing down 1.26 percent. (AP in Yahoo! Finance)

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Fortis is saved, Britain’s Bradford & Bingley fails

Belgian banking giant Fortis received a $16.4 billion bailout from Belgium, the Netherlands, and Luxembourg, after two banks walked away from buyout talks. Fortis is the largest European bank to be bailed out in the current credit crisis. (MarketWatch) Belgium and the Netherlands each bought a 49 percent stake in the Fortis units in their respective nations. ING will buy the stake in ABN Amro that Fortis purchased last year. (Reuters) Britain nationalized lender Bradford & Bingley, taking control of its $92 billion in mortgages and selling its branches and $39 billion in deposits to Spain’s Santander for $1.1 billion. “There’s value in the bank’s deposit base,” said analyst Alex Potter at Collins Stewart in London, “but you’d have to have a different name over the door.” (Bloomberg)

Citigroup buys Wachovia banking unit

Under pressure from financial regulators, Wachovia, the No. 4 U.S. bank, agreed to sell its banking assets to Citigroup. Citigroup will give the FDIC $12 billion in preferred stock and warrants, and the FDIC will absorb losses above $42 billion. “Wachovia did not fail,” the FDIC said. (The New York Times) Wachovia’s shares dropped 27 percent on Friday, to $10, amid growing concerns about the value of the $122 billion portfolio of option adjustable-rate mortgages it picked up with the ill-fated 2006 purchase of Golden West. (Reuters)

Hedge funds oil the gates

The $2 trillion world of hedge funds has something of a test tomorrow, when many funds open their windows for withdrawing money for the end of the year. If enough investors pull their money, it could be a problem for the funds, which are already having their worst year on record. About 350 hedge funds have already been liquidated this year. Trouble in the hedge fund industry isn’t just a problem for millionaires anymore—pension funds, endowments, and foundations have all jumped in. But hedge funds have a set of brakes of sorts: They can close the “gate,” slowing the rate of withdrawing funds. And with concerns that investors will draw down heavily, said Fitch analyst Jenny Story, “the gates are being closed.” (The New York Times)

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