World markets fall on spate of bank rescues

Image: A man strolls past a stock board outside a securities firm in Tokyo, Japan
A man strolls past a stock board outside a securities firm in Tokyo, Japan, on Monday.Junji Kurokawa / AP
/ Source: news services

World stock markets fell Monday amid a flurry of government bank rescues in Europe.

Analysts said the flurry of developments around the world is confirming fears that the global financial contagion is likely to spread further before any recovery.

“There’s an increasing realization that the cleanup and the mending of all that’s gone wrong is going to take an extended period to work through, and we’re going to see an extended recovery period,” said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.

The London Stock Exchange FTSE 100 fell some 5 percent, while Germany’s DAX and France’s CAC 40 also tumbled. In Dublin, the Irish Stock Exchange plummeted 8 percent to a 12-year low at 3,485 points.

In Asia, Tokyo’s Nikkei 225 index closed down 1.3 percent at 11,743.61, and Hong Kong’s Hang Seng Index shed 2.1 percent to 18,286.90.

The markets were responding in part to news that Dutch-Belgian banking giant Fortis NV was partially nationalized with a 11.2 billion euros ($16.4 billion) rescue from the governments of Belgium, the Netherlands and Luxembourg, after investor confidence in the bank disappeared last week.

“They’re worried that another fire is starting in Europe,” said Castor Pang, an analyst at Sun Hung Kai Financial in Hong Kong, referring to the Fortis news.

In other activity across Europe, the British government nationalized mortgage lender Bradford & Bingley, taking over the bank’s 50 billion pound ($91 billion) mortgage and loan books. In a similar move, the Icelandic government bought a 75 percent stake in Glitnir, the country’s third largest bank, for 600 million euros ($878 million) to ensure broader market stability after it suffered liquidity issues.

In Germany, the country’s second biggest commercial property lender, Hypo Real Estate Holding AG, said it had secured a multibillion euro line of credit from several banks.

The outlook for the U.S. economy remains grim, with unemployment at a five-year high of 6.1 percent and expected to climb higher. That’s likely going to weaken demand for exports from Asia and Europe.

Furthermore, there are plenty of banks still in trouble, and it may take time before the bailout plan helps them.