Europe Forced into Bank Rescues as Crisis Spreads

BRUSSELS/AMSTERDAM(Reuters) – European governments scrambled to shore up banks on Monday,carving up firms and committing billions of euros as the credit crisis tore through Germany, Britain, Belgium and beyond.

The moves came as $700 billion bailout plan for U.S. financial firmsfaced a vote by the House of Representatives on Monday and Citigroupsaid it would buy the bulk of fourth-largest U.S. bank, Wachovia Corp.

Lawmakers hope to unfreeze global markets gripped by the worst crisis since the Great Depression of the 1930s.

In the biggest European bank bailout since the credit crisisbegan, the Belgian, Dutch and Luxembourg governments took a 49 percentstake in Fortis with a 11.2 billion euro ($16.4 billion) injection.

The rescue of Fortis, the biggest private employer in Belgium,followed emergency talks with European Central Bank PresidentJean-Claude Trichet on Sunday. The bank employs 85,000 staff globally.

"The question was whether Fortis would have survived on Monday,"Dutch Finance Minister Wouter Bos told reporters. The firm’s chairman,Maurice Lippens, resigned.

The German government and a consortium of banks said they wouldprovide 35 billion euros ($51.2 billion) in credit guarantees to lenderHypo Real Estate, whose shares plunged more than 60 percent in morningtrade.

"The purpose of the whole operation is to allow an orderly windingdown of Hypo Real Estate," a German finance ministry spokesman said.

In Britain, the government was forced to buy up the 50 billionpounds of loans, mostly mortgages, held by Bradford & Bingley. Thegovernment brokered a takeover of lender HBOS earlier this month andnationalized Northern Rock in February.

B&B’s 200 branches and deposit portfolio were bought up by Spain’s Santander for some 400 million pounds.

Iceland was also forced into action as emergency measures to cope with the credit crisisspread across Europe, forcing the government to take a 75 percent stakein third-biggest bank Glitnir in a move that sent the Icelandic crownto a fresh record low against the euro.

World stock markets fell, with the MSCI main world equity index down2 percent to its weakest in more than a week. In Europe, theFTSEurofirst 300 index of top companies was down 3 percent while bankstocks shed 5.4 percent.

U.S. futures indicated a sharply lower opening. Shares of Wachoviasank 60 percent in early electronic trading on concerns about itsportfolio of illiquid assets and ahead of the Citi announcement.

Despite the European Central Bank injecting extra billions hoping tospur lending, banks continued to hoard cash but not lend, sending theinterbank rate for borrowing euros for three months to a lifetime high.

The euro fell nearly 2 percent at one point while the dollar and safe-haven government bonds surged.

FORTIS RESCUE

The Fortis deal followed failed efforts to sell a stake to French bank BNP Paribas, a source said.

Fortis will sell the parts of Dutch bank ABN AMRO it bought lastyear to ING in a deal expected to be finalized within two weeks,sources familiar with discussions told Reuters. ING declined comment.

The problems at Fortis, whose shares dropped by a third last week,were partly blamed on its taking a slice of year’s 70 billion europurchase of ABN with partners Royal Bank of Scotland and Santander.

"Integrating ABN AMRO was a step too far for this company to do," Fortis CEO Filip Dierckx told a conference call.

The European Commission said Competition Commissioner Neelie Kroes was consulted on the Fortis rescue.

"We will look at any state aid involved as a matter of urgency," EUspokesman Jonathan Todd said. Under EU rules, rescue aid must belimited to six months and to the minimum required to ensure thecompany’s survival.

The involvement of Trichet, who as ECB head is responsible forsafeguarding financial stability in the euro zone, was unprecedented ina commercial bank rescue and underlined the concern for the integrityof the banking system.

Chinese insurer Ping An, a 5 percent stakeholder in Fortis, fell nearly 10 percent.

(Additional reporting by Paul Carrel in Berlin, Natsuko Waki andSumeet Desai in London, Mark John, Marcin Grajewski and Antonia Van DeVelde in Brussels, Matthieu Protard in Paris, Michele Sinner inLuxembourg; Writing by Jason Neely and Paul Taylor; Editing by AndrewCallus)