Bank Bailouts Come to Europe

Though just recently the European Central Bank said smugly that Europe would never see the kind of bailouts currently going on in the US, as many as predicted it now seems clear Europe will not be immune from the crisis. Yesterday brought the news that Belgian-Dutch group Fortis is being nationalized by the Benelux nations and British mortgage lender Bradford & Bingley is being nationalized by the UK government.

Though the UK was the first country to see a big bank bailout with the nationalization of Northern Rock, since the US institutions such as Lehman Brothers and AIG started started dropping like flies, Europe's banks had held firm. But no longer. Fortis is the first major continal European bank to falter.

Now analysts are saying the next phase of bank bailouts are likely to be seen in Europe. Joseph Kraft, head of Japan capital markets at Dresdner Kleinwort, told Reuters today,"It's definitely moving towards Europe. It's the beginning of the end and a necessary step, so we should see more institutions nationalised, absorbed or going into default."

At the same time it appears the US congress has been able to work out a deal with which they can approve the $700 billion bailout plan for the struggling banks.

SocGen: Europe’s Enron?

As the Economist points out today, it’s quite a feat to push France’s attention-hungry president off the front pages these days. But a young low-level trader in Paris has managed to do just that.

Last week it emerged that a rogue trader named Jérôme Kerviel has cost France's most venerable bank, Société Générale, more than $7-billion. For France, and indeed for all of Europe, Kerviel’s story has been captivating. Those at the top of the economic ladder see him as an evil genius, a scheming traitor who duped his vigilant employer by hiding his thieving through complex manoeuvring. Others, particularly on the French left, see him as a modern day Robin Hood, exposing the weaknesses of French capitalism.

Though SocGen, the biggest economic success story in a nation known for its mistrust of capitalism, has tried to portray the crime as genius in its deception, Kerviel’s own court testimony reveals that it was anything but. According to the French press, Kerviel has testified that his thieving began as early as 2005, merely by creating fake trades and pocketing the money himself. He also says it should have been obvious to his superiors because he was openly reporting making as much as €600,000 in a single day, a ludicrous amount for a trader to be making legitimately.

Brown feeling blue

It’s safe to say this has not been a good week for Gordon Brown. First came the news that Northern Rock, the mainstay UK bank that had a bank run about a month ago and was bailed out by the government, can’t find a buyer except predatory private equity firms making obscenely low-ball bids. This is bad news for chancellor Alastair Darling because the government may not recoup its bailout money, and although they assured the bank’s customers that their money was safe in order to stave off the bank run, it is now unclear whether that money really is safe.

But this news was quickly overshadowed by the bombshell that dropped Tuesday, when it was revealed that the government has lost data on 25 million Britons. Two unencrypted disks with the records of 7.2 million families claiming child-benefit payments went missing when they were sent from the Revenue and Customs department, which is overseen by the Treasury, to the National Audit Office. It's the biggest loss of personal data in British history, and second only to the loss of data by the VA in the US last year.

Then yesterday Sir Ken Macdonald, the Director of Public Prosecutions, and Lord Goldsmith, the former attorney general, told the House of Commons yesterday that not only did they not support Brown’s proposal to extend the amount of time suspected terrorists can be held without charges, they would resign if any such changes were to be imposed.

It’s been a meteoric fall for Brown in the last two months, from riding high during his initial ‘honeymoon period’ to his current position, it’s unbelievable how a PM can fall so far so fast. It all started when Brown allowed election rumours to persist unabated, catching political flack when he finally squashed them. This made Brown look irresolute and calculating, and gave the Tories a big opening to criticize him. Now, with the vicious tongue lashing delivered by David Cameron to Brown in yesterday’s prime ministers questions, some in the Labour party are even quietly wondering whether Brown is the right man to lead them into the next elections. Even though there’s virtually nothing Labour MPs could do to change this, the fact that they are hypothesizing about it must be deeply worrying to Brown’s team.

Something tells me those elections won’t be coming for a long, long time now.

ECB on Northern Rock: What Northern Rock?

It’s official. The UK has become the first country to have a bank run caused by the current market turbulence. The run on Northern Rock bank that started on Friday and is continuing today is sending the public here into a panic. British commentators are speculating that there could be another Black Wednesday around the corner, while the Bank of England is trying to reassure the public that there’s nothing to be alarmed about.

Northern Rock is Britain’s fifth largest mortgage lender and is a massive bank here. So when news broke on Friday that the bank is going broke because of the worldwide credit crisis and the Bank of England has bailed it out with a limitless line of credit, the bank’s customers ran to the branches and started queuing to get their money out in cash. It was really insane, I walked by a branch on Friday and it was complete pandemonium, like that bank run scene in It’s a Wonderful Life.