European governments announced a flurry of bank bailouts from Germany to Iceland Monday, but the rescues heightened fears that the U.S. credit crisis will spread before the financial system recovers.
European shares fell heavily and money markets stayed frozen with banks refusing to lend to one another for all but the briefest periods, amid concern over the adequacy of the U.S. bailout, now shot down by Congress.
“In the near term, it will be the weak ones that will be picked off,” Global Insight chief European economist Howard Archer said before the House vote. “But … the more the turmoil and dislocation continues, the further this could spread.”
Governments of Belgium, the Netherlands and Luxembourg took partial control late Sunday of struggling bank Fortis NV, while Britain seized mortgage lender Bradford & Bingley early Monday.
Germany organized a credit lifeline for blue-chip commercial real estate lender Hypo Real Estate Holding AG, while Iceland's government took over Glitnir bank, the country's third largest.
The European Central Bank joined the U.S. Federal Reserve in doubling the credit swap line that makes dollars available to cash-hungry banks to $240 million.
The Bank of England doubled dollar availability to $80billion, while other central banks offered smaller amounts.
Renate Brand, a banking analyst at SNS Securities, said “it's getting difficult for a lot of banks at once now, because mistrust is so great and so widespread.”
Ton Gietman from Petercam Securities said rumor and fact were being treated about the same.
“Take a company like Fortis, whose management swears high and low that they don't have any solvency problem – and it's still an open question whether they did or not – this market doesn't care,” he said. “If you can't stop your share price from falling with anything you say, you have to take some action to reassure investors and depositors.”
In Asia, all major stock markets tumbled today. For example, Japan's benchmark Nikkei 225 index nose-dived over 544 points, or 4.6 percent, to 11,199.07, with popular stocks like Sony down 6.8percent and Toyota down 4.6 percent.