Daily Mail 4th October 2008
Markets face another stormy week as hopes were evaporating this weekend that America's massive $700 billion (£400 billion) bail-out would cure the global banking crisis.
After a week of wild movements, America's stock markets slumped sharply in the three hours after the House of Representatives voted in favour of Treasury Secretary Henry 'Hank' Paulson's scheme.
Many traders are also hoping that a European summit of leaders from the UK, France Germany and Italy would lead to co-ordinated action to shore up European banks.
All smiles: But there are fears that Paulson deal could trigger new bank write-offs
But the summit attended by Prime Minister Gordon Brown last night looked unlikely to produce a definitive action plan on anything like the scale of the US scheme.
Dominique Strauss- Kahn, head of the International Monetary Fund, sent a clear message to the European leaders ahead of the summit. 'We have to make sure Europe takes its responsibilities like the US took its. We have to act quickly and we have act together,' he said.
The credit crunch continued to rock European banks yesterday after the Dutch Government announced it was nationalising Fortis's domestic banking and insurance businesses.
Fortis partnered Royal Bank of Scotland last year in the £50 billion takeover of Dutch bank ABN Amro. Fortis took on the Dutch assets of ABN while RBS took over its investment banking business. The deal stretched the finances of both Fortis and RBS, though last week the Scottish bank insisted the crisis at Fortis would have no knock-on effects on its business.
The Dow Jones closed down 157 points on Friday at 10,325 - its lowest since October 2005. European markets are braced for a new slide tomorrow.
Paulson's scheme, known as the Troubled Asset Relief Programme, will allow US banks to sell their 'toxic assets' - mostly mortgages and other loans - to a government 'superbank'. By taking over all the bad assets, Paulson hopes to free the banks to get back to normal business.
Under the scheme, Paulson will buy the bad loans from banks using taxpayers' money. Only those with significant US operations will be eligible, including Royal Bank of Scotland, which owns Citizens Bank in the US, and Barclays whose investment bank, Barclays Capital, is a significant global player in debt markets.
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