Failing banks and their rescue by nervous governments are back in the news again, unfortunately for the health of sentiment in the various markets around the globe.

Spain rescued a big regional banker a few hours ago with a 9 billion euro deal; another bank died in the US and was closed; Scotland’s biggest building society was taken over and bailed out by the UK Government and Germany’s second biggest mortgage provider and the swallower of 102 billion euros of state aid, lost a record amount and the German Government bought shares as a first step towards nationalisation.

Swiss newspapers have reported that more big write-downs, losses and job cuts are expected at UBS, the country’s major bank, which has already lost $USS49 billion, been bailed out by the Government and sacked upwards of 9,000 of workers around the world.

The bank revised up its 2008 net loss to 20.9 billion Swiss francs on March 11 and said its near-term outlook was extremely cautious, warning that its balance sheet remained exposed to illiquid and volatile markets.

Spain has lost its first bank of the current crisis with the news that its central bank, The Bank of Spain, will bail out regional savings bank Caja Castilla la Mancha at a cost of over $A16 billion.

The Bank of Spain will take over the running of CCM and provide funds to help the bank backed by up to 9 billion euros in government guarantees.

The Spanish government has already said it would guarantee up to 100 billion euros in new bank debt to assist institutions with liquidity problems.

CCM is an unlisted savings banks with close links to regional governments. Like its peers CCM invested heavily in housing and commercial debt, which is imploding as Spain’s long housing boom collapses anmd unemployment surges towards 20%.

The American regional bank in Georgia went bust on Friday, the 21st of the year. It was based in Atlanta, Georgia, which is rapidly emerging as one of the worst states for health banks in this crunch: around half a dozen have been closed and /or taken over.

In the US the Omni National Bank in Atlanta, with just under $US1 billion in assets was shut, but no announcement was made about whether it will be sold, raising suggestions that its financial state is so bad no one will want it. That means the Government will have to take control.

US regulators said they took control of the bank after finding that “the bank had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices.” The OCC also found that the bank has “depleted most of its capital,” and that it couldn’t “become adequately capitalized without Federal assistance”.

In the UK, a reminder of that country’s financial system still is with Scotland’s biggest building society being taken over by the government after owning up to crippling losses.

The UK move upset the nascent Scottish Government, emphasising its powerless to do anything to help local financial groups. The bailout (with the bad loans being put into a new company, much the way the Bradford and Bingley was taken over and split up) was confirmed after being reported by the BBC. The Society is expected to reveal losses of well over $A50 million, or 26 million pounds this week.

The Bank of England, the Financial Services Authority (FSA) and the British government — had decided the Dunfermline, established in 1869, had no future and needed to be split up and sold off to protect depositors.

The Society got into trouble investing in dud deals like US sub-prime mortgages: it isn’t the first Scottish financial group to hit the wall. The huge Royal Bank of Scotland is now owned by the UK Government after being bailed out with tens of billions of pounds of new capital and guarantees after it invested in a wide range of dodgy loans and other securities. The Government will takeover up to 750 million pounds (around $A1.6 billion) in dodgy loans to save the society from implosion.

The trials of Hypo Real Estate continue to bedevil the German economy, Government and financial system. HRE reported a wider-than-expected loss of 5.46 billion euros (over $A11 billion) last year and that the government will take an 8.7% stake as a first step toward nationalization.

Germany’s bank rescue fund, Soffin, will acquire 20 million shares valued at 60 million euros. The new stock must be issued at a “minimum prescribed” price of 3 euros a share.

Hypo Real Estate has lost 93% of its value in the past year, has already been bailed out by the government and financial institutions with credit lines and debt guarantees totalling 102 billion euros since running out of money and all but failing last September.

HRE was crippled when its Dublin-based Depfa Bank Plc failed to get short-term funding in September.

“It is a prerequisite for the intended recapitalization of Hypo Real Estate Group by Soffin that either Soffin or the German government gain full control over Hypo Real Estate Holding,” the Hypo statement read:

“To this end, it is intended to make use of the options that will be provided by the German Financial Markets Stabilization Amendment Act, which is currently being discussed in the legislative process.”

Germany’s upper house will be asked to approve the Hypo Real Estate seizure legislation on April 3, following its approval in German lower house on March 20. The law also imposes a time limit, stipulating that any seizure has to be initiated by the end of June.

Peter Fray

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