The Financial Crisis - live blog

Norway has just announced that it has taken control of the subsidiary of the failed Icelandic bank to protect depositors. (Iceland may see this as a seizure of its national "assets") France, Germany, Portugal and Malta (Malta?! That's just a nice village for a holiday) have announced that they have called Cabinet meetings for Monday morning. Eurozone leaders will be holding a press conference shortly. My understanding is that they have reached some clear conclusions on what they must do but will have to report back to their governments before being able to give the detail of what each country is going to do to support this European wide initiative. So more words coming.

It has just been learnt that an extra £50 billion ($85 billion) to bail out failing UK banks, This will be added to the National Debt. As it will be in exchange for equity, it will be hoped it will be recovered. A new factor is that it is being reported that the Treasury may demand seats on boards of banks bailed out.

Live He is saying that the British plan has been accepted by the Eurozone countries and every measure will be taken to prevent banks from failing. "These measures are unprecedented" Emphasis on healthy banks. Time limited to a date in 2009. European Commission has produced new standards for banking accounting that will be presented to the European Parliament on Wednesday (rubber stamp to what is being said. The National leaders preempt the decisions of the European Parliament. We have a funny form of European Democracy when dealing with Europe as a whole). These measures will be implemented without delay in France tomorrow. (This is a very positive statement) Germany and Italy will also be announcing their measures tomorrow. They will be taking their national decisions but these will be entirely compatible within the agreed framework. So, trying to capture the announcement as it is being translated: bank capitalisation and a determination to get liquidity and lending back into the market is on as concerted action. Much firmer statement than I had expected earlier this afternoon. Good. Other statements being made by officials emphasising the unity that has been found today. Sarkozy being nice about Gordon Brown and what he calls Anglo-Saxon economics! (Jerome a Paris will be quivering with rage) That is a first from France. Europe will want to meet with USA to set new international standards (the press has been very critical of Paulson and the, what they called on TV, "wishy-washy" measures that are being taken. Sarkozy says that all the measures will be implemented in France by the end of the week (They are implemented tomorrow in the UK). Just announced: Major Lloyds/TSB with HSBOS bank merger is no longer on. Probably overtaken by government measures that will secure separate banks. So I guess the government will now step in. This is good - the new bank would have had a huge share of the mortgage market and the government was going to have to bend the rules to accommodate it. Just announced that Royal Bank of Scotland boss resigns tomorrow. All this becomes a bit irrelevant. British banks (and European banks) are now guaranteed as secure. That is the stability issue settled. Now for liquidity. Update Sarkozy has just announced Eurozone agreement to guarantee inter-bank lending. Much more detail than the G7 meeting in Washington. There is no reason why the bank crisis is not now over in Europe. It will enormously help the USA to move forward as well. Phew!!! (Caveat: the detail, which is not known, is still important. the numbers in billions will be the key to how markets react).

In trying to give you the gossip of the European meeting, I have been over-stating the British influence on the Euro-zone countries. Officially this is being played down by the UK government to avoid European sensitivities (except Sarkozy's because, as yet another extraordinary aspect of this strange politician, he likes the UK) So, in dishing the dirt I have not been well behaved. Therefore, please read the BBC account for a more official view of what happened (if you want to be bored) The Reuters version is a bit nearer my own (which was thanks to the other big surprise of the last year - the excellence of Sky News in the UK - coupled with some personal body language reading of the various actors at the European meeting)

Again from Bloombergs:

Crude Oil Rises From 13-Month Low on Europe Bank Rescue Plan By Gavin Evans Oct. 13 (Bloomberg) -- Crude oil rose from a 13-month low in New York on speculation action by European leaders to prevent the region's major lenders from collapsing may help slow credit market turmoil threatening to stall the global economy. Oil gained for the first time in four days after the 15 nations using the euro agreed to shore up their banks, measures which will include the U.K. buying controlling stakes in Royal Bank of Scotland Plc and HBOS Plc. Iran, the world's fourth- biggest oil producer, will next month ask OPEC to cut output to reflect falling demand, Tehran-based newspaper Pool reported.

The unfriendly role of OPEC deserves some investigation. Meanwhile, a high price for oil is simply an indicator that potential demand from anticipated higher than feared economic activity exists. Maybe it will persuade OPEC not to cut back on production.

At a time when absolute clarity is needed (see earlier Susie Dow thread "Dire Warning from Nouriel Roubini")we are still being served the same uncertainty of action from Bush:

Oct 12, 3:51 PM (ET) Gov't mulls plan to take ownership stakes in banks By HARRY DUNPHY and TOM RAUM WASHINGTON (AP) - Treasury Secretary Henry Paulson told international leaders on Sunday that isolationism and protectionism could worsen the spreading financial crisis. With a new trading week dawning, U.S. lawmakers urged quick action by the Bush administration on measures to make direct purchases of bank stock to help unlock lending. Sen. Chuck Schumer, chairman of the Joint Economic Committee, said an administration proposal to inject federal money directly into certain banks, in effect partially nationalizing the banking system, "is gaining steam." "I am hopeful that tomorrow, the Treasury will announce that they're doing it. And they have to do it quickly ... markets are waiting," Schumer said. The administration has not indicated when it would announce next steps.

This is not good enough.

•Asian Stocks, U.S. Futures Advance as U.S., Europe, Australia Back Banks •U.K. Government May Be Ready to Buy Controlling Stakes in RBS, HBOS Today •Morgan Stanley Said to Be Renegotiating Terms of Mitsubishi UFJ's Infusion •Euro Rises Most in Three Weeks After European Union Leaders Meet on Banks •Crude Oil Rises From 13-Month Low on Europe Plan to Prevent Bank Failures

The London Stock Exchange at midday showed: This represents a recovery of about 5%. Whilst this is not a lot against the huge losses over the last three weeks, it does suggest that the hoped for steadying may have been achieved. It could have been higher but the banks in which the government has now taken a stake have shown drops in share price as shareholders adjust to the dilution that this imposes in the value of their shares. The smaller Asian markets were steady overnight. I wrongly looked to the results from Nikkei in an earlier post. This, like Wall Street is closed. Correction Wall Street is not closed but I understand that normally it is strongly affected by Columbus Day and tends not to be very active. It may be different today, I think they should all be given a month off, to give us all a break!

This AP aricle gives a good summary of where we are on the Stock markets today. It does make a point that I have made eleswhere:

In the U.S., investors were waiting to see if the Treasury Department's newly announced plan to buy equity in troubled banks would help stabilize the volatility on Wall Street. Lawmakers have urged quick action by President George W. Bush on the effort, to be funded by the US$700 billion bailout legislation he signed Oct. 3

To expect quick action from the man who led the Katrina recovery is, I guess, asking a bit much.

Although I think that the stock exchanges are not a good measure of the success of immediate actions being taken to ease the banking situation, they are worth recording here. After positive overnight results from Asian markets, London opened strongly, only to be dragged down by Wall Street in later trading: Wall Street trading has been uninspiring after this morning's equally uninspiring announcements: I am disappointed again in the US handling of the crisis. This morning's announcement was hedged with negative words such as those from Paulson saying that the administration had been reluctant to go where it was now forced to go. "We regret" is not a starting position of confidence. Bush put emphasis on its temporary nature and then asserted the free market economy would be restored (as if anybody wants to go back to exactly what existed before). This, of course, was pandering to the idealogical concerns about the ridiculous myth that these measures are in any way connected to "nationalization". These concerns seem to have affected the decision about the nature of the interest taken in the bank. Preferential shares without government representation on the boards is simply handing over large amounts of money in the hope that the banks will use it in the national interest rather than selfishly. All of it voluntary. It is another piecemeal approach that lacks the comprehensive structure of the European model, There are two clear threads to what needed to be done: 1- support failing banks 2- ensure liquidity in lending. There is still a lack of clarity in how the latest initiatives will contribute to the goals, given the complexity and size of the US banking system. It is ridiculous to stress the lack of interference intended behind these measures. If handing over unprecedented amounts of taxpayers' money, then it is only proper to control it as tightly as possible and ensure that the new money slopping around the system is employed as intended, until new effective regulatory measures are designed and introduced. I expect the new measures to work but haltingly. The real economy is going to go into deeper depression. All our countries need strong, inspired leadership. It was not there in the Rose Garden, today.