As posted earlier on WhyBanksFail.com (Will Fortis Fail? Fortis in trouble, European agencies plan over the weekend (September 28, 2008), Fortis — no buyers, why not 3 governments instead? (September 28, 2008) and Could Fortis Bank fail? European Banks might be next! (September 26, 2008)), according to CNN Money, Fortis has failed.

Who knows what this means for the other banks that are out there.

All that we know, is that no bank is immune to the problems we are now having.

Please discuss this in our forums, in our Fortis conversation thread.

At least Fortis has the support of 3 separate governments.  Luxembourg, Belgium and the Netherlands will each invest in 49% of the local branches of the bank.

The bailout comes at the sum of $15 billion in total from the three governments.

While this is a very dire situation, we can all probably use a laugh by now.

Tech Crunch has an article by Michael Arrington, September Madness.

Below is a picture posted in that article:

As posted by Michael Arrington, of Tech Crunch

Waiting for a plan might not be the besting thing for the market. The Markets have rallied because they believe that Congress will come together with a new plan in a short period. The market will hope that something will get passed within the next 24 to 48 hours, or at the very least, before Monday’s start to the markets.

However, with the rally today, congress members who where against the bailout bill, will be hardened to the fact that the market has been so resilient. Their speeches, comments, interviews will point to the fundaments of the market. How one day the Street can drop 777 points, only to recover the next day to reasonable gain.

Some will ask, does the market really need a rescue or are the fundamentals so strong that the market place it self will correct any damage done. Others will say that the market has spoken, and it told us the bailout plan is fundamental bad. It is because the plan was rejected of that the markets have rallied, and will continue to do so, as long as they battle to protect tax payer’s dollars.

Although I have my own personal views on the bailout plan, and the funding needed for such a plan to truly work, my focus remains on seeing some real leadership come out of all this. I have not yet lost hope. Even FDR did not get it right the first time.

The interesting outcomes of this crisis will be the culturally ramifications of economy on the worlds population.  We will continue to have an attitude of we disserves everything, or will be learn to wear the same jeans for longer then 2 months.

For most financial products to work, banks need to constantly lend to one another to facilitate the flow of money. However in the current crisis it seems that the lending of money has completely broken down, on the street the only one lending is the federal government.  

Breakdown.

·          London Interbank Offer Rate, or LIBOR, rate up 431 basis points to a all time high of 6.88

·          Euro Interbank offered Rate, or EURIBOR, jumped 5.05 percent for one month loan.

·          LIBOR-OIS Spread, at all time high

Breakdown USA

·          US Firms hold $871 billion of bonds maturing through 2009.

·          Yields on overnight U.S. commercial paper claimed 171 basis points to 3.95 percent.

·          Paper backed by assets rates (credit cards, auto loans) rose 229 basis points to 6.5 percent, highest since 2001.

·          TED spread, was at 352 basis points. The spread was at 110 basis points a month ago.

Breakdown International

·          The Frankfurt-based ECB said it lent banks $30 billion for one day at a marginal rate of 11 percent, 900 basis points above the Fed’s key rate of 2 percent.

·          The ECB said it received bids for $77.3 billion.

·          The Bank of Japan injected more than 19 trillion yen ($182 billion) into the country’s system over the past two weeks, the most in at least six years. The Reserve Bank of Australia pumped in A$1.95 billion ($1.6 billion) today.

·          Borrowing rates rose in Asia earlier today. The three-month interbank offered dollar rate in Singapore jumped to an eight- month high of 3.90 percent. The three-month rate in Hong Kong rose by the most in almost a week to 3.664 percent. The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate reached 98 points, close to a six-month high.

LIBOR is used to calculate rates for $360 trillion of products ranging from credit derivatives to home loans and company debt.

In the year before the turmoil in money markets began in July 2007, the Libor-OIS spread, the difference between the three-month dollar rate and the overnight indexed swap rate, never exceeded 15 basis points. It was a record 250 basis points today.

Financial institutions have posted almost $590 billion of writedowns and losses tied to U.S. subprime mortgages since the start of last year, according to data compiled by Bloomberg. 

http://www.bloomberg.com/apps/news?pid=20601087&sid=alszNo3N0CHo&

Cleveland-based banking company National City Corporation Monday closed at $1.36 a share. Trading volume Friday topped 300 million shares which is ten times the normal daily volume. 

The scary part about the recent drop in value is that National City is on the government ban of short selling stocks.

However prohibiting short-selling in financial shares left portfolio managers with two options: go long, or get into cash. Given the ferocious unwind in the credit markets and the poor track record over the past year of those who made big bets on a recovery in the financial sector, it’s no surprise that managers everywhere have chosen cash

On Monday, National City said it was better capitalized than Washington Mutual and Wachovia and had lower exposure to troubled high-risk mortgages.

“National City has sufficient capital, having received a $7 billion infusion, including $900 million cash from Corsair Capital in April.”

National City has gone from $10 billion to $1.1 billion in the last year. And has seen it share price move from $38 dollars to today’s low of $1.25

In a statement issued Monday, National City said “near term stock market volatility does not speak to the fundamentals of the company. National City is a strong, stable, and well-capitalized company that has raised the capital we need to manage through the turmoil in the market and to continue to serve our customers”.

With more than $150 billion in assets and more than 1,400 branches in eight states, National City is one of the largest midwest banks. The company offers consumer and commercial loans and a mix of other financial products and services through five business units: retail banking, commercial banking (regional and national), mortgage banking, and asset management.

http://www.wkyc.com/news/local/news_article.aspx?storyid=97543&catid=3

Bank of Canada has increased the size of there agreements with the Federal Reserve to three times the normal rate. This agreement is an effort to shore up the turbulent credit markets

This agreement should allow the Bank of Canada to have more flexibility to deal with the developments in the global banking crises. This will provide the liquidity need to deal with future action.

Some borrowing costs for Canadian businesses have crept up in recent days, indicating some banks are less willing to lend. The yield on one-month commercial paper is 3.55 percent, compared with the central bank’s 3 percent benchmark overnight rate and 3.06 percent on Sept. 16

http://www.bloomberg.com/apps/news?pid=20601082&sid=akF53JjwZYbg&refer=canada

Stocks fell by nearly 9 percent on Monday — the worst single-day drop in two decades

Yields on Treasuries plummeted after the House rejected the plan, with the one-month Treasury note yielding virtually zero

House Rejects Bailout Package, 228-205; Stocks Plunge

Dow History:

• The largest one-day percentage drop since 1914 occurred on “Black Monday“, October 19, 1987, when the average fell 22.61%.
• The third largest one-day point drop in DJIA history occurred on September 17, 2001, the first day of trading after the September 11, 2001 attacks, when the Dow fell 684.81 points, or 7.1%.
• By the end of that week, the Dow had fallen 1,369.70 points, or 14.3%. A recovery attempt allowed the average to close the year above 10,000.  

The Dow Jones Industrial Average (NYSE: DJI), also called the DJIA, Dow 30, or informally the Dow Jones or The Dow) is one of several stock market indices created by nineteenth-century Wall Street Journal editor and Dow Jones & Company co-founder Charles Dow. Dow compiled the index to gauge the performance of the industrial sector of the American stock market. It is the second-oldest U.S. market index, after the Dow Jones Transportation Average, which Dow also created.

The following are banks we are watching over the next 24 to 48 hours. The price are as of 9/29/08 3:48pm EST

National City Corporation  
Price 1.48 Change-2.23 (-60.11%)  |  52Wk High/Low:  27.21  /  1.25

Wachovia Corporation
Price: 1.65
Change: -8.35 (-83.50%)

Sovereign Bancorp, Inc
Price: 2.36
Change: -6.01 (-71.80%)   |      52Wk High/Low:  999.00  /  2.34

Fifth Third Bancorp   
Price: 9.97
Change: -6.19 (-38.30%)     |       52Wk High/Low:  35.34  /  7.96

What hits home more than the following scary piece of information, according to a post in an iTulip.com forum (not entirely reliable):

“I work in Credit Department at BoA (Senior Level Credit Analysist Boa Bldg 3rd fl, Char, NC). We just received memo indicating that all BoA credit cards are being closed as of 10/1. Credit score and income do not matter, all accounts are closed as of 10/1.” Executive VP Bank of America

According to further information, it really only affects customers with FICO scores below 750 (60% of the population).  

Here it seems BoA may be lowering their credit risks, and eliminating the “more” risky debts customers may have.

The bailout looks to be a no go.

Breakdown:

·          Emergency Economic Stabilization Act vote tally comes at 207 for the plan, 226 against, with one vote remaining

·          A total of 218 votes were needed to pass the vote

·          The current.  House members can still change their vote, and as a result the number of yes votes did tick a few points higher.

·          Democrats voted 141 for, 94 against.  Republicans voted 66 for, 132 against.

·          All three of the major indices hit multi-year lows. 

According to Bloomberg.com, the Federal government today is pumping another $630 billion into the world financial system. These additional funds don’t get a vote on the house floor. They are at the pure discretion of the Federal Reserve.

The breakdown:

·          Currency swaps with foreign central banks up $330 billion to $620 billion

·          Term Auction Facility (emergency loans), expand by $300 billion to $450 billion.

·          Participants are the European Central Bank, Bank of England, and Bank of Japan

·          Bank of England and the ECB will each double the size of their dollar swap facilities with the Fed to as much as $80 billion and $240 billion, respectively.

·          The Swiss National Bank and the Bank of Japan will also double their dollar swap lines, while the central banks in Australia, Norway, Sweden, Denmark and Canada tripled theirs.

·          All the banks extended their facilities until the end of April 2009.

It was evident over the weekend with all the press about Fortis, the crisis is rapidly spreading through the global economy, Europe needed to put rescue plans in place for four banks over the weekend, with an expectation that others will follow.

Although the Federal Reserves action is expected to settle the leading markets down, it is unclear what the effect of the additional exposure will have the balance sheet. And how this will affect the Foreign exchange market, as of Monday, the currency markets have all pushed the dollar weaker.

The Federal Reserve increased the size of its three 84-day TAF sales to $75 billion apiece, from $25 billion. That means the Fed will make a total of $225 billion available in 84-day loans.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahwz_k5JvuB8&refer=home

What will it do for me?

CNN Money posted an article today that details everything the package “should” do, Financial Rescue 101: What’s in the bill.

Here are some items the article highlights:

• Doling the money out – $250 billion will be available immediately, the rest in time.
• Protecting Taxpayers – Hopefully the bailout will be seen as an “investment”, more on that below
• Stemming foreclosures – Protect those with mortgages from foreclosing
• Limiting executive pay – No more absurd payouts (just mildly absurd), at least non that will be aided by the bailout
• Overseeing the program – Yes, more government oversight will be apportioned for this
• Insuring against losses – Again, protect the government from losing money.

Depending on where you read, either Citigroup is currently leading the initiative, or Wells Fargo is.

Either way, it’s going to be yet another interesting week with Fortis on the chopping block recently.  The last word I had read, was that each of the three governments will be buying out 49% of the local operating Fortis to help bailout the bank.

Looking at the following article, Citigroup Nears a Deal for Wachovia, in the NY Times Dealbook, it sounds like Citigroup is just about ready to finish up.  Wells Fargo, which had been the most likely contender until very recently, may still revive its bid.

Given Citigroups recent figures, is this smart for them?  Is Wachovia at such a discount that they can do this?  Citigroup still has $2.5 billion in losses to worry about in the past year.  Will we just see Citigroup as next Monday’s topic?  I’d hate to have to post “Will Citigroup fail?”.

We know we’ll have an interesting Monday.

UPDATE – 09/29/2008 8:31am – Citigroup to acquire banking operations of Wachovia Corp., FDIC says, according to CNN

Belgium, Luxembourg and maybe the Netherlands are possibly about to offer Fortis a chance to survive, through a multi government takeover.

In a small preview article at The Wall Street Journal, Fortis Is on Verge of Government Rescue, you can read a little bit more.

It seems that Fortis is in such trouble, that European, Dutch and Belgian officials have been discussing the bank’s problems over the weekend.

An article on Bloomberg.com, Belgian, Dutch Officials Seek ’solution’ for Fortis, updates us on the status of the bank’s imminent changes.

Please discuss the topic in our new poll, Will Fortis Fail?  Or will Fortis sell first? — if you feel so inclined,please discuss the topic in our forums.

In the last 3 days, Fortis fell 20 percent in Brussels trading (on Friday, September 6, 2008), and has replaced their interim CEO Herman Verwilst with Filip Dierckx.  That’s a tumultuous few days for a company to weather.

Over the past year stock value has fallen over 70%, and they’ve had some major acquisitions.  This is making it difficult for Fortis to “impress” upon the world their solid position.  Who, in their right mind, would believe that?

It’s a chicken and egg problem.  If investors believe Fortis is in a good position, the value of the company rises, and it is then, in a good position.  If not, then no dice.

We’ll provide updates as we get them.