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Overnight Briefing

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U.S. equities fell

Mon, Oct 6 2008, 06:59 GMT
by Jyske Bank Team

Jyske Bank

• Stronger dollar

• BNP clinches Fortis’ Belgian bank arm

• Danish government guarantee all bank deposits in Denmark

• Iceland in talks to prevent bank meltdown

Today’s main events:

• GBP HBOS House prices

• CAD Building Permits

• USD FED’s Charles Evans speaks

American Time Zone:

U.S. equities fell

U.S. stocks dropped and the Dow Jones Industrial Average erased a 313-point rally on concern passage of the government's USD 700 billion bank bailout won't unlock credit markets or prevent a recession.

JPMorgan Chase & Co., the biggest U.S. bank by deposits, CB Richard Ellis Group Inc., the largest commercial real-estate brokerage and Lennar Corp., the second-biggest homebuilder, fell more than 6 %. Citigroup Inc. dropped 19 %, its steepest plunge since July 2002, after Wachovia Corp. agreed to be acquired by Wells Fargo & Co., snubbing a previous plan to sell its banking operations to Citigroup.

Stronger dollar

The dollar continued its rally against the euro on Friday after a report showed the unemployment rate remained steady in September, even while U.S. employers shed jobs.
U.S. employers cut payrolls at the steepest rate in 5-1/2 years last month, according to a Labor Department report, slashing an unexpectedly large 159,000 nonfarm jobs as employment contracted for a ninth straight month.

The report added to the optimism surrounding the dollar which was already on track for its best weekly gain versus the euro in the single currency's lifetime after the European Central Bank opened the door to rate cuts on Thursday.

Far East Time Zone:

BNP clinches Fortis’ Belgian bank arm

BNP Paribas took control of the Belgian and Luxembourg businesses of troubled financial group Fortis on Sunday in a complex rescue that will make Belgium the French bank's biggest shareholder.

The deal was the most spectacular crossborder rescue since the U.S.-born credit crisis swept into Europe last month, upending banks and rattling savers' confidence.

Under a share swap announced by Belgian Prime Minister Yves Leterme and BNP Paribas chief executive Baudouin Prot at a late night news conference, BNP will get 75 % of Fortis Bank Belgium and all the group's Belgian insurance operations.

In exchange, Belgium will receive an 11.7 % stake in BNP through the issue of new shares worth 8.25 billion Euros.
BNP also agreed to buy 66 % of Fortis Bank Luxembourg in exchange for a smaller stake for the Luxembourg state.

Danish government guarantee all bank deposits in Denmark

The Danish government early on Monday guaranteed all bank deposits in Denmark as part of a deal with banks to set up a 35 billion Danish crown (USD 6.50 billion) liquidation fund.
Until now, deposits in Danish banks had been guaranteed up to 300,000 crowns.

In return for the government guarantee, banks agreed to pay up to 35 billion crowns over two years in a liquidation fund that could take over distressed institutions to avoid losses to depositors and certain creditors.

"Practically, the Danish state has sold insurance to the financial sector," Lene Espersen, the minister for economic and business affairs, said at a news conference shortly after midnight. "The sector pays a deductible of 10 billion crowns and a premium of 15 billion crowns over two years, which can be increased by another 10 billion crowns if necessary."

Espersen said the fund amounted to 2 % of Denmark's gross domestic product. The deal can be prolonged after two years, if necessary.

Iceland in talks to prevent bank meltdown

Iceland’s prime minister and central bankers were holding emergency talks with pension funds and banks on Sunday as the country looked overseas for funding to shore up its crisis-ridden financial system.

Pension funds were being urged to repatriate foreign assets, while the Central Bank was looking to bolster its foreign exchange reserves. The government may on Monday announce plans for several billion euro to be injected into the Central Bank, people with knowledge of the talks said, although others warned there was no certainty that a deal would be reached or that it would be sufficient to reassure nervous markets.

Germany agrees bank rescue and guarantees savings

Germany acted to stem turmoil in its financial sector on Sunday, thrashing out a new rescue for imperilled lender Hypo Real Estate and, in a surprise move, pledging to guarantee private savings accounts.

After German banks and insurers shocked the government on Saturday by withdrawing support for a government-led 35 billion euro (USD 48.50 billion) rescue for HRE, Berlin scrambled to hammer out a new deal before markets opened on Monday.

Under an accord, struck just after 11 p.m. (2100 GMT), the financial sector agreed to provide an extra 15 billion euro (USD 20.8 billion) in liquidity for HRE on top of the 35 billion they had already committed together with the Bundesbank, the Finance Ministry said.

Earlier, the government said it had agreed to guarantee private deposits to help restore confidence amid the worst financial crisis since the 1930s.

The change in approach reflected the fastmoving nature of the crisis, which spread across the Atlantic much quicker than many leaders in Europe had anticipated.

The Finance Ministry said the guarantee would cover more than 500 billion euro in deposits.

Euro fell to 13-month low versus the dollar

The euro fell to a 13-month low against the dollar on Monday as investors shifted their focus to banking problems in Europe after leaders of Europe's four biggest economies decided against a coordinated bank bailout.

German and French officials denied on Sunday that they were set to endorse a common fund to bail out European banks.
The comments came after a meeting in Paris on Saturday of leaders of France, Germany, Italy and Britain who issued a joint statement that made no mention of a fund.

The euro was down 0.9 % at USD 1.3640, after plumbing a 13-month trough of USD 1.3610 in early Asian trade on Monday.

The dollar index, which tracks the dollar's value against a basket of six currencies, rose to a 13-month high of 81.159

Global markets

Asian stocks fell 2-3 % on Monday, led by shares of exporters, after a hectic weekend in Europe as the financial crisis gathered steam there, knocking the euro to the lowest in a year.

Concerns about whether the USD 700 billion rescue plan, which was approved by the U.S. Congress last week, would be quickly implemented and whether it would be enough to shore up the economy left investors seeking safety in U.S. and Japanese government bonds and buying yen and Swiss francs.

Oil prices fell around USD 2 to just below USD 92 a barrel, dragging down prices of metals and grains, on expectations damage from dysfunctional financial systems in developed economies would almost certainly push them closer to recessions.

Japan's Nikkei share average fell 3.6 % to the lowest since October 2004. Sectors that derive their revenues mainly from exports, such as electrical equipment, machinery and auto makers, led the index lower.

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Published on  Mon, Oct 6 2008, 07:07 GMT