B&B's 21 billion-pound deposit book and its branch network will be sold to Spanish bank Santander (ticker: STD), the owner of Abbey National (and currently acquiring Alliance & Leicester). The government will take responsibility for B&B's mortgage book, over 85% of which consists of buy-to-let and self-certified mortgages. [U.K. Chancellor of the Exchequer] Alistair Darling and his Treasury team appear to have learnt some of the lessons of Northern Rock and acted decisively.
Iceland's government has also been intervening. Glitnir Bank, long regarded as the weakest bank in a fragile domestic sector, was taken into "temporary" state ownership after it ran into funding difficulties. Glitnir relied on wholesale funding to a greater extent than the other two Icelandic banks, Kaupthing and Landsbanki. However, all of the firms have expanded rapidly in recent years, leaving them with weakened balance sheets. The sector, a perennial favorite of short sellers, is likely to come under further pressure, as is the sovereign. Iceland's spreads ballooned out today, reflecting the falling currency and concerns that it will struggle to recapitalize the banks.
Germany, despite its proclamations of pride in its model of capitalism, has not been unscathed by the financial crisis. IKB and Sachsen LB were saved from collapse last year, and Hypo Real Estate Holdings became the latest to seek government help. The commercial-property lender said that the government, along with a consortium of banks, will provide a total of 35 billion euros in credit guarantees to help it through a funding shortfall. Hypo, like IKB, had significant U.S. subprime exposure and was forced to take substantial write-downs earlier this year. Other German banks widened sharply on the news.
The Benelux countries are not immune, either. Fortis was partially nationalized over the weekend, with each of the Benelux governments acquiring 49% of Fortis' banking subsidiaries in their country in return for an 11.2 billion Euro capital injection.
Fortis problems stemmed from its acquisition of ABN Amro's Dutch consumer-banking division. Post-acquisition, Fortis was undercapitalized, and rumors began to emerge about liquidity problems. The governments stepped in, and the intervention has been praised by advocates of European cooperation. Fortis' spreads rallied after the announcement. RBS (RBS), the other main party in the ABN buyout, has widened sharply. Irish banks and [Belgian-French bank] Dexia -- rumored to be in trouble -- were also wider.
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