First major u.s. Bank collapses

First big American bank collapses

Last week the US government saved Freddie Mac and Fanny Mea from ruin. These big mortgage lenders could no longer keep their heads above water on their own due to the mortgage crisis. Just as this intervention by the U.S. government provided some relief for the stock markets, the major bank Lehman Brothers also indicated that it was no longer financially viable. Cause for a new wave of panic on global stock markets.

The fact that American banks in particular are in trouble as a result of risky mortgage lending was already known. However, the bankruptcy of the Lehman Brothers bank is a new chapter in the history of the credit crisis. In addition to banks, American insurers are also struggling, such as AIG'American International Group'. This insurer suffered particularly large losses because investors insured themselves against falls in stock prices.

Lehman brothers already active in 1850
Lehman Brothers dates back to 1850, when the Lehman brothers operated a grocery store in Alabama. This department store grew over time into a world bank with 28.500 employees and annual sales of a whopping $59 billion. That a bank with such a rich history and expertise should now go under is troubling. Especially given the fact that the Lehman operated differently from many mortgage banks that were almost exclusively engaged in mortgage lending and got into trouble as a result. Lehman also focused on the corporate market and making investments. However, this did not prevent the bank from going bankrupt.

Buy up banks
It is now known that the originally British bank Barclays is buying part of Lehman Brothers. Barclays is thus not the only bank to go on a takeover path. Also the'Bank of America saw the opportunity and bought the also American merchant bank Merrill Lynch for 50 billion dollars. In current circumstances, any bank in financial trouble seems like a willing takeover target. It has been seen before, such as with the acquisition of ABN, that banks are trying to cover a larger share of the market by acquiring one another. These developments now seem to be gaining momentum.

Dutch banks also suffer
The failure of a major bank like Lehman Brothers affects other banks around the world. These banks have lent money to Lehman Brothers or are otherwise cooperating. Dutch banks suffer too. Fortis risks going down for €137 million and Aegon for €265 million.

What if a Dutch bank goes bankrupt?
When a Dutch bank goes bankrupt, private account holders have little to worry about. In the Netherlands, the deposit guarantee system is valid, which in the event of bankruptcy guarantees the deposits that consumers have with banks. However, there is a limit of € 40.000, with over the last €20.000 a 10 percent deductible.

Among the banks operating in the Netherlands, Fortis seems to have the biggest problems. The bank, partly due to the credit crisis, has difficulty to replenish its own money supply. Many investors and experts are worried that the measures previously taken by Fortis will not be enough and that the Belgian-Dutch bank could get into further trouble due to a lack of capital. Apart from these problems, European banks have less to fear from bankruptcy for now. Some of this has to do with regulations in such areas as mortgage lending. Also, European banks often operate in different continents, allowing risk to be spread.

Massacre on Dutch stock market
The scare is well in investors' minds. In the past two days, the AEX index, which represents the average value of the largest Dutch companies, lost more than 6 percent of its value. Not surprisingly, shares of banks and financial institutions are currently bearing the brunt of the new problems. Stock markets also fell sharply in America and Asia.

Producing light
Last night the American stock market rebounded slightly after the decision of the American government to make available several billions to ward off the ongoing crisis. The U.S. government is also supporting the troubled insurer AIG, which is receiving an emergency loan of $85 billion to continue paying out to policyholders.

Despite the slight recovery in stock prices, it remains to be seen whether this week holds more bad news in store. More reports of banks with payment problems could undo the U.S. government's recovery efforts overnight. However, when confidence returns, stock prices may rebound.

Like this post? Please share to your friends:
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: