German Bank Rescued, S.Korea Reassures Lenders

Monday, 06 October, 2008

Germany offered a blanket bank deposit guarantee as it clinched a deal to rescue lender Hypo Real Estate, while regulators from Washington to Seoul took their own steps to ensure the stability of financial firms, to help with loans.

Officials across the globe are scrambling to contain the fallout from the deepest financial crisis since the 1930s amid continued debate about whether a fragmented European response could keep pace with a fear-driven market.

Germany's pledge on Sunday was part of a series of sweeping moves to shore up the global banking sector. As Asian markets opened on Monday, South Korea pledged to use its $240 billion in official reserves to help its banks secure enough foreign-currency liquidity.

It came as German officials clinched a renewed rescue deal for lender Hypo Real Estate, Belgium and Luxembourg found a buyer for troubled financial group Fortis in BNP Paribas, and UniCredit, Italy's second-biggest bank, announced plans to raise new capital.

Meanwhile, the U.S. Federal Reserve is pushing for Citigroup Inc and rival Wells Fargo & Co to reach a compromise over their competing bids to acquire hobbled U.S. bank Wachovia Corp that could result in them carving up its branches, the Wall Street Journal reported.

In a sign that the credit crunch is being felt in Asia, South Korea's finance minister said Korean banks were having trouble securing funds in foreign currencies and that it would dip into its foreign exchange reserves, the world's sixth-largest, to help with loans.

"The government judges that we need to deal with the situation preemptively while assuming the worst-case scenario," said Minister Kang Man-soo. He said it would take a long time until a U.S. financial bailout plan starts to help ease the credit squeeze in emerging markets.

Asian shares fell 2-4 percent on Monday on concerns about whether the $700 billion U.S. 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.

Japan's Nikkei share average fell 3.6 percent to the lowest level since October 2004, while Hong Kong's Hang Seng index fell 2.9 percent. South Korean stocks tumbled 4.2 percent, and the won sank as much as 5 percent.

Source: http://www.reuters.com/