- The Washington Times - Monday, January 19, 2009

LONDON | European stock markets fell Monday with bank shares in free fall as investors fretted over a second British government bailout of the sector in three months.

Europe’s early gains were erased as the investors were spooked by fears that the British government’s latest move was a step toward full nationalization of one or more banks and that other governments will have to step in to save their leading banks.

Germany’s DAX closed down 50.14 points, or 1.2 percent, at 4,316.14, while France’s CAC-40 fell 27.06 points, or 0.9 percent, at 2,989.69.

Most attention was on the FTSE 100 index of leading British shares, which was down 38.59 points, or 0.9 percent, at 4,108.47, even though the British government said it would be creating a program to insure bank loans in the hope that the banks will start lending again.

Any hopes that the government had that the announcement would ease the stock market pressures on the banks evaporated as they suffered another day of frenzied selling.

Fears focused on the Royal Bank of Scotland Group PLC, which saw nearly two-thirds of its market value wiped out after it disclosed that it will likely report a full year loss of $41.3 billion, which would be the biggest loss reported by a British company. Shares traded at only 15 cents.

Among the raft of measures unveiled earlier, the British government said it will be increasing its stake in RBS to 70 percent from 58 percent.

“It is clear from the market’s reaction today that it increasingly believes that RBS is to end up fully in government ownership,” said Nic Clarke, an analyst at Charles Stanley stockbrokers in London.

The problems sent shock waves through Europe.

In Germany, Deutsche Bank AG, which last week reported a $6.4 billion loss for the fourth quarter, sank 8 percent, while Commerzbank AG was 4 percent lower. In France, shares of BNP Paribas SA and Societe Generale SA closed lower, too.

The problems potentially facing Europe’s banks were stoked last week by Citigroup Inc.’s announcement that it will split its operations in two, separating its traditional banking business from the company’s riskier assets, as it posted a massive $8.3 billion fourth-quarter loss. Bank of America Corp. also revealed a $2.4 billion quarterly loss and had to tap the U.S. government for a cash injection of $20 billion in exchange for stock.

Earlier, most Asian stock markets rose, after a rally Friday on Wall Street.

Wall Street was closed Monday for the Martin Luther King Day national holiday, and the focus will be on Barack Obama’s presidential inauguration when trading resumes Tuesday.

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