Financial markets have brief attention spans. A few short days ago, it was all about the US bailout: Would it fly or not? Analysts predicted markets would tank today if nothing were agreed over the weekend.
Well the deal was clinched and markets still tanked – the London index is down more than 3 percent as I write. The problem is that with every day that passes, and with every bank that falters, Europe realizes that this is its problem as much as America's.
The collapse of Fortis, a Top 20 European financial institution, brought it home for the citizens of the three countries in which it has formidable operations: Belgium, Luxembourg, and the Netherlands.
The governments of the three countries moved to partly nationalize Fortis with an injection of more than $16 billion.
As the Times (of London) reports today:
"Benelux governments are desperate to avoid a panic. The banking and insurance group is Belgium's largest private sector employer. About half the country's population bank with it."
German lender Hypo Real Estate Holding – the nation's No. 2 commercial property lender – went hat in hand today to the German government and banks for a 35 billion euro credit line. And got it.
If that wasn't bad enough, Britain lost its third bank of the credit crisis. Bradford and Bingley joined Northern Rock and HBOS in requiring a rescue.
So British taxpayers will be exposed to the same state-funded bailout that Americans are debating, only on a smaller scale. The government will take over about $80 billion of B&B's outstanding loans.
As Nils Pratley commented in the Guardian:
"We, as taxpayers, are now in the debt collection business. Worse, we've been handed a portfolio of loans that is performing badly. The proportion of B&B's loans more than three months in arrears rose to 2.29% in the first half of this year, up from 1.48% in 2007."
All in all, it means that Europeans, who were so obsessed by the US bailout for much of the past two weeks, are now fixating on matters closer to home.
Seasoned market commentator Richard Hunter told me: "There are other factors at play this morning in terms of what is happening with Fortis and Bradford and Bingley, so the [American] bailout certainly is not the panacea that some people were hoping for."
The bigger question is whether Europe will have to ape the US intervention. That might prove tough given the number of diverse countries involved and the dilatory reputation of the European Central Bank. So far, authorities say they want to deal with matters on a case-by-case basis. But analysts I’ve spoken to are convinced that Fortis will not be the last victim of this crisis.
"There probably are some other Fortises out there," says London market analyst Justin Urquhart Stewart. "I wouldn't be surprised if there was a French bank suffering out there. I fear I can see a plume of smoke rising over Paris."