More Euro banks begin to wobble

Sensex closes below 12k; RBI cuts CRR to ease liquidity; Sebi eases curbs on foreign funds

LONDON. MUMBAI: It was action stations once again in the war to prevent a further global meltdown. Even as European governments from Brussels to Copenhagen to Berlin rushed to shore up their faltering banks as the credit crunch worsened in Europe, the global stock markets plunged headlong, with the Dow breaching the 10,000 mark for the first time since 2004.

The Bombay Stock Exchange plunged 725 points to close well below the 12,000 mark at 11,801.70 – a level it last saw in September 2006. That’s a wealth destruction of Rs2,40,000 crore in just one trading day, and punters said there could be worse to come.

The RBI, in a bid to stem the acute credit crunch, eased the cash reserve ratio (CRR) of banks by 0.5% to 8.5%, releasing Rs20,000 crore for lending from Oct 11. Secondary market watchdog Sebi eased restrictions on participatory notes, the instrument used by foreign investors to take an indirect exposure to Indian stocks. Before the restriction was eased, foreign institutional investors had to cap their P-notes at 40% of total market exposure. FII sales have been a key reason for the collapse of Indian stock prices. On Monday, they sold over Rs1,169 crore. 

Thanks to shaky global sentiment, oil crashed, gold rose, and the rupee weakened against both the dollar and the euro on a day when European governments and central banks battled to stem the crisis. French bank BNP Paribas agreed to buy Fortis’ units in Belgium and Luxembourg for $19.8 billion after a government rescue failed, while the German state and financial institutions put together a €50 billion rescue package for Hypo Real Estate Holding. Denmark and Germany said they will guarantee all their countries’ bank deposits.

Financial shares tumbled in European trading on concerns that the hurried actions will fail to unlock bank lending. European Union leaders on Monday issued a statement pledging to “take whatever measures are necessary’’ to protect banks and deposits. The leaders of the four biggest EU economies were unable to agree on joint responses at a meeting two days ago, pledging instead to work together to limit the economic fallout, ease accounting rules, and seek tougher financial regulations.

Dexia SA, the world’s biggest lender to local governments, got a €6.4 billion state-backed rescue on September 30. Belgium’s federal and regional governments, France and the company’s largest shareholders will supply the funds, The Brussels- and Paris-based company said on Sunday that it won’t need additional funding to cope with the deterioration in financial markets.

UniCredit SpA, Italy’s biggest bank by assets, said it planned to boost capital by as much as €6.6 billion in an effort to calm investors’ concerns about the strength of the lender’s finances.