Last week was pretty crazy but it has become even worse. The Bel20 (a Belgian index) lost 7.98% today while the Dow Jones plunged 700 points (-6.98%) which is its biggest-ever point drop. The Nasdaq crashed 9.14% today and the stocks of most firms are down hugely. The S&P500 dropped 8.79% – it’s biggest loss since October 1987.
Here’s a quick overview of some tech firms: Intel -10.16%, NVIDIA -13.77%, AMD -16.86%, Apple -17.42%, Google -10.68%, Microsoft -8.39%. What a bloodbath! According to Google Finance the biggest losses today were in the energy, basic material and financial sectors. The stock markets opened in the red due to the problems in the financial sector in Europe and the US and things got a lot worse when the Paulson plan got rejected.
Hypo Real Estate, Bradford & Bingley, Glitnir and Wachovia got saved and I was also surprised by what happened here in Belgium. In the past couple of days the credit crisis made two victims in my country. Authorities feared for a run on the bank and worked out a plan this weekend to restore the public’s faith in Fortis, the largest bank and insurance group in Belgium. Last week there were a lot of rumours regarding the health of this bank, Fortis denied it and said they were in good shape but it turned out it was just another lie.. Anyway, due to a a long list of circumstances the market had completely lost its faith in Fortis and as this group is vital to Belgian’s economy the government didn’t dare to make a gamble on this one and announced Friday night that a deal would be worked out before Monday.
After two days of negotiations a deal was made. The bank will receive an injection of 11.2 billion EUR by the Belgian, Dutch and Luxembourg governments in return for a 49% participation of Fortis’ bank divisions in each of the three countries and Fortis decided they will sell the ABN AMRO activities they acquired last year – but likely with a loss of more than 10 billion EUR. To make a long story short: the acquisition of ABN AMRO was one of the reasons why Fortis got in so much trouble, they paid a lot more for a piece of this Dutch bank than it was worth. After that the credit crisis turned the financial markets upside down and it became hard for Fortis to raise enough cash for their expensive takeover. A lot of bad news and rumours followed and shareholders lost a lot of money but fortunately savers can now be certain that their money is 100% safe. I’m not really a big fan of government interventions but I think this is the best that could be done in such a brief timespan. The only other alternative seemed to be a sale to BNP Paribas and they wanted to give only 1.6EUR per share (Fortis closed at 5.20EUR on Friday) and demanded lots of guarantees from the Belgian government as well.
I was also surprised today when the government announced they’re working on a bailout of Dexia, the second largest Belgian bank. Until today the bank denied all rumours that they would need to raise new capital but then, almost out of the blue, an announcement came that Dexia is in need of 7 billion EUR. A deal is in the works and according to the financial press the 7 billion EUR will likely come from the Belgian federal government, regional governments, Dexia’s largest shareholders and perhaps even France and/or Luxembourg.
A bit more positive is that oil dropped 10 percent today but the overall market looks very bloody. I wonder if the night is darkest just before the dawn or is the worst yet to come?