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Turmoil sweeps the globe

Times Staff Writer

International stock markets hemorrhaged hundreds of billions of dollars Monday as countries around the world scrambled to save their own banks and bolster whatever investor confidence remained.

Markets plunged in nations from Brazil to Saudi Arabia as some indexes saw their steepest drops in 20 years. Precipitous falls halted trading on several exchanges.

The Paris bourse fell 9%, Germany’s main DAX index tumbled 7%, and the London FTSE 100 dropped 8%, losing the most points in a single day’s trading in its history and wiping out more than $150 billion in value. Russian stocks plummeted nearly 20%.

Across Europe, governments have sought to contain the damage by guaranteeing deposits and cobbling together bailout packages for struggling financial institutions, including some of the biggest names in European banking. But those efforts failed to stem the flight from the markets.

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“No bones about it, this is a whole lot worse and [more] scary than anything I’ve ever seen,” said Peter Bickley, chief economist for the British arm of Germany’s Deutsche Bank.

Even as countries around the globe blame the U.S. as the cause of the financial crisis, they are finding their own banks affected by and implicated in it.

But a coordinated defense, especially among the 27 members of the European Union, has proved elusive in spite of public pledges by leaders to unite against the most sweeping global financial threat in a generation.

Ireland’s decision last week to back all deposits in its banks angered fellow EU states for its unilateralism but triggered a rush by other governments to do the same.

Greece quickly matched Ireland’s plan, Germany made a similar promise Sunday, and Iceland -- which is not part of the EU but has been hit hard by the spiraling crisis -- followed suit Monday, declaring that it stood ready to take control of all the nation’s commercial banks.

In Britain starting today, the government will insure bank deposits up to about $87,000, an increase from $61,000. The move was aimed in part at dissuading British savers from defecting to Irish banks.

“The destruction of global financial markets has intensified,” Alistair Darling, Britain’s chancellor of the exchequer, told Parliament on Monday. “People are rightly concerned about what is happening. We will do whatever necessary to maintain stability.”

Brazil, Latin America’s largest economy, was forced to stop trading twice in its financial capital, Sao Paulo, first when the Bovespa index declined 10% and then when it fell 5% further, tripping so-called circuit breakers. It eventually rallied to close down about 5%. The Brazilian real slid to its lowest level in more than a year against the dollar, mirroring similar devaluations for other world currencies including the euro, which fell below $1.35; in July it was trading around $1.60.

In recent years, Brazil and Argentina have enjoyed windfall profits from the sale of soybeans, beef and other commodities. Mineral exports have spurred rapid growth in Chile and Peru. But the credit squeeze could pinch global demand for commodities.

“Brazil is going to pay the price for being part of the world,” former Brazilian Finance Minister Delfim Netto told the InvestNews website.

In Mexico, the IPC index slid 5.4% as traders blamed volatility for a sharp drop in the peso, which fell to 11.8 to the U.S. dollar -- its lowest level since 1993.

Russia’s RTS index posted its largest one-day loss Monday since trading began in 1995; the drop was partly the result of slumping oil prices. Deputy Economic Development Minister Andrei Klepach warned that the government’s recent projection of $30 billion in capital inflow this year could dwindle to nothing.

Stocks also dived in Saudi Arabia and other Persian Gulf states that have witnessed big building booms in recent years. Real estate shares in Dubai, United Arab Emirates, at special risk because the kingdom’s growth has been fueled more by residential and commercial development than by its oil supplies, closed down 7%.

In Asia, Japan’s Nikkei 225 index lost 4.3% on Monday to close at its lowest level since February 2004. Japanese financial companies and industries dependent on exports, such as steel, were hit particularly hard. The Shanghai composite index fell 5.2%.

Like workers scurrying to plug holes in dikes, European governments spent part of Monday shoring up wobbly banks.

After its first attempt at a bailout collapsed, the German government brokered a $68-billion deal with its finance industry to save Hypo Real Estate Holding, one of the country’s largest lenders.

In Brussels, the hastily put-together acquisition of Belgium’s Fortis bank by French giant BNP Paribas over the weekend failed to calm jitters over French-Belgian bank Dexia, whose shares plunged about 20%.

Belgian government officials met with shareholders Monday to discuss the bank’s health and whether it might require a rescue.

And in Italy, the board of Unicredit Bank, whose top manager pronounced it solid only a week ago, negotiated an emergency package over the weekend to raise $4 billion in new capital and proposed to pay investor dividends with new shares rather than cash.

There was still no prospect, however, of a Europe-wide bailout package akin to the $700-billion American plan approved last week. Although France has floated such a proposal, opposition from Germany, Europe’s biggest economy, has kept the idea from gaining traction.

“We as Germans do not want to pay into a big pot where we do not have control and do not know where German money might be used,” German Finance Minister Peer Steinbrueck said in a radio interview.

The European Union has shown little appetite or ability to act as a collective, despite assurances Monday by French President Nicolas Sarkozy, who currently holds the EU presidency, that “European leaders recognize the necessity of close coordination and cooperation.”

But Bickley, the economist, said: “Where you’ve got a problem on the spot and you have to deal with it, you do it, and European cooperation can go hang.” The region’s leaders “are putting out fires. . . . But it is still ad hoc.”

Bickley said the sudden focus on protecting individual deposits would not address the problem at the root of the credit crunch: the unwillingness by banks to lend to one another. “What we have to do is rebuild banks’ trust in each other, and depositor protection isn’t going to do that.”

What he and other analysts view as more promising is a round of capital injections into ailing banks. An interest rate cut by the European Central Bank could also help. But whether those measures come to pass remains to be seen.

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henry.chu@latimes.com

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Times staff writers Maria De Cristofaro in Rome, Patrick J. McDonnell and Andres D’Alessandro in Buenos Aires, Sebastian Rotella in Madrid, Borzou Daragahi in Beirut and Megan K. Stack in Moscow contributed to this report.


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