Wobbly banks in Europe, Wall Street worry markets

[Naveed Yaseen]

BERLIN: A World Bank warning that banks in east Europe are at risk from the economic crisis and signs that the US government will prop up Citigroup bank pushed the dollar down and European stocks up on Monday.

A meeting of top European leaders was strong on promises to tighten global regulation in financial markets, but the session on Sunday also showed deep differences over the crisis during preparations for a G20 meeting in April.

The dollar fell on concern about some top names in US banking, but a report in the Wall Street Journal newspaper that US authorities might acquire 25-40 percent of mammoth Citigroup bank helped a rebound in European stocks.

“Markets are unsettled by two fears right now: the nationalisation of US banks and the financial crisis hitting Eastern Europe,” said Ryohei Muramatsu, manager of Commerzbank’s Group Treasury Asia in Tokyo.

US economics Nobel prize winner Paul Krugman said: “Banks must be rescued. The collapse of Lehman Brothers (investment bank in September) almost destroyed the world financial system.”

He wrote in the New York Times: “We can’t risk letting much bigger institutions like Citigroup or Bank of America implode.” The price of gold, a barometer of distress and risk aversion, held close to 1,000 dollars an ounce, a level breached briefly on Friday.

The main factor to show on Monday was talk of state involvement in banking, but in varied forms. The president of the World Bank, Robert Zoellick, warned in remarks to the Suddeutsche Zeitung newspaper on Monday that many banks in eastern Europe were undercapitalised and needed help of 120 billion euros (154 billion dollars) from the West.

“I think it would be an immense tragedy if Europe were once again divided in two” because of the crisis, he said. Attention in the United States is focused on top names in high street banking.

The WSJ, citing unnamed sources, reported that Citigroup had approached regulators suggesting that federal authorities should take a stake, which could turn out to be 24-40 percent. But the administration of US President Barack Obama had not signalled if it supported the idea, the report said. The head of the Senate banking committee, Senator Christopher Dodd, said the administration wanted to avoid nationalising banks but did not rule out a short-term takeover.

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