Bradford & Bingley nationalised as banking crisis deepens

Another turbulent week has seen further intervention from governments in the US, UK and Europe in an attempt to alleviate pressures on the global financial environment.

The publication of the Emergency Economic Stabilization Act (EESA) of 2008 adds colour to last week's negotiations between the US Treasury and Congress and details how Hank Paulson's $700bn bailout package is hoped to rescue America's financial system.

According to the deal, US government will receive the money in tranches - $250bn initially; $100bn at the request of the White House, and release of the remaining $350bn can be vetoed by Congress.

In order to ensure that taxpayers will benefit from recovery of the banks that sell their toxic assets to the government, Treasury will obtain equity warrants and create an industry-funded insurance programme that banks will be obliged to join.

Once again, Bush backed the proposed legislation, stating "the bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown". The act has now been frozen, i.e. individual provisions cannot be altered. The House is expected to vote on the legislation today and it is due to go before Senate later in the week.

The decision to nationalise Bradford & Bingley has been announced this morning. Spain's Santander, which recently purchased Alliance and Leicester, has decided to acquire B&B's £24bn deposit book and it's chain of 197 branches for £612m.

Banco Santander has also been named (along with Citigroup and Wells Fargo) as a potential buyer for struggling US bank Wachovia.

Meanwhile, Fortis caused a stir in Europe as the Dutch, Belgian and Luxembourgian governments combined to inject much needed capital into the bank.

Under the terms of last nights deal, each of the three governments will buy 49% of the Fortis subsidiaries in their respective country. The decision to partly nationalise Fortis came after attempts to sell the group privately to BNP Paribas and ING failed to materialise due to the pair demanding government guarantees over any losses that may be incurred.

Nerves dominated Friday's trading session, with traders uncertain about the US's rescue plan and deciding to wait on the sidelines until an agreement is reached. Many USD investors fled the currency as economic conditions in the US continue to deteriorate and analysts continue to be weary of the greenback's progress in the longer term.

That being said, dollar gained on the euro as expectations for a rate cut in the eurozone rose amid increasingly dire economic releases from the region.

In light of these unprecedented events, economic data is likely to take a back seat again this week, although investors will be looking to the ECB on Thursday for the monthly rate announcement.

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