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ECB Sends Additional $83.8B Into System
MATT MOORE | August 10, 2007 09:50 AM EST |
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FRANKFURT, Germany — The European Central Bank injected another $83.8 billion into the banking system Friday amid signs that bad U.S. mortgages were digging deeper into the world economy.
But investors did not seem appeased, with major indexes plunging in London, Frankfurt, Paris and Tokyo.
The 61 billion-euro move by the ECB, which had provided 95 billion euros ($130.7 billion) in funds to banks on Thursday, came after Japan's central bank injected 1 trillion yen ($8.4 billion) into money markets. Early Friday, the U.S. Federal Reserve announced a three-day addition of liquidity. The Fed had already intervened Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.
It was the first time the U.S., European and Japanese central banks had taken such action together since the aftermath of the Sept. 11 terrorist attacks. The Australian, Hong Kong and Canadian central banks also joined in.
"This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market," the ECB said.
But edginess in global markets was reflected in sharp declines in global stock indices on Friday. London's FTSE 100 dropped 3 percent to 6,082.10, the CAC-40 in Paris fell 2.9 percent to 5,459.36 and Germany's DAX index down 1.7 percent to 7,329.99.
"Market concerns about the U.S. subprime crisis are continuing without any apparent respite," said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.
"Its fallout will not be limited to financial markets," he added. "The U.S. economy and with it, the rest of the world, will feel the negative consequences for quite some time."
Some analysts said the ECB could itself create a crisis in confidence with the huge infusion of cash.
Defaults on subprime loans, or those made to people with poor credit, have climbed sharply in the United States in recent months, triggering concern about the impact on credit markets worldwide. Until the past few weeks, most of the banks and companies affected were in the U.S.
But in Germany, insurer Allianz SE, which owns Dresdner Bank AG, revealed Friday that it has 1.7 billion euros ($2.3 billion) of exposure to the U.S. subprime market _ or about 0.16 percent of its 1.03 euros trillion ($1.41 trillion) in total investments.
WestLB Mellon Asset Management, the asset management joint venture of German state bank WestLB AG and The Bank of New York Mellon Corp., suspended redemptions this week from its asset-backed securities ABS Fund. Other companies, including Union Investment Asset Management, a German mutual fund manager, and Frankfurt Trust, a unit of BHF-Bank, have also halted redemptions.
The worries came to a head yesterday after French bank BNP Paribas SA announced the suspension of three asset-backed securities funds, saying it could not value them accurately.
Standard & Poor's Ratings Services, however, said in a report Friday that the drying up of liquidity was, while painful, a temporary adjustment process.
ECB Sends Additional $83.8B Into System
MATT MOORE | August 10, 2007 09:50 AM EST |
--------------------------------------------------------------------------------
FRANKFURT, Germany — The European Central Bank injected another $83.8 billion into the banking system Friday amid signs that bad U.S. mortgages were digging deeper into the world economy.
But investors did not seem appeased, with major indexes plunging in London, Frankfurt, Paris and Tokyo.
The 61 billion-euro move by the ECB, which had provided 95 billion euros ($130.7 billion) in funds to banks on Thursday, came after Japan's central bank injected 1 trillion yen ($8.4 billion) into money markets. Early Friday, the U.S. Federal Reserve announced a three-day addition of liquidity. The Fed had already intervened Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.
It was the first time the U.S., European and Japanese central banks had taken such action together since the aftermath of the Sept. 11 terrorist attacks. The Australian, Hong Kong and Canadian central banks also joined in.
"This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market," the ECB said.
But edginess in global markets was reflected in sharp declines in global stock indices on Friday. London's FTSE 100 dropped 3 percent to 6,082.10, the CAC-40 in Paris fell 2.9 percent to 5,459.36 and Germany's DAX index down 1.7 percent to 7,329.99.
"Market concerns about the U.S. subprime crisis are continuing without any apparent respite," said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.
"Its fallout will not be limited to financial markets," he added. "The U.S. economy and with it, the rest of the world, will feel the negative consequences for quite some time."
Some analysts said the ECB could itself create a crisis in confidence with the huge infusion of cash.
Defaults on subprime loans, or those made to people with poor credit, have climbed sharply in the United States in recent months, triggering concern about the impact on credit markets worldwide. Until the past few weeks, most of the banks and companies affected were in the U.S.
But in Germany, insurer Allianz SE, which owns Dresdner Bank AG, revealed Friday that it has 1.7 billion euros ($2.3 billion) of exposure to the U.S. subprime market _ or about 0.16 percent of its 1.03 euros trillion ($1.41 trillion) in total investments.
WestLB Mellon Asset Management, the asset management joint venture of German state bank WestLB AG and The Bank of New York Mellon Corp., suspended redemptions this week from its asset-backed securities ABS Fund. Other companies, including Union Investment Asset Management, a German mutual fund manager, and Frankfurt Trust, a unit of BHF-Bank, have also halted redemptions.
The worries came to a head yesterday after French bank BNP Paribas SA announced the suspension of three asset-backed securities funds, saying it could not value them accurately.
Standard & Poor's Ratings Services, however, said in a report Friday that the drying up of liquidity was, while painful, a temporary adjustment process.
