Wachovia mulls sale amid banking turmoil

*Central banks fail to halt credit market turbulence

Wachovia, one of the biggest retail banks in the US, put itself up for sale last night after a tumultuous day for banking shares across the world.

Unprecedented central bank intervention failed to prevent further distress in the markets, with credit spreads rising to previously unseen levels and equity prices tumbling.

In the wake of the political wrangle over the $700bn (£380bn) Paulson plan, and the collapse of Washington Mutual, the markets seemed to be on the hunt for their next victims. Fears in the UK have focused on the fate of Bradford & Bingley, but the anxiety has been global. Wachovia and the Belgian-Dutch Fortis group were hit hardest.

In the US, the failure of Washington Mutual on Thursday night was the largest banking collapse in the country's history, triggering a new wave of concern over other tottering groups. Wachovia, which only a few days ago had been negotiating the takeover of the mighty Wall Street investment bank Morgan Stanley, slumped 27 per cent on concern it too is burdened by delinquent mortgages that have undermined its balance sheet. Last night, it was said to be seeking to be rescued by Citigroup, the world's largest bank, although takeover talks are at a preliminary stage. It has also reached out to Wells Fargo and Banco Santander.

Other casualties yesterday included National City. Once one of the largest US banks, which has been on probation with regulators concerned about its solvency for several months, it lost 26 per cent of its value. Morgan Stanley fell 9 per cent, prompting John Mack, its chief executive, to write a memo to staff assuring them talks about an $8.5bn capital infusion from the Japanese bank Mitsubishi were still on track.

In the European banking sector, Fortis moved to quell rumours it faced a liquidity crisis, and its shares sank for the fifth day in a row. Fortis also revealed plans to raise up to €10bn (£8bn) from offloading assets. It issued its second statement on consecutive days attempting to calm investor fears. Earlier this month, it was forced to deny speculation it was preparing to launch a rights issue. The group said yesterday it had a funding base of €300bn. Its chief executive, Herman Verwilst, said: "We are flabbergasted by what is reflected in the market capitalisation of Fortis."

Bad news from the "real economy" didn't help: US GDP expanded at a slower- than-forecast annualised rate of 2.8 per cent, compared with a preliminary estimate of 3.3 per cent issued last month.

Concerns about the Paulson plan prompted a concerted effort by the world's central banks to provide liquidity and confidence. The Bank of England, the US Federal Reserve, the European Central Bank and the Swiss National Bank led the official posse, with smaller reserve banks from Denmark to South Korea also chipping in.

An extra $74bn of one-week funding is being made available, a move widely welcomed. Crucially, according to market professionals, the Bank of England is offering a weekly injection of three-month liquidity, starting on Monday. This supplements its existing arrangements to the tune of £40bn allocated, almost as large as the initial estimates for its Special Liquidity Scheme, still in operation until the end of January.

Despite all this, money markets remained virtually frozen. The cost of borrowing in dollars for three months stayed near its peak for the year and the key index of distress in the interbank market, the OIS/LIBOR spread, soared again. This has now reached a full 2 percentage points: it averaged a mere 8 basis points before the credit crunch.

"It's just a complete breakdown of the interbank lending market," said Sean Maloney, a fixed-income strategist at Nomura. "We are now in a very fear-driven environment. Banks are no longer lending to each other."

Real or perceived problems in funding their activities once again hit some banks hard on both sides of the Atlantic. Bradford & Bingley at one point lost a further fifth of its market capitalisation. It closed down 5 per cent at a new low of 20p, a decline of 93 per cent this year, cutting its market value to £256m, less than the £400m it raised in a 55p-per-share rights issue last month. Lloyds TSB, due to take over the troubled HBOS in a government-brokered deal, fell by 8 per cent. HBOS fell 5.8 per cent.

After the shortcomings revealed during last year's Northern Rock crisis, the "tripartite authorities" – the Bank of England, the Financial Services Authority and the Treasury – will not wish to be seen to be "asleep at the wheel". "The time has come now for the central banks basically to offer something a little bit different other than liquidity in deference to the fact that the economic downturn is gathering momentum," said George Magnus, senior economic adviser to UBS.

PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

C#.NET Server Side Developer (C#, XML, WCF, Unit Testing,SQL)

£30000 - £40000 per annum + benefits+bonus+package: Harrington Starr: C#.NET ...

Junior Database developer (SQL, T-SQL, Excel, SSRS)

£20000 - £30000 per annum + benefits+bonus+package: Harrington Starr: Junior D...

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition