NEWS | Wednesday, 17 September 2008

Wall Street crisis: Investors dump shares after Lehman collapse

Banks lead fallers in London’s worst day in years

The London stockmarket nosedived today as traders dumped shares and piled into gold and government bonds, following the turmoil on Wall Street.
As distressed employees arrived at the Canary Wharf offices of US investment bank Lehman Brothers, with many fearing redundancy, the FTSE 100 index of leading shares plunged by more than 5 per cent. HBOS led the fallers, shedding almost a third of its value as the credit crunch entered a new phase.
Investors were left reeling by the triple whammy of the failure of Lehman Brothers, the shock sale of Merrill Lynch, and the revelation that AIG, the world’s largest insurance firm, may need to raise as much as $40bn (£22.2bn).
By midday the FTSE 100 was 283.5 points lower at 5133.2 points, a fall of 5.25 per cent - one of the worst day’s trading in years. Banks led the fallers in London, amid fears that they could suffer badly from Lehman’s collapse into bankruptcy early this morning. HBOS dived by over 30 per cent to 196p, Barclays dropped by 16 per cent to 291.5p and Royal Bank of Scotland lost almost 14 per cent to 201.75p.
Barclays confirmed this morning that it had walked away from rescue talks with Lehman because it could not guarantee itself against further losses.
The sharp fall came despite the central banks pumping billions of fresh liquidity into the system in an attempt to stabilise the market.
The Bank of England offered £5bn of new funding, which was five times oversubscribed, and the European Central Bank awarded €30bn (£23.8bn) which was three times oversubscribed.
Today’s losses wiped out the FTSE’s recovery last Thursday and Friday, pushing it closer to its lowest closing point in the last year, 5071 points, set on July 16 2008.
Staff arriving at Lehman offices this morning said they were in the dark about the bank’s future, although many refused to comment.
“Hopefully I will still have a job, but God knows,” said one employee.
Stockmarkets across Europe also took a bath, with Germany’s DAX index losing 3.8 per cent and the French CAC falling by 4.8 per cent.
The European markets were the first major indices to react to the
drama on Wall Street, as both the Tokyo and Shanghai stock exchanges were closed for a public holiday. Smaller markets in Asia had already shown they were spooked by the events, with Taiwan losing over 4 per cent.
And while share prices fell, bringing more pain to long-suffering investors, commodities including gold rose sharply this morning.