UK NEWS

WORLD MARKETS PLUNGE AS US BANK 'COLLAPSES'

The FTSE fell sharply in London today

Monday March 17,2008

By Nicola McCafferty for express.co.uk

Comment Speech Bubble Have your say(8)

THE UK’s biggest companies plunged into the red today as the fall-out from the cash crisis at troubled US investment bank Bear Stearns shook world markets.

London’s FTSE 100 Index fell two per cent in early trading as investor nerves over the latest signs of the credit crunch sparked the sell-off.

Bear Stearn’s bail-out and acquisition by rival JP Morgan Chase also hit Asian markets, with Hong Kong’s Hang Seng down five per cent and Japan’s Nikkei 225 index off 3.7 per cent.

London’s biggest fallers were the major banks feared to be most heavily exposed to the credit crunch.

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Halifax Bank of Scotland plunged more than 11 per cent, followed by Royal Bank of Scotland - down eight per cent - as concerns over further contagion of the banking system by the crisis in US sub-prime mortgages spread.

Alliance & Leicester and Barclays also fell 10 per cent and seven per cent respectively in a dramatic opening which saw just two companies - British Energy and Royal Dutch Shell - in positive territory.

Nerves were frayed after Bear Stearns - the latest victim of the turbulence - was bought by rival JP Morgan Chase for a cut-price £236.2 million US dollars (£116.4m) after being forced to seek emergency funding on Friday.

Meanwhile the US Federal Reserve, in a rare Sunday meeting, cut its lending rate to banks to 3.25 per cent from 3.5 per cent and created another short-term loan facility for big investment banks in a bid to ease the pressure.

Oil prices soared to new records near 112 US dollars a barrel as fears over the US economy grew and the US dollar weakened.

The Fed is likely to cut interest rates again at its meeting tomorrow in a bid to kick-start the world’s largest economy, which is teetering on the brink of recession.

Bear Stearns - bought for just two dollars a share by its rival - was heavily exposed to the mortgage-backed investments hit by the credit crunch.

Two of its hedge funds collapsed in July last year in one of the early signs of the approaching crisis.

Last week rumours of problems at the business swept the market, leading to a cash crunch for the firm.

The bank looks after millions of dollars for hedge funds, which began demanding their money back as the rumours grew and the company has no deposit base to fall back on.

The Fed will provide special financing to JP Morgan Chase for the acquisition, JP Morgan Chase said, and fund up to 30 billion dollars of Bear Stearns’ riskier assets.

Meanwhile, JP Morgan Chase said it will guarantee all business - such as trading and investment banking - until Bear Stearns’ shareholders approve the deal, which is expected to be completed during the second quarter.

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WORLD MARKETS PLUNGE AS US BANK 'COLLAPSES'

18.03.08, 8:35am

There will be much more misery to come.

Britain has nothing in reserve to cushion the Global Financial Problems.

A few years ago Gordon Brown irresponsibly sold off Britains Gold Reserves for a mere pittance to pay for Tony Bliars illegal Wars.

Effectively at todays Gold Prices he has robbed the Nation literally of many £Billions .

• Posted by: EmperorMing • Report Comment

DID?

17.03.08, 7:35pm

Did GoDron the Guru of Garbage once pontificate "The Days of Boom and Bust are over?"
The arse is dropping out of the stockmarket! In your opinion Godron, is this a time of Boom or Bust?

• Posted by: kojak • Report Comment

WORLD MARKETS

17.03.08, 7:26pm

Now just watch inflation take off, the pound had fallen 10% against the EURO, 60% of our food is imported and most household goods. The artificial "Chinese Price Index", CPI will now be totally irrelevant. Real inflation will soon be 10%, and just how many of us will get an inflation proof rise. My pension went up by 3.8% and all the increase will be swallowed up in increases in Council tax, heatig, car tax etc

• Posted by: exnomad • Report Comment

SOME PEOPLE ARE SAYING

17.03.08, 6:39pm

that in order to boost the economy, we will soon see a new war.

Iran?

• Posted by: betty • Report Comment

THE REAL SH1T HAS YET TO HIT THE FAN

17.03.08, 5:50pm

FACT

• Posted by: LucianDeville • Report Comment

THE LESSONS OF HISTORY

17.03.08, 3:46pm

Northern Rock aside we had something very similar to Bear Stearns in late 1973. An investment bank; London and County Securities became insolvent in much the same way as Northern Rock last year. Then the Bank of England responded with what was known as the ‘lifeboat’. This approach was remarkably similar to the Fed’s handling of Bear Stearns. Natwest was invited to take control and de-merge L & C. Other secondary banks with similar problems were parcelled out to Barclays and Lloyds. They were all then wound up quietly and efficiently while disappearing from the headlines.

The Bear Stearns, J. P. Morgan story as opposed to the Northern Rock fiasco however is a sharp reminder as to how the Bank of England has now lost its authority to deal with a banking crisis in its own financial back yard. Despite the lessons learnt in 1973 with London and County it now appears that perceived political advantage and disadvantage has to be the first consideration before action to remedy the problem can be taken. As a result Northern Rock has not been resolved, rather it has been transferred to the taxpayer. That is why, unlike Bear Stearns our own little local difficulty will continue crop up in the headlines here for years to come.

• Posted by: figurewizard • Report Comment