Finance specialists says Lehman collapse should not bring system to its knees

Sep 15 2008 By Alistair Houghton and Laura Sharpe, Liverpool Daily Post

A general view of the Lehman Brothers headquarters building at Canary Wharf in London. Picture: Johnny Green/PA Wire _200

MERSEYSIDE finance specialists say the collapse of Lehman will shake the market but should not bring the financial system to its knees.

Neil Blankstone, director at Liverpool stockbrokers Blankstone Sington, said he did not believe Lehman’s collapse was a sign of any fundamental instability in the market.

He said: "From Tuesday last week, and certainly by Thursday, it became clear that Lehman was more than in trouble and was looking for a bail-out from somebody else.

"Barclays were asked to look by the US Treasury, as it seems was Bank of America. The second of those is more interesting as it became clear that Bank of America had already put together a package for the takeover of Merrill Lynch, so there was nowhere else to go.

"The reaction this morning is typical as it’s another knock to confidence, but it doesn’t look like there’s systemic risk, which is probably the key."

Bank of America has agreed to buy under-pressure investment bank Merrill Lynch.

Mr Blansktone said the Lehman crisis and the Merrill Lynch deal could mark a new wave of consolidation as banks look to weather the financial storm.

"If you look at the Bank of America and Merrill Lynch proposals, it’s an all-share merger done at a premium to the closing price of Merrill Lynch on Friday.

"It’s probably the first of the consolidation we will see in the investment management, wealth management and large banking sector."

John Ritchie, head of sales at Liverpool’s Shore Capital, said:"There is a lot of fear at the moment because we are very much a global market. The size of the debt default was bigger than we saw in Argentina in the 1980s.

"No-one truly knows what debts banks hold including Bradford and Bingley and HBOS, although I think there will be a limited impact on UK insurance.

"AIG underwrote bank securities and I don’t think many of our insurance companies follow the same business plan.

"Big insurance companies will be affected in their investment portfolios but that has been known since the credit crunch last August."

He added: "The liquidity crisis in the banking sector will slow the recovery in the housing market.

"People will worry about their savings but the UK government would be hypocritical if they didn’t support any other banks after what happened with Northern Rock."

alistairhoughton@dailypost.co.uk

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