£50bn was wiped off the FTSE after one of the world’s biggest banks filed for bankruptcy. Bill Gleeson report
THE world’s financial system entered uncharted territory yesterday after the collapse of one of Wall Street’s biggest and oldest banks.
Economists and city analysts were last night divided in their views about the outlook for the UK and global economy as they took in the news that the 153 year-old Lehman Brothers had been allowed to collapse into bankruptcy by US financial regulators.
Fears that Lehman’s collapse could have consequences for UK banks led to sharp falls in share prices in London and around the world. Halifax Bank of Scotland was down more than a third at one point before closing 18% down. Royal Bank of Scotland and Barclays fell 12% and 10% respectively after recovering from heavier falls earlier in the day.
Around £50bn was wiped off the FTSE-100 by the close of business last night.
Lehman, which has lost billions in the credit crunch, filed for bankruptcy after weekend rescue efforts foundered when the US Government refused to help it. Some commentators warned the world was entering into dangerous and uncertain territory and faced further problems ahead, while optimists claimed the market could bounce back within days.
Andrew Ramsbottom, a fund manager at Liverpool-based Tilney Investment Management, said: "I don’t think anybody quite knows where this is going to end up.
"We will have to wait to see how it all works out. We will have to wait until later in the week.
"The comparison with the 1929 crash has been made. This time we think we know what to do, but the question is do we have enough ammunition to cope."
In further signs of trouble, another US investment bank Merrill Lynch was bought yesterday by Bank of America in a deal worth $50bn (£28bn).
There were also fears giant US insurer AIG could face collapse. The firm, whose shares nearly halved last week, is taking steps to raise money amid reports it is seeking a $40bn emergency loan from the Federal Reserve, America’s central bank.
Neil Blankstone, a director of Liverpool stockbroking firm Blankstone Sington said that despite the sharp falls in the FTSE-100, there were no signs of panic selling.
He said: "It’s actually been quiet. It’s not been busy in terms of volumes of shares traded.
"The collapse of Lehman wasn’t such a surprise.
