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Global markets crisis: are you concerned?

Global financial markets have suffered a week of bad news and turbulence. Have you been caught up in the crisis?

European stocks opened higher in cautious trade as Lloyds TSB’s takeover of UK lender HBOS dispelled some of the gloom hanging over financial markets.

Asian shares had earlier fallen sharply on fears that more companies could fall victim to the global financial crisis.

There has also been feverish speculation about the future of two other leading US banks – Morgan Stanley and Washington Mutual.

On Thursday the Bank of Japan injected another 1.5 trillion yen ($14.4bn) into money markets, as Asian shares continued the global trend downwards.

Are you concerned about the wider implications of the crisis? Are you an employee of the companies affected, an investor, or a shareholder? Or are you worried about mortgage lenders like HBOS? How do you think this will affect markets all over the world?

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Investors cautious amid turmoil

Asian share prices have continued to fall as confidence remains low

European stocks rise in cautious trade as Lloyds TSB’s takeover of UK lender HBOS dispelled some of the gloom hanging over financial markets.

Asian shares had earlier fallen sharply on fears that more companies could fall victim to the global financial crisis.

London’s FTSE 100 index was up 0.8% at 4,951 points shortly after the open and France’s main stock index rose 0.6%.

In Asia, Tokyo’s Nikkei share index dropped by 2% while Hong Kong’s main stock index slid by 7%.

Share indexes in Shanghai, Taiwan and India fell by between 3 and 5%.

Hong Kong’s Hang Seng index dropped below the 17,000 mark and Australian shares closed 4% lower.

On Wednesday, the Dow Jones index of leading US stocks fell by more than 4%.

Flight to safety

Brokers in Japan say the markets are in freefall because investors fear the US government’s efforts to stop the turmoil in the financial system are not working.

As a result, investors are looking for safer places to put their money than stocks and shares.

Traders saw plummeting shares on Wall Street on Wednesday

Many Japanese institutions have assets insured by AIG, the insurance company that was rescued by the US government on Tuesday.

And in Singapore, for the second day running, hundreds of AIG policyholders queued up outside its offices trying to surrender or cancel policies they fear could turn out to be worthless.

Feverish speculation

The US Federal Reserve’s AIG rescue package followed the collapse earlier this week of 150-year-old US investment bank Lehman Brothers, which sent shockwaves through the world’s financial community and sparked a global share price plummet.

Another investment bank, Merrill Lynch, has since been sold off to Bank of America. And in the UK, HBOS is being taken over by Lloyds TSB in a £12.2bn deal.

There has also been feverish speculation about the future of two other leading US banks – Morgan Stanley and Washington Mutual.

The New York Times quoted unnamed sources as saying an auction for Washington Mutual was under way. The Wall Street Journal reported that both banking giant Citigroup and Wells Fargo had expressed an interest in a takeover.

Meanwhile the Reuters news agency reported that Morgan Stanley, the second largest US investment bank in the US which on Wednesday saw a quarter of its value wiped off its share price, had held preliminary takeover talks with Wachovia.

None of the companies involved has made any comment on the speculation and no negotiations can be confirmed.

Banks take action

The Bank of Japan has injected another 1.5 trillion yen ($14.4bn; £7.9bn) into money markets to help stabilise them. Australia took similar steps.

The Japanese central bank’s injection was the third consecutive day it had tried to shore up cash markets as the Nikkei trades at a three-year low.

Across Asia, central banks have already pumped $33bn into money markets this week in an attempt to allay investors’ concerns and ensure the supply of funds does not dry up.

Lehman set to go into insolvency

Preparations are being made for Lehman Brothers, the fourth-largest investment bank in the US, to file for bankruptcy.

The two strongest potential buyers appear to have pulled out of talks to rescue Lehman – the latest victim of the American credit crisis.

If no new financing comes before Wall Street opens, it will have to seek “Chapter 11” bankruptcy protection.

This could result in a severe shock to the global financial system, as banks unwind their complex deals with Lehman.

Late on Sunday the US central bank, the Federal Reserve, announced new moves to ease access to emergency credit for struggling financial companies.

The Fed said the step – which broadens the types of securities financial institutions can use to obtain emergency loans – was designed to mitigate the potential risks and disruptions to markets.

In a related move, a consortium of 10 investment banks announced a $70bn (£39bn) loan program that troubled financial companies can use to help ease the credit shortage.

The banks – Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS – each agreed to provide $7bn (£4bn) to the pool.

On Monday, Asian stock markets fell amid concerns over the fate of Lehman Brothers.

Singapore stocks dropped 2.26% in morning trading and shares in Taiwan fell 1.83%.

Markets in Tokyo, Hong Kong, Shanghai and Seoul were closed for public holidays.

Lehman employs about 25,000 worldwide, including 5,000 in the UK.

Accountancy firm PWC has already been lined up to run the British operations of Lehman should the firm go into administration.

BBC business editor Robert Peston says UK bank Barclays’ decision to walk away from a Lehman deal was a huge setback for the effort to rescue the Lehman.

Barclays terminated the negotiations because it was unable to obtain guarantees in relation to financial commitments faced by Lehman when markets open on Monday.

Bad bank, good bank

The rescue effort for Lehman was being co-ordinated by the US Treasury and the New York Federal Reserve.

No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value Peter Morici University of Maryland

The US government had hoped to arrange a bailout under which other US investment banks would finance a “bad bank” that would hold the most “toxic” investments of Lehman in the property and mortgage market.

The “good bank” or rest of the firm, including its investment and wealth management arms, would then be sold to another financial institution, for example Bank of America or the UK’s Barclays.

Although such a deal would have cost the other investment banks millions, it might have restored confidence in the sector and avoided a sharp drop in the share price of all banks.

However, it appears that this plan is falling apart.

“The only thing that can prevent Lehman collapsing would be a huge injection of taxpayers’ money,” a banker close to the talks told the BBC, but added that US Treasury Secretary “Hank Paulson has made it clear he doesn’t want to do that”.

Hard choices

Bank of America, meanwhile, is said to be unconvinced that buying Lehman would be in the interest of its shareholders.

Instead, according to a report in the New York Times, Bank of America is in “advanced talks” to buy investment bank Merrill Lynch for more than $38bn.

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It’s amazing that companies which charge high interest to cover risk still need to be bailed out by the taxpayer.

Jack, Canada

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Like other US investment banks Merrill has suffered losses of tens of billions of dollars in the subprime crisis, and has seen its share price plummet during recent months.

“No other large firm should buy Lehman whole – its toxic real estate and securities are too difficult to value,” said Peter Morici of the business school of the University of Maryland.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm’s share price has plummeted as fears over its future have mounted.

Former Federal Reserve boss Alan Greenspan said the US government faced “very difficult decisions” over Lehman if it could not secure a rescue deal that did not involve public funds.

Yet Mr Greenspan said it would be “unsustainable” for the government to bail out every US bank that got itself into difficulty.

Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem.

“The ordinary course of financial change has winners and losers,” he said.

Talks over sale of Lehman resume

Lehman is the fourth largest US investment bank

Negotiations have restarted to find a buyer for troubled US investment bank Lehman Brothers, before a Sunday evening deadline.

Bank of America and UK lender Barclays are said to be the main candidates to buy all or part of the company.

Lehman is up for sale after it reported a $3.9bn (£2.2bn) quarterly loss last week amid concerns over its long term financial viability.

The firm’s share price has plummeted as fears over its future have mounted.

‘Rescue package’

The talks to sell Lehman are being led by senior officials from the US Treasury Department and the Federal Reserve.

It is understood that the US government wishes to arrange a bailout package under which other US investment banks – such as Citigroup, JPMorgan Chase, Morgan Stanley and Goldman Sachs – would contribute funds to a rescue deal which would see Lehman’s balance sheet cleaned up before its sale.

Although this is expected to cost the banks many millions, the alternative would likely be a sharp fall in their share prices if Lehman was to fail.

A number of sources report that US Treasury Secretary Henry Paulson is determined that no tax payers’ money will be used to help Lehman.

‘Difficult decision’

Former Federal Reserve boss Alan Greenspan said the US government faces “very difficult decisions” over Lehman if it cannot secure a rescue deal that does not involve public funds.

” “They [will then] have to make a very difficult decision as to whether or not they allow it to liquidate or they support it,” he said.

Yet Mr Greenspan said it would be “unsustainable” for the government to bail-out every US bank that got itself into difficulty.

Predicting that Lehman would not be the last to require rescuing, Mr Greenspan added that this would not necessarily pose a problem.

“The ordinary course of financial change has winners and losers,” he said.

Bad mortgage woes

Lehman could be sold off as one company, or else broken up into parts and sold separately.

While the firm got itself into financial difficulty due to extensive bad mortgage debts, its fund management business is in relatively good shape, analysts say.

Neither Bank of America or Barclays have made any comment.

Lehman’s shares lost 80% of their value last week, and its quarterly loss was the largest in its history.

The firm is the fourth-largest US investment bank.

Concerns over the fate of Lehman follow the bail-out last weekend of mortgage giants Freddie Mac and Fannie Mae.

The lenders were thrown into financial difficulty after the collapse of the US sub-prime mortgage market.