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Stock markets plunge again
Hugo Duncan17.03.08
Stock markets around the world tanked today after the dramatic rescue of one of Wall Street's largest banks plunged financial markets into a fresh crisis.
Bear Stearns was last night bought by JPMorgan Chase for just $240 billion (£120 million) in shares, bringing 85 years of independence to a crashing end. It sent banking stocks in London and across Europe tumbling. London's FTSE 100 index of leading shares opened down more than 100 points.
The deal valued Bear at $2 a share - a massive discount to the $169 the shares hit in January last year and the $30 they sank to on Friday as it teetered on the brink of collapse.
As part of the deal, the US Federal Reserve has underwritten $30 billion of Bear's toxic subprime mortgage-backed bonds to protect JPMorgan shareholders.
Julian Jessop, chief international economist at Capital Economics, said: "The very low price paid suggests that the problems at the brokerage were even bigger than previously thought. What's more, the Fed had to provide additional financing to the participants to facilitate the deal."
The meltdown at Bear, Wall Street's fifth-largest bank, raised fears that the deepening credit crunch could claim yet more high-profile victims.
Analysts said every bank - including some of Britain's biggest - was now at risk with, Halifax owner HBOS, Alliance & Leicester and Bradford & Bingley all in the frame. Invesment banks Lehman Brothers and Merrill Lynch are also seen as vulnerable and UBS shares were down 10% in Zurich as panic spread.
The FTSE 100 index tumbled 110.7 points to 5521.0 with banking and other financial stocks leading the sell-off.
Royal Bank of Scotland fell 8%, or 261/2p to 3071/4p, HBOS was down 38p to 490p and Barclays slumped 30p to 403p.
A&L was off 24p to 4881/2p and Lloyds TSB shed 17p to 4041/4p. It followed heavy losses in Asia this morning although China's top brokerage CITIC Securities surged after it reported strong earnings and backtracked from an investment deal with crippled Bear Stearns.
The dollar plunged to new lows against the euro and Swiss franc and fell below 96 yen for the first time in 12 years. This pushed oil to a new record above $111 a barrel today while gold hit a record of $1,032.70 an ounce as investors rushed to "safe havens". US crude for April delivery was up 95 cents at $111.16 a barrel and May London Brent crude was 55 cents higher at $106.75.
Oil prices have jumped about 16% so far this year at least partly because of a steep decline in the dollar.
The rescue of Bear came alongside further US interest rate cuts as the Fed moved to prevent total meltdown.
Reader views (5)
This is what happens when you're caught with your trousers down - a bare stern.
- Squiz, Islington
The second bank it seems, a grid lock of confidence.
- Colin Fellowes, Ulverston, England
I remember that old seventies classic, 'Gordon is a Moron' from school days. How will history judge Gordons' Prudence now?
- Jono, London, UK
This is likely to be just the "first" of many!
- Fraser, Telford Park
So much for Mr Darling's stability! The collapse of the Alt-A market that wrecked Bear Stearns signals the start of a much more frightening Round Two. Alt-A borrowers were not the no-hopers who formed Sub-Prime, but basically anyone who had less than a perfect credit record. We know HBOS had $7BN on its treasury books alone. To keep the boxing metaphor, if the UK took a knock-down and nine-count in Round One (Northern Rock), how are we going to get through Round Two?
- Frank, London, UK
