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Meltdown: £100 billion wiped off shares
Jonathan Prynn, Nicholas Cecil and Joe Murphy06.10.08
London shares had £100 billion wiped off their value today in the biggest ever fall as the bank crisis swept around the world.
The FTSE-100 had collapsed 430.59 to 4549.66 by mid-afternoon. Any hopes that Friday's US bank bail-out would calm the markets were swept aside in frantic trading that saw eight per cent wiped off the index of leading companies.
Major European-markets were also sharply down and on Wall Street the Dow opened 515.32 lower at 9810.06, the first time it has been below 10,000 for four years.
Trading on exchanges in Iceland and Russia had to be suspended. Once again bank shares saw the biggest plunges with HBOS falling 16 per cent, RBS down 21 and Barclays 16 per cent.
The headlong rush out of shares pushed the price of "safe haven" gold up more than four per cent to $870.02 an ounce.
Chancellor Alistair Darling told the Commons "all practical options must remain open".
Mr Darling also rapped German Chancellor Angela Merkel for sparking a chaotic rush across Europe to protect bank savings.
In thinly veiled criticism, the Chancellor demanded that European Union nations "work far more closely together" to deal with the economic crisis.
Ms Merkel promised at the weekend that the deposits of german savers were safe - heaping pressure on the British government to fully guarantee savings here.
Today she insisted that this was a political statement rather than a move to a new, legally binding guarantee. But Spain, Denmark, Sweden and Austria reacted to her comments by boosting protection measures for their savers.
Seeking to restore a sense of unity in Europe, EU leaders this afternoon thrashed out a joint statement on tackling the financial turmoil.
It said: "All the leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system - whether through liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.
"While no depositors in our countries' banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors. In taking these measures, European leaders acknowledge the need for close coordination and cooperation."
In the Commons, Mr Darling also fired a warning shot at shadow chancellor George Osborne, accusing him of being irresponsible and threatening to undermine shares in British banks.
The Chancellor is angry that Mr Osborne has talked up a proposed recapitalisation plan for banks after a recent meeting with Bank of England governor Mervyn King and himself.
Stressing that all options were being examined, Mr Darling told MPs: "But it would be irresponsible to speculate on the specifics of future responses.
"Indeed providing a running commentary could add to uncertainty in already febrile market conditions."
Following the confusion sparked by Berlin, the Chancellor stressed: "In light of what has happened over the weekend, it's especially important that EU member states work far more closely together."
Mr Darling also said that the new protection for savings of up to £50,000 would mean that people with a joint account would have £100,000 safeguarded.
The Chancellor is to travel to Luxembourg tomorrow for talks with other EU finance ministers. Gordon Brown was this afternoon phoning Ms Merkel seeking clarification over the details of her pledge to protect savers' money.
Former Tory chancellor Ken Clarke warned of a "panic" flight of funds from London if other EU countries offered full guarantees to savers and Britain did not follow suit.
"I think it's a thoroughly bad idea to give sweeping guarantees to all deposits," he said. "But if everybody else does it, one by one you are going to have to avoid the risk of a lot of money going out of London in a panic."
Mr Brown today chaired the new national economic council and has spoken to French president Nicolas Sarkozy, whose country holds the EU presidency, to discuss the latest financial developments.
A banking Bill will be published tomorrow to make it easier for the government to intervene to deal with failing banks.
Mr Darling will travel to Washington on Thursday, on the same day that the Bank of England's Monetary Policy Committee is expected to cut interest rates, possibly by 0.5 per cent.
The Bank's governor Mervyn King will also go to the US on Friday where finance ministers and central bankers from the G7 group will meet amid expectations of a global rescue plan.
Reader views (18)
Doom and gloom - not for me. I'm buying bargain basement shares in some great companies.
- Individual, London, UK
Blame Bush ... in.. 5...4...3...2..
- Don, Surprise, Arizona
who cares - I bet everybodys playing the banjo happily in Venezuela right now.We should go back to living in cabins and eating berries.
Ranking of the World's Happiest Countries
1. Nigeria
2. Mexico
3. Venezuela
4. El Salvador
5. Puerto Rico
- Kate, Australia
It really infuriates me when socialists like "Fly" are so quick to blame capitalism for all of the problems in society at the moment. Government is at the heart of nearly every problem whether it's by setting artificially low interest rates (central bank) or printing money in a paper currency which is backed by nothing (remember Gordon squandered the gold). When the gov't takes by force over 50% of my earned income and regulates every part of my life (including the banking sector) I would hardly call that capitalism!
- Lark, London
Now that our Government are in the mood for nationalisation I hope they do not just stop with the banking sector,Public Transport,The energy Companies,And the Water industry could be next.
- Jean, London
Darling says he doesn't want a running commentary on what he's doing. Well, there's democracy for you. And he says he'll take 'pretty big steps' to save us all. Heaven help us. He'd better not do anything while Mandy's in hospital - Cabinet's got to act together. Where's our erstwhile chancellor, big Gordon? Pretty quiet, eh? What a bunch:
'By wisdom shunned,
By folly, well-advised.'
- John Problem, Hackney Wick, London, UK
The old adage buy on the rumour and sell on the news has been replaced with cling to hope, as shares ascended on the back of the proposed bailout plan and toxic asset dump, and sell on delivery; as people begin to realise that the $700bn isn't enough, it's in the US not Europe and no-one is quite sure how to use it to stimulate liquidity. In order to achieve the objective, we need to secure up the financial institutions themselves; which means, in effect, bailing out the shareholders, the executives and thus is everything six pack Joe’s representatives didn't like about the original Bush/Paulson plan.
Personally the state should gobble up these assets and institutions at 20c in the dollar and look for long term gains.
It's a long time since, the national privatisations of BT, BG, B anything, so what better way to stock up for future privatisations that nationalising a load of cheap companies, suffocated by accounting rules that the new owners can amend, to float off to Joe six pack over the next two decades.
I've already come up with the trade union acronym; NUMB. National Union of Merchant Bankers.
Let's get this market down to where there is a real risk : return ratio so people will start investing.
- Chris Bower, fULHAM
"All practical options must remain open".
The first practical option is resignation of the incompetent Chancellor who created the problems (no, NOT the Americans) by debt building, and who is now masquerading as our leader - the clunking fist.
- 45govt, Barbados
Why is the new body called the National Economic Council when it patently is not national. It is stuffed with New Labour people and neither of the main opposition parties are represented. Apart from political advantage there is no reason to exclude such parties from a truly national body. I am also wary of accepting too readily that Angela Merkel has reneged on a deal. From statements, it seems to me more likely that Gordon Brown thought he had sealed a deal, but if fact had not, and he failed to bottom that out before flying home.
- James Elliott, Eastbourne UK
I can't understand why we are panicking in this country?
The Europeans have only just woken up to 'Le Crunch' and now they are running around like a bunch of muppets. At least we worked our way through this with the U.S. I don't want to go though it again with Europe. Is this the price of sitting on the fence ??
Get a grip traders !!!!!
- Big Andy, London
Fly, sounds like you are a typical socialist - you even want me to pay for your ticket to North Korea. Why do n't you pay for it yourself?
Maybe you could get a government grant to get it for you.
- David, East Grinstead
The politics of bailing out banks really is a conundrum and one wonders if the money will be available to cover all savings accounts should the government have to do so. Or are they just playing a friendly game of monopoly with their electorates?
- Robert El-Cid,, Hull, East Yorks.,
David - Gladly get me a ticket!
- Fly, london
I wonder which country will be the first to offer an unlimited guarantee and discover that investors don't believe that government has the resources to make good on the guarantee. Iceland maybe?
- Roy, England
Darling will do what he's told to do by his puppet master.
- Michael, London
It only seems a couple of weeks ago that I recall Europhiles telling us that, if only we'd joined the Euro, we'd have been saved all this chaos because we would have put up a united front, United States of Europe, etc., etc., etc.
And what happens when the sticky stuff hits the fan? Ireland and Germany do their own thing for the good of their own country. Of course, we will stick loyally by the grand European ideal until our banking structure is ruined. Newver mind, we can always fall back on our manufacturung base.
Did I say a couple of weeks? Seems like a lifetime.
- Charlie Puckett, LONDON, sw3
Fly, try North Korea - I hear its good for the waistline.
- David, East Grinstead
yawn, yawn, yawn, yawn - is it me or this getting really boring now. When can we get some reality back into our lives. God I hate capitalism. I would love to go back to basics I really would.
- Fly, london
