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Global market turmoil continues Global market turmoil continues
(about 4 hours later)
Stock markets have continued to fall after the collapse of fourth-largest US investment bank, Lehman Brothers, which has filed for bankruptcy protection.Stock markets have continued to fall after the collapse of fourth-largest US investment bank, Lehman Brothers, which has filed for bankruptcy protection.
Wall Street fell back in early trading while European stocks slipped further - the UK's FTSE 100 shedding 3.2%. Wall Street fell back in early trading while European stocks slipped further - the UK's FTSE 100 shedding 3.43%.
Banking shares were particularly badly hit with HBOS losing about 35%. Banking shares were badly hit with HBOS losing about 35% at one point.
Lehman Brothers, which may be about to sell its core assets to Barclays, became the latest victim of the global credit crunch on Monday.Lehman Brothers, which may be about to sell its core assets to Barclays, became the latest victim of the global credit crunch on Monday.
Lehman's collapse has continued to reverberate:
  • Central banks around the globe have pumped funds into the money markets, including $50bn (£28bn) from the US Federal Reserve, £20bn from the Bank of England and 70bn euros ($100bn; £56bn) from the European Central Bank.
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  • US insurer AIG saw its shares slump by more than 70% amid continued uncertainty over its future.
  • Global stock markets fell heavily for a second consecutive day.
Lehman's collapse has continued to reverberate:
  • Central banks around the globe have pumped funds into the money markets, including $50bn (£28bn) from the US Federal Reserve, £20bn from the Bank of England and 70bn euros ($100bn; £56bn) from the European Central Bank.
  • US insurer AIG saw its shares slump by more than 70% at one point amid continued uncertainty over its future.
  • Global stock markets fell heavily for a second consecutive day.
Banks hitBanks hit
In the US, the benchmark Dow Jones index dropped 0.6% to 10,855 points, having seen its worst session on Monday since 11 September 2001. In the US, the benchmark Dow Jones index dropped 0.55% to 10,857 points, having seen its worst session on Monday since 11 September 2001.
The FTSE 100 index of leading UK shares fell 166 points to 5,038 in early afternoon trade - having earlier dipped below 5,000 points for the first time since June 2005. The FTSE 100 index of leading UK shares fell 178.6 points to 5025 at close of trade - having earlier dipped below 5,000 points for the first time since June 2005.
Banking stocks were particularly hard hit, with HBOS shares 35% lower at one point. Big banks can no longer be under any illusion that they can make big, stupid financial bets and expect taxpayers to pick up the bill Robert Peston, BBC business editor class="" href="http://www.bbc.co.uk/blogs/thereporters/robertpeston/2008/09/bailing_out_banks.html">Read Robert's blog class="" href="/1/hi/business/7618312.stm">Barclays eyes Lehman assets class="" href="/1/hi/business/7616197.stm">US policy challenge class="" href="/1/hi/business/7615974.stm">Q&A: Lehman collapse class="" href="/1/hi/business/7617454.stm">Lehman pension scheme in deficit class="" href="/1/hi/business/7618653.stm">Credit crunch jargon explained
Big banks can no longer be under any illusion that they can make big, stupid financial bets and expect taxpayers to pick up the bill Robert Peston, BBC business editor Read Robert's blogBarclays eyes Lehman assetsUS policy challengeQ&A: Lehman collapseLehman pension scheme in deficit
Japan's benchmark Nikkei 225 index dropped 5% to a three-year low, shares in South Korea and Hong Kong shed almost 6% and Shanghai's index fell by about 3%.Japan's benchmark Nikkei 225 index dropped 5% to a three-year low, shares in South Korea and Hong Kong shed almost 6% and Shanghai's index fell by about 3%.
Markets in Taipei and Singapore were also sharply down, and the pattern was repeated in Australia and New Zealand, although the falls were smaller.Markets in Taipei and Singapore were also sharply down, and the pattern was repeated in Australia and New Zealand, although the falls were smaller.
Central banks around the world carried out emergency measures on Tuesday to keep markets liquid.Central banks around the world carried out emergency measures on Tuesday to keep markets liquid.
The extra funding came as the interest rates at which banks lend to each other rocketed - as they did at the start of the credit crunch. This is seen as a sign of falling confidence between the banks.The extra funding came as the interest rates at which banks lend to each other rocketed - as they did at the start of the credit crunch. This is seen as a sign of falling confidence between the banks.
Overnight sterling Libor increased from 5.5% to 6.8%, and the dollar Libor rate increased from 3.1% to 6.4%. Overnight, sterling Libor increased from 5.5% to 6.8%, and the dollar Libor rate increased from 3.1% to 6.4%.
The extra £20bn (25bn euros; $36bn) put into short-term money markets by the Bank of Enlgand was "in response to conditions in the short-term money markets", it said.The extra £20bn (25bn euros; $36bn) put into short-term money markets by the Bank of Enlgand was "in response to conditions in the short-term money markets", it said.
The injection was four times the sum seen on Monday after Lehman's collapseThe injection was four times the sum seen on Monday after Lehman's collapse
The Bank of Japan has also carried out two injections of a combined 2.5 trillion yen ($24.1bn; £13bn)The Bank of Japan has also carried out two injections of a combined 2.5 trillion yen ($24.1bn; £13bn)
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Australia and India also pumping cash into their money marketsAustralia and India also pumping cash into their money markets
Bank stocks were hard hit again across Europe; in London HBOS was down by about 20%, having falled 35% at one point, and Royal Bank of Scotland was down 10%. Bank stocks were hard hit again across Europe; in London HBOS was down by about 22%, having fallen 35% at one point, and Royal Bank of Scotland was down 10%.
Barclays Bank - which said it was in talks to take on some of Lehman's US operations - was one of the big fallers, down 7%. Barclays Bank - which said it was in talks to take on some of Lehman's US operations - was one of the big fallers, down more than 4.7%.
In Paris, Credit Agricole, Societe Generale, and BNP Paribas were all down by more than 7%, while in Germany Commerzbank dropped 17% and Deutsche Bank fell 6.8%. In Paris, Credit Agricole and Societe Generale were both down more than 4.5%, while in Germany Commerzbank dropped 12% and Deutsche Bank fell 4.5%.
Meanwhile, Japanese-registered Lehman Brothers Japan and Lehman Brothers Holdings have applied to the Tokyo District Court for bankruptcy protection.Meanwhile, Japanese-registered Lehman Brothers Japan and Lehman Brothers Holdings have applied to the Tokyo District Court for bankruptcy protection.
'Crisis''Crisis'
On the currency markets, the dollar slid to a four-month low against the yen before recovering slightly. At 0820 GMT, it was down 0.7% at 103.70 yen having earlier dropped to 103.62 yen. On the currency markets, the dollar slid to a four-month low against the yen before reversing earlier losses.
The euro was down to $1.4234, having hit $1.4482 on Monday.
The collapse of Lehman, which had incurred billions of dollars of losses from the failing US mortgage market, has raised fears that other financial institutions could be hit.The collapse of Lehman, which had incurred billions of dollars of losses from the failing US mortgage market, has raised fears that other financial institutions could be hit.
"We're in the middle of a crisis," said YK Chan at Phillip Asset Management in Hong Kong."We're in the middle of a crisis," said YK Chan at Phillip Asset Management in Hong Kong.
Meanwhile, there were fears that AIG, one of the world's largest insurers, could also face collapse.Meanwhile, there were fears that AIG, one of the world's largest insurers, could also face collapse.
The State of New York announced a "multi-billion dollar financing plan" on Monday to stabilise the insurer's finances.The State of New York announced a "multi-billion dollar financing plan" on Monday to stabilise the insurer's finances.
In late morning trade in New York on Tuesday AIG shares were down $2.20, or 46%, to $2.56, coming back from an intraday low of $1.25 but below the day's high of $4.57.
'Rough spots' ahead'Rough spots' ahead
On Monday, US Treasury Secretary Henry Paulson said the US was "working through a difficult period in our financial markets right now as we work off some of the past excesses".On Monday, US Treasury Secretary Henry Paulson said the US was "working through a difficult period in our financial markets right now as we work off some of the past excesses".
Henry Paulson was upbeat despite the turmoilHenry Paulson was upbeat despite the turmoil
He said Americans could remain confident in the "soundness and resilience" of the US financial system.He said Americans could remain confident in the "soundness and resilience" of the US financial system.
But he warned that uncertainty remained and it was likely that there would be further "rough spots" ahead until the correction of the US housing market was completed.But he warned that uncertainty remained and it was likely that there would be further "rough spots" ahead until the correction of the US housing market was completed.
Mr Paulson said he was committed to working with regulators in the US and abroad, as well as policymakers in Congress to take the necessary steps "to maintain the stability and orderliness of our financial markets".Mr Paulson said he was committed to working with regulators in the US and abroad, as well as policymakers in Congress to take the necessary steps "to maintain the stability and orderliness of our financial markets".
But he gave no details of what such steps might mean.But he gave no details of what such steps might mean.
Are you affected by the issues covered in this story? Are you an employee of Lehman Brothers or another financial institution facing uncertainty? Would you be willing to be interviewed by a BBC journalist? Send us your experiences using the form below.Are you affected by the issues covered in this story? Are you an employee of Lehman Brothers or another financial institution facing uncertainty? Would you be willing to be interviewed by a BBC journalist? Send us your experiences using the form below.
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