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LONDON, England (CNN) -- World stock markets were in decline again Tuesday, a day after the collapse of one of the largest investment banks in the U.S. contributed to the worst day on Wall Street in seven years.
Wall Street's Lehman Brothers collapsed after a British bank and a U.S. bank both pulled out of talks.
In the first hour of trading on Wall Street, the Dow was down 41.85, or 0.38 percent, to 10,875.66. It fell as much as 175 in the opening minutes of the session.
In Asia, Japan's Nikkei index fell 4.9 percent and Hong Kong's Hang Seng Index fell to its lowest point in nearly two years when it dropped by 5.5 percent. A leading indicator of stock values in South Korea -- the KOSPI index -- went down 6.1 percent.
At midday in Europe, Britain's FTSE 100 was down 3.17 percent as was France's CAC-40 at 2.04 percent. Key bank stocks were again hit sharply, with HBOS down 27 percent and Royal Bank of Scotland dropping by 12 percent, The Associated Press reported.
Earlier Tuesday, European central banks pumped billions more in short-term credit into the financial system for a second day to shore up confidence in the aftermath of the collapse of U.S. investment bank Lehman Brothers. Watch more about the Lehman fallout in Europe »
The European Central Bank launched its second one-day refinancing operation in as many days, offering up a 4.25 percent bid rate. On Monday, it added $42.5 billion to money markets though banks had oversubscribed the offer by three times to $127.8 billion.
In London, the Bank of England provided another $35.6 billion in money to markets, four times the amount it pumped in on Monday.
Across Asia, regulators moved to shore up their financial systems in the wake of the collapse of Lehman.
The Bank of Japan injected 2.5 trillion yen ($24 billion) into money markets Tuesday, while China's mainland central bank cut a key interest rate Monday for the first time in more than six years. Hong Kong's monetary chief announced plans were in place to flush more cash into the banking system if necessary.
The venerable Lehman Brothers investment bank announced Monday it would file for bankruptcy despite frantic efforts to save it.
British bank Barclays had been engaged in negotiations about a possible takeover of Lehman but pulled out over the weekend.
However, Barclays revealed in a statement early Tuesday that it was interested in acquiring some Lehman assets.
Elsewhere, fellow New York-based investment bank Goldman Sachs reported a sharp decline in profits that beat Wall Street's forecasts. But revenues missed analysts' estimates and the stock fell in pre-market trading.
The bank said its profits fell more than 70 percent to $845 million, or $1.81 a share, during the third quarter ending in August. Just a year ago, the company reported a profit of $2.85 billion, or $6.13 a share. Wall Street was expecting a profit of $1.71 a share.
Meanwhile, the Bank of America bought another Wall Street fixture -- Merrill Lynch -- in an all-stock deal worth $50 billion.
The financial squeeze was being felt in other sectors Tuesday, as shares in the United States' largest insurance firm -- American International Group (AIG) -- tumbled as it scrambled to raise as much as $75 billion to keep itself afloat.
As a result of the dramatic developments at Lehman Brothers, the Dow Jones industrial average lost 504 points, or 4.4 percent, on Monday. It was the biggest one-day decline for the Dow on a point basis since September 17, 2001, when the market reopened for trading after having been closed in the aftermath of the September 11, 2001 terrorist attacks. On a percentage basis, it was the biggest decline since July 19, 2002.
The Standard & Poor's 500 index lost 4.7 percent, its worst day since September 17, 2001, when it plunged 4.9 percent. The S&P 500 also closed at its lowest point since October 27, 2005.
The Nasdaq composite lost 3.6 percent, its worst single-session percentage decline since March 24, 2003. It left the tech-fueled average at its lowest point since March 17 of this year.
"It was an ugly day," said James King, president and chief investment officer at National Penn Investors Trust Company. "Lehman's failure to find a suitor and Merrill deciding to cash in their chips before a similar fate could befall them really stoked the fears of the public."
Early trading raised concerns in Asia, said CNN's Kyung Lah, but Japanese government officials said the Japanese financial system will recover.
"It has been a very rough ride here in Japan," she said.
A major worry, she said, is that export-driven economies, such as the ones in Japan and China, will suffer in the financial crisis because people in the United States are spending less money on the consumer goods that many Asian countries produce.
"The impact here is going to be extreme if U.S. consumer spending continues to plummet," she said.
A tough week for AIG....many analysts are predicting that it will file for bankruptcy!!!
In the case of AIG, I don't believe that this is a credible scenario. The American Government would never allow it to happen, the implications would be systemic. National interest simply dictates interference by the government.
In the case of AIG, I don't believe that this is a credible scenario. The American Government would never allow it to happen, the implications would be systemic. National interest simply dictates interference by the government.
The share price can be easily explained that they are in very deep trouble. It stands now at 2.78, if the government declares its help, you will see it at 5-6$ in no time. For risk takers, now is the best time to buy. I would not be surprised if we reach there later today or tomorrow.
The share price can be easily explained that they are in very deep trouble. It stands now at 2.78, if the government declares its help, you will see it at 5-6$ in no time. For risk takers, now is the best time to buy. I would not be surprised if we reach there later today or tomorrow.
AIG are the holders of ALICO
What would happen to ALICO if AIG is down, would I loose my life insurance ???
The share price can be easily explained that they are in very deep trouble. It stands now at 2.78, if the government declares its help, you will see it at 5-6$ in no time. For risk takers, now is the best time to buy. I would not be surprised if we reach there later today or tomorrow.
I think AIG wouldn't go down that easily. Their assets are worth much more then needed as cash. They'll probably find some lenders. Coming hours will tell us. Personally, I would have bought some shares but thanks God I don't like gambling.
In the case of AIG, I don't believe that this is a credible scenario. The American Government would never allow it to happen, the implications would be systemic. National interest simply dictates interference by the government.
NEW YORK (CNNMoney.com) -- In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.
The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.
Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.
"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.
Bush rescue plan seeks $700B for to buy bad mortgages, would raise limit on national debt It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue.
16th September 2008
