Global markets hit hard by Bear Stearns collapse

Mar 18 2008

GLOBAL stock markets continued to react nervously yesterday as they absorbed the effects of the crisis at US investment bank Bear Stearns and concerns about an American recession.

London’s FTSE-100 index fell 217 points – nearly 4% – to close at 5,414 points after Japan’s Nikkei 225 index had earlier also dropped by 4% and Hong Kong’s Hang Seng finished down 5%.

Earlier in the day, the Bank of England injected £5bn into frozen money markets but it was well short of the £25bn that banks had been looking for.

And it was the banks, especially those feared to be most exposed to the effects of the credit crunch, that were among the worst hit on a difficult day of trading.

Halifax Bank of Scotland plunged 13% and Barclays lost 7%, while Bank of Scotland and Alliance & Leicester were also badly hit.

The trigger for the turbulence was the activity in America over the weekend. Bear Stearns was bought by rival bank JP Morgan Chase for £116.4m after it had been forced to seek emergency funding on Friday as its share price slumped.

On Sunday, the US Federal Reserve cut its inter-bank lending rate by one-quarter of a percentage point to 3.25% and is expected to make a further cut today.

Carl Cross, investment director at Rensburg Sheppards in Liverpool, said: “The most recent period of volatility is a function of the banks handling of the subsequent credit crisis. A number of international banks have found these black holes in their accounts and a number of banks have had to source emergency funding as in the cases of Bear Stearns and Northern Rock.

“This has significantly reduced earnings visibility in the financial sector and investors can’t see any clarity of future earnings.

“The Fed cutting rates has created enormous jitters across the worldwide stock markets and this volatility is likely to continue.”

Commodities also rose with oil peaking at $112 dollars a barrel while gold continued its rise, to $1011.25 per oz.

Rensburg’s latest views on the unfolding market turmoil can be accessed in a webcast available at ldpbusiness.co.uk

Visit www.ldpbusiness.co.uk for twice-daily market analysis webcasts from Rensburg Sheppards, available online from 10am and 5.15pm.