Far Eastern turmoil hits Wall Street

Click to follow
The Independent Online
US shares fell last night after the fourth largest American bank, JP Morgan, said its revenues has been hit by the financial turmoil on the Far Eastern stock markets, triggering investors' fears about Asia's impact on corporate profits.

Meanwhile, in South Korea a crisis of confidence swept the financial markets as the government shut five more banks.

The Dow Jones index plunged more than 100 points yesterday after JP Morgan said its fourth-quarter profits had been hit by the turmoil in the global financial markets.

It said profits in the first two months of the quarter had been "adversely affected by unsettled market conditions globally, which resulted in lower levels of client activity and lower trading revenue".

The company provided the latest signal that Asia's tumbling currencies, mounting bankruptcies and slowing economies were washing into the US stock market. The Dow later recovered some ground to close 70.9 points off at 7,978.8, but London markets, which dipped on the Far East news yesterday, could face further pressure today.

In the US, Citicorp and Chase Manhattan Corp also declined. JP Morgan, Chase Manhattan, Citicorp and Bankers Trust New York Corp are seen as the most vulnerable because of the size of their international businesses. Chase announced last month that it lost $160m in trading in October. Bankers Trust and Citicorp have not indicated any change in quarterly earnings because of market volatility.

Meanwhile, South Korea's capital markets were virtually paralysed as a crisis of confidence swept the country's troubled financial industry. The government shut five more shaky merchant banks, bringing the total closed to 14 of 30, and pledged to guarantee the debts of its securities firms. Korea also threw open its bond market to foreign investors.

The government pledged an all-out effort to normalise operations at those that remain, in an attempt to bolster market morale and prevent the banking crisis from driving more companies into insolvency. The five merchant banks, ordered to close until at least 31 January 1998, are Nara Banking Corp, Daehan Investment Banking Corp, Shinhan Investment Bank Corp, Hanwha Merchant Bank Corp and Central Banking Corp.

Nine merchant banks were suspended last week and told to find ways to rescue themselves by the end of this month or face permanent closure.

A week after the country accepted emergency credit from the International Monetary Fund, Korea's financial turmoil shows no sign of abating. Even some of Korea's biggest companies can't raise money in the bond market. The country's currency, the won, fell 10 percent against the dollar for a second day to a record low of 1,566. Commercial banks remain reluctant to extend credit after a record 15,000 companies filed for bankruptcy this year.

Some executives are already questioning whether the $60bn (pounds 36bn) arranged by the IMF for the country's bankrupt financial and industrial companies will be enough.