Markets still reeling from Lehman shock

Click to follow

Shockwaves from the Lehman Brothers' collapse continued today, with share prices still tumbling around the world.

Early trading in London continued the gloomy picture, with a fall of 90 points (1.7 per cent) on the FTSE 100 index.

Shares in leading high street banks took another hammering, with Halifax Bank of Scotland the hardest hit by the Lehman fall-out, falling a further 12 per cent in early trading.

HBOS was down almost 11 per cent after a fall of nearly 18% for the stock yesterday. Barclays dipped 21.75p to 413.25p after announcing it was in talks to buy some of Lehman's assets.

Chancellor Alistair Darling said on BBC Radio 4's Today: "Inevitably there is bound to be turbulence, there's bound to be a bit of uncertainty.

"The answer to that of course is that we need to ensure that as far as we reasonably can, we get as much openness, banks declaring their positions, so that people can get certainty and therefore are more likely to put their money back into bank shares and so on."

Mr Darling said it was important to weigh up the risks of whether it was right to let a bank "go under".

He said: "The test that we apply, and the test that I think the Americans apply, in relation to any institution, is if it went down, would there be a systemic risk - in other words would it have a knock-on effect into the rest of the system."

The US "clearly tried" to get consortium banks interested in Lehmans but the banks decided they couldn't do it, Mr Darling said.

He added: "As far as this country is concerned, that's the test I applied to Northern Rock, that's the test I would always apply because we all have a duty to ensure that we maintain the integrity of the financial system because it is fundamental to our economy."

There was some buying interest in London, with defensive stocks such as National Grid and Centrica seeing rises. Outside the top flight, department store chain Debenhams jumped 7 per cent - rising 3.25p to 46p after it reassured analysts over its recent trading performance.

But the general financial news was still disturbing, with shares hit around the world markets.

In Tokyo today, the benchmark Nikkei average slid 5 per cent to a three-year low - with investors dumping shares across the board after the US investment bank's collapse fuelled fears about the US financial system and hit stock markets worldwide.

Japan's top three lenders plunged, with No. 2 Mizuho Financial Group and No. 3 Sumitomo Mitsui Financial Group losing about 10 per cent.

Both the Nikkei and the broader Topix index, which dropped 5.1 per cent, booked their biggest percentage falls in eight months. Investors in Tokyo had come back to work after a holiday yesterday when the rest of the world absorbed the news that Lehman Brothers had filed for bankruptcy and Bank of America had agreed to buy Merrill Lynch in the biggest financial shake-up since the Great Depression.

"Investors are in shock for now as they had thought Lehman would be bought and rescued, but in fact it completely collapsed," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

"But we can assume the US government sees some leeway in the situation, as it would have used public funds to help no matter what, had it decided that the failure of Lehman would completely batter the financial system."

With Merrill already securing help, the focus has shifted to the health of American International Group.

Shares were also hit in the South Korean and Hong Kong markets - which saw five per cent falls. Australia and New Zealand were also affected, although the falls were less sharp.