Black Monday: FTSE plummets 200 points after collapse of Wall Street giant Lehman Brothers

13 April 2012

The London Stock Exchange plunged almost 200 points today after the fourth biggest investment bank in the world, Lehman Brothers, declared it was filing for bankruptcy.


  • U.S. Investment bank Lehman Brothers filing for bankruptcy
  • Merrill Lynch in $50bn takeover deal with Bank of America
  • FTSE falls almost 200 points as turmoil engulfs global markets
  • Up to 8,000 City jobs in Britain at risk

The collapse of the 158-year-old Wall Street bank, after an eleventh-hour bid to bail it out failed, sent shock waves through global markets including the FTSE 100 Index.

It opened 2.5 per cent down this morning after Lehman Brothers confirmed the worst and its larger rival Merrill Lynch announced a takeover deal with the Bank of America.

The $50bn deal effectively means two of the biggest banks in the world no longer exist. Experts said it was the most astonishing weekend on Wall Street for decades.

PriceWaterhouseCoopers confirmed Lehman has been put into administration. Its 4,000 workers in London now face the axe. Thousands more City jobs could also go.

Turmoil: The FTSE fell 150 points on opening today after the world's fourth biggest investment firm Lehman Brothers said it was filing for bankruptcy

Turmoil: The FTSE fell 150 points on opening today after the world's fourth biggest investment firm Lehman Brothers said it was filing for bankruptcy

Its demise could also affect millions of other Britons due to the knock-on effect it will have on pensions and the credit crunch squeeze on mortgages. It could even derail the Government's attempts to relaunch the economy.

Asian markets had already fallen after weekend talks in the U.S. to save the firm floundered and it was clear the Treasury would not rush in to rescue it.

UK banks were worst hit by the opening losses on the FTSE this morning, with Britain's biggest mortgage lender, HBOS, down more than 10 per cent.

Royal Bank of Scotland fell more than 12 per cent, while Barclays - which had been one of the front-runners to rescue Lehman Brothers - was down six per cent.

The Bank of England said it was 'monitoring' conditions and would 'take appropriate actions' if it was needed to stabilise the markets.

Staff arriving at its headquarters in Canary Wharf today were nervous about what awaited them.

'Hopefully I will still have a job, but God knows,' one said. Another, when asked about his thoughts, added: 'I've been better.'

They were not told immediately they no longer had jobs but given a memo saying they should not trade 'until the situation was clearer' and that they would be updated soon.

Collapse: Staff at the Lehman Brothers' building in New York leave with their belongings in boxes under the watchful eyes of security guards

Collapse: Staff at the Lehman Brothers' building in New York leave with their belongings in boxes under the watchful eyes of security guards

Lehman said in a statement today: 'The board of directors of Lehman Brothers Holdings International authorised the filing of the Chapter 11 petition in order to protect its assets and maximise value.'

Describing the situation as ‘Armageddon’, one source warned it could slash as much as 1,000 points off the value of the main U.S. stock exchange, the Dow Jones, when it opens later today.

Such a precipitous fall - described by  one expert as like a 'tsunami' - would drag other stock markets into the mire, including Britain’s FTSE 100.

`I've been on Wall Street for many years, and I've never seen a weekend like this one,' said Michael Holland, 64, chairman and founder of New York-based Holland & Co.

'We are unwinding what has been years of silliness in the financial markets, and the silliness is being vaporized as we speak, unfortunately with the stock price of a number of companies involved in it.'

Alan Greenspan, the former chairman of the U.S. Federal Reserve, also warned that he believes ‘we will see other major firms fail’.

He added: ‘We shouldn’t try to protect every single institution. The ordinary course of financial change has winners and losers.’

He described the current banking crisis as possibly the worst in a century – including the 1929 Wall Street Crash.

Jobless: The firm employs 25,000 people worldwide and 4,000 in London

Jobless: The firm employs 25,000 people worldwide and 4,000 in London

Meanwhile, the future of insurance firm AIG also appeared unclear after claims it had made an unprecedented approach to the Federal Reserve for short-term financing.

The request was part of an emergency strategic plan after its shares fell nearly 50 per cent last week due to fears it faced a liquidity crisis.

In a bid to offset further financial turmoil today, 10 investment and commercial banks launched a $70bn (£39bn) credit line to lend to firms struggling to finance their assets.

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Barclays and Bank of America were scared off from ‘writing a blank cheque’ for Lehman after the U.S. authorities refused to provide guarantees to protect them against potential losses from the stricken investment bank.

Barclays said today: 'We confirm that Barclays considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclays shareholders.'

The firm was put up for sale as concerns about its long term financial viability hammered the group’s shares. It reported a $3.9billion (£2.2billenders-lion) quarterly loss last week.

Increasingly desperate talks to save the bank continued late into the night, but these efforts came to nothing.

U.S. treasury secretary Hank Paulson had stepped in at the weekend to summon the bosses of rival Wall Street banks – Goldman Sachs, Merrill Lynch, Citigroup, and JP Morgan Chase – to emergency rescue talks.

They were asked to contribute to a fund that would buy Lehman’s £15billion-plus of ‘toxic’ investments in commercial property and mortgage-related assets.

This would have helped the authorities to clean up the troubled bank’s balance sheet and make it more appealing to those interested in buying the rest of it.

However, the Wall Street chiefs objected to being railroaded into taking on all of Lehman’s risky investments, while BoA and Barclays were offered the good bits on the cheap.

The involvement of the U.S. authorities follows the decision to ‘nationalise’ mortgage Fannie Mae and Freddie-Ma, but Mr Paulson is adamant that no taxpayer funds will be used to sort out Lehman.

This is because the authorities do not want to be accused of excessive risk-taking by bailing out yet another ‘ irresponsible’ investment bank that took too many bad bets on the property market.

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