European Markets Slide on Lehman, Merrill Woes

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The New York Sun

PARIS — World stock markets swooned again today as global financial crisis make investors worry that asset prices had yet to hit rock bottom.

At midday, Paris’ benchmark CAC-40 index was down 0.5% to 4,150.24, Germany’s DAX 30 index of blue chips was down 1.04% at 6,000.91 and the FTSE-100 share index was 1.3% lower at 5,135.90 in London.

Financial stocks across Europe took a pounding for the second day running as news of the collapse of Lehman Brothers and credit downgrades of American International Group Inc., the world’s largest insurer stoked investor fears of wider financial and economic damage.

“My guess is that we haven’t seen the bottom,” the director of economics and asset allocation at Henderson Global Investors in London, Tony Dolphin, said. The markets “don’t feel as panicky as yesterday,” Mr. Dolphin said, but concerns remain about the crisis extending its reach from the financial sector to the wider economy.

In France, banks and insurers posted some of the steepest stock losses. Natixis lost 7.4% and Credit Agricole was down 4.4%, while BNP Paribas was 2.14% lower and insurer Axa dropped 1.55%.

The situation was similar in Germany, where Commerzbank fell 6.35% and Deutsche Postbank dropped 4.65%.

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 Lehman Brothers Holdings Inc.’s bankruptcy in America.

The European Central Bank, which oversees monetary policy among the 15 countries that use the euro, launched its second one-day refinancing operation in as many days, offering up a 4.25% bid rate. Yesterday it added €30 billion ($42.5 billion) to money markets though banks had oversubscribed the offer by three times to €90.3 billion ($127.8 billion).

In London, the Bank of England provided another 20 billion pounds (€25.2 billion; $35.6 billion) in money to markets, four times the amount it pumped in yesterday.

The events of last few days, with Lehman Brothers’ bankruptcy, Merrill Lynch & Co’s sale to Bank of America Corp., and now AIG’s downgrades will have two macroeconomic effects, Mr. Dolphin said. “It will extend the credit crunch, and maybe more importantly, it’s another blow for business confidence,” Mr. Dolphin said.

Asian stock markets plummeted today, playing catch-up with other markets around the world after a holiday yesterday kept Tokyo and Hong Kong markets closed on the day Wall Street’s landscape was dramatically changed.

“Today was a bloodbath,” the head of research at Core Pacific-Yamaichi, Alex Tang, said, who noted that trading volume was its highest in months. “This was panic selling … They are dumping shares, they just want to liquidate their positions.”

To ensure liquidity, Japan’s central bank today injected of 2.5 trillion yen ($24 billion) into money markets and issued a statement vowing to take measures to maintain stability in the country’s financial markets.

Despite a flurry of last-minute negotiations over the weekend, storied New York investment bank Lehman Brothers was unable to find an investment parter to throw it a lifeline amid $60 billion in soured real-estate holdings. Investors were further shaken by equally stunning news that Merrill Lynch, one of the world’s most famous brokerages, sought to avoid a similar fate with a $50 billion transaction to become part of Bank of America Corp.

The crisis appeared to be far from over. AIG, the world’s largest insurer, was fighting for survival after downgrades from major credit rating firms, adding pressure as AIG seeks billions of dollars to strengthen its balance sheet.

On Wall Street yesterday, the Dow Jones industrial average fell more than 500 points, or 4.4%, to 10,917.51 — its worst point drop since after the September 11, 2001, terror attacks.

American stock futures were down modestly, suggesting Wall Street could fall further today.

The New York Sun

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