Loan And Banking Markets In Turmoil After Collapse
The US banking sector is today still reeling from its latest blow, following the announcement yesterday (15th September) from the investment bank giant, Lehman Brothers, that it was filing for bankruptcy.
This is the latest in a line of American banks which have fallen victim to the global credit crunch and only just over a week ago, the US Government were forced to bail out Fannie Mae and Freddie Mac, the two largest underwriters of mortgages and home loans in the US, effectively nationalising both companies.
In the UK of course, we have seen the collapse of Northern Rock, along with many other banks and building societies either being taken over by larger competitors (for example, Abbey and Alliance & Leicester by the Spanish bank Santander), or merging with other UK institutions to provide greater financial strength (for example, Derbyshire and Cheshire Building societies merging with the Nationwide).
Yesterday’s shock news has had repercussions on stock markets across the world. In the UK, the FTSE 100 saw massive drops, particularly across the banking sector, eventually closing down by 212.5 points at 5204.20, with particularly large losses for the Halifax Bank of Scotland group and the Royal Bank of Scotland.
Spare a thought for the staff at Lehman Brothers, who were all made redundant after the announcement, with UK staff at Canary Wharf simply being told to go home when they turned up for work yesterday and the administrators are unsure whether or not these individuals will get paid the wages they are owed, as the company has hundreds of billions of pounds worth of debts and apparently, even the pension scheme has a significant deficit.
The collapse of Lehman Brothers is likely to have a considerable impact on the banking sector in this country, which is already struggling to keep its head above water and the news will reduce confidence in the mortgage and home loan markets even further.
Price Waterhouse Coopers have been appointed as administrators for Lehman Brothers in the UK and their spokesman said “I’m surprised. It seems amazing that a business as huge as this can fail in this way. It underlines the massive importance of market confidence out there. We saw it with Northern Rock last year. There’s no coming back from there.”
