FTSE 100 heads for sharpest fall since 1987

FTSE 100 heads for sharpest fall since 1987
Graham Ruddick and Malcolm Moore
Oct 07, 2008

http://www.telegraph.co.uk/finance/markets/3146097/
FTSE-100-heads-for-sharpest-fall-since-1987.html

The FTSE 100 tumbled more than 6pc and is heading for its worst day since 1987 as the global financial crisis deepens.

The UK's index of leading shares dropped more than 300 points shortly after the open and continued falling during a tumultuous day's trading. By 3:30pm in London the index was off 335 points, or 6.7pc. It has not fallen more in a day since October 1987.

Shares in HBOS, Royal Bank of Scotland, Barclays, Lloyds TSB and HSBC all registered sharp falls.

The intensity of the banking crisis that has spread from America to Europe's shores also rattled investors on Wall Street. The Dow Jones Industrial Average tumbled through the 10,000 mark for the first time in four years and the Standard & Poor's 500 Index was also lower.

Miners added to the pain for investors after investment bank UBS warned earnings in the mining sector could fall 46pc this year and warned commodity prices could drop another 25pc as the global economy slows.

The whole sector tumbled, with Kazakhmys and Eurasian Natural Resources leading the fallers.

In Europe, stock markets in Germany, France, Italy and Spain were also down between 4pc and 5pc, while Russian stocks tumbled 12pc as the rouble-denominated Micex index slumped to its lowest level since October 2005.

Mike Lenhoff, the chief strategist at Brewin Dolphin, said the markets needed to see leadership from politicians around the world in tackling the crisis.

In another turbulent day, on the foreign-exchange markets, sterling and the euro weakened against the dollar and oil slid to $86.18 as fears of a global slowdown mount.

Earlier in Japan, the Nikkei Exchange was down 322.35 points, or 2.95pc, in the early afternoon at 10,615.79. The benchmark Shanghai composite index lost 109.12 points, or 4.76pc, to 2184.68.

A similar picture emerged across India, South Korea, Hong Kong, Taipei and Australia as worries spread that Asia may be hit harder than many analysts initially thought.

"It's becoming increasingly evident that the fallout of the banking crisis is rapidly spreading around the world. It is clear Asia will not escape unscathed," said Timothy Bond, Merrill Lynch's chief Asia economist.

Simon Denham of Capital Spreads warned that the increasing trend across Europe of guaranteeing depositors savings, as seen by the Irish, Greek, Danish and possibly the German governments, could have serious consequences.

"If we effectively nationalize all our banks in Europe then what is that going to do in terms of growth?" he said. "If any loan or mortgage that anyone takes out is effectively approved by the government it's not good. People talk about the lost decade in Japan and we could say that money is going to be difficult to come by for a good few years here.

Is the 2007 U.S. Sub-Prime Financial Crisis So Different?

Is the 2007 U.S. Sub-Prime Financial Crisis So Different?
An International Historical Comparison*
Carmen M. Reinhart
University of Maryland and the NBER
and
Kenneth S. Rogoff
Harvard University and the NBER
Feb 5, 2008

http://www.economics.harvard.edu/faculty/rogoff/files/
Is_The_US_Subprime_Crisis_So_Different.pdf (PDF, 40 KB)

As a benchmark for the 2007 U.S. sub-prime crisis, we draw on data from the eighteen bank-centered financial crises from the post-War period, as identified by Kaminsky and Reinhart (1999) and Gerard Caprio et. al. (2005):

These crisis episodes include:

The Five Big Five Crises: Spain (1977), Norway (1987), Finland (1991), Sweden (1991) and Japan (1992), where the starting year is in parenthesis.

Other Banking and Financial Crises: Australia (1989), Canada (1983), Denmark (1987), France (1994), Germany (1977), Greece (1991), Iceland (1985), and Italy (1990), and New Zealand (1987), United Kingdom (1974, 1991, 1995), and United States (1984).

The "Big Five" crises are all protracted large scale financial crises that are associated with major declines in economic performance for an extended period. Japan (1992), of course, is the start of the "lost decade," although the others all left deep marks as well.

The remaining rich country financial crises represent a broad range of lesser events. The 1984 U.S. crisis, for example, is the savings and loan crisis. In terms of fiscal costs (3.2 percent of GDP), it is just a notch below the "Big Five". Some of the other 13 crisis are relatively minor affairs, such as the 1995 Barings (investment) bank crisis in the United Kingdom or the 1994 Credit Lyonnaise bailout in France. Excluding these smaller crises would certainly not weaken our results, as the imbalances in the run-sup were minor compared to the larger blowouts.

Investors Moving Money to Swiss Banks

Investors Moving Money to Swiss Banks Fearing U.S. Sub-Mortgage Crisis and IndyMac Bank Closure
Kevin Wessell
Los Angeles, CA (PRWEB) August 5, 2008

http://www.prweb.com/releases/Offshore/Banking/prweb1177124.htm

Europe has multitudes of large, safe, banks without exposure to the damaging U.S. mortgage disaster. In contrast, many U.S. banks are sitting on shaky ground. It is said that two banking giants, Washington Mutual and Bank of America - with the acquisition of Countrywide Financial - have substantial sub-prime exposure. This is not to say one should necessarily lose faith in these giant organizations. It is just to say that they are feeling the financial pain of the recent disaster. First National Bank of Nevada, based in Reno, Nevada, and First Heritage Bank of Newport Beach, Calif., were both shut down by federal regulators recently.