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World in bear hug

business Updated: Sep 15, 2008 22:09 IST
HT Correspondent
HT Correspondent
Hindustan Times
World in bear hug

The country’s stock market woke up to a rude shock on Monday, as did bourses across the world, with US investment giant Lehman Brothers saying it had gone bankrupt amid what is seen as one of America’s worst credit crises.

Lehman's move to file Chapter 11 bankruptcy followed three days of crisis talks, including a possible merger with British bank Baclays or a bailout from the US Federal Reserve, both of which failed to come through.

Under American laws, the company now faces reorganisation or a possible liquidation.

The news on Lehman reinforced fears that the housing finance crisis in the United States, which triggered a worldwide stock market meltdown in January, is far from over.

The beleagured Wall Street firm suffered a loss of $3.9 billion through the April-June quarter, mostly on account bad mortgage financing.

It sought to file for bankruptcy “in order to protect its assets and maximize value,” a Lehman statement said.

“Customers of Lehman Brothers, including customers of its wholly-owned subsidiary, Neuberger Berman Holdings LLC, may continue to trade or take other actions with respect to their accounts.”

Lehman's woes also raised concerns about other financial firms.

In a hectic weekend of activity, Bank of America agreed to acquire Merrill Lynch & Co Inc for $44 billion and insurer American International Group Inc approached the US Fed for $40 billion in short-term financing. Separately, 10 of the world's biggest banks committed to establish a $70 billion borrowing facility to bolster global liquidity.

The unprecedented corporate activity prompted stocks and the dollar to fall sharply as investors worldwide jumped into the perceived safe haven of bonds and gold.

Concerns about Merrill and Lehman unwinding their Indian equity positions and forfeiting service contracts with Indian companies fuelled a 469-point, or 3.35 per cent, fall in the Sensex on Monday.

The benchmark index of the Bombay Stock Exchange had fallen 850 points, or 6.1 per cent, earlier in the day.

But gold prices surged by Rs 220 to Rs 11,810 per 10 gram on the bullion market on fresh buying by stockists and jewellers.