After a strong fall on the Asian markets Wall Street endures massive losses, falling to a 12-year low, while European stocks close with drops of 4 and 5 percent. Markets seemed to be reacting to the huge losses reported by AIG and HSBC.
AFP - Global stock markets fell heavily on Monday, hitting fresh multi-year lows after news of another massive bailout for key US insurer AIG and a huge cash call at banking giant HSBC.
Dealers said the news on AIG and HSBC seemed to be the final straw for many investors, especially given the British-based bank's reputation for financial probity and caution, highlighted by its refusal to take government funding.
"It's another bloodbath with equity markets across the globe in a state of panic," said Jimmy Yates, head of equities at spread-betting firm CMC Markets.
HSBC said it needs to raise almost 18 billion dollars by offering new shares after 2008 net profit plunged 70 percent.
It cut its dividend 29 percent and said it would shut its US business that dealt in the lower-quality loans and derivative investments at the heart of the financial crisis that has brought the world economy to its knees.
Meanwhile, the US government unveiled a fresh rescue plan worth 30 billion dollars for AIG after the ailing insurance company chalked up a fourth-quarter loss of 61.7 billion dollars -- the biggest in US corporate history.
Its total loss for 2008 came to 99.3 billion dollars.
Already at 12-year lows, Wall Street slumped through the key 7,000 points level on the Dow Jones Industrial Average after the news and continued lower.
The DJIA was down 3.13 percent to 6,841.67 points at around 1700 GMT.
"The market doesn't like (the AIG bailout) because it shows how immersed the government has become in managing a controlled burn of this zombie organization that is considered too systemically important to die of natural causes," said Patrick O'Hare at Briefing.com.
Dealers said investors have no confidence that the AIG bailout or the HSBC cash call will really work so it was no surprise to see the markets falling.
"Just as with AIG, the (HSBC share) offering provides investors with no clarity and no confidence that financial institutions are done raising capital," said Chris Lafakis at Economy.com.
Figures on Friday showing the US economy contracted 6.2 percent in the fourth quarter -- much worse than the initial estimate of 5.4 percent -- had already set the markets up for a bad performance on Monday.
In London, the London, the FTSE 100 index of leading shares lost 5.33 percent to 3.625,83 points, its worst finish since March 31 2003.
HSBC led the market lower, losing nearly 19 percent to 399 pence.
In Frankfurt, the DAX fell 3.48 percent at 3,710.07 points and in Paris the CAC 40 tumbled 4.48 percent to 2,581.46 points, a level not seen since 13 March 2003.
Losses were heavy across Europe, with Milan down more than six percent and the Swiss bourse dropping 5.38 percent.
"Once again it's the financial stocks that are leading the way lower," said Yates of CMC markets.
"Once again we're left looking at just low markets can go ... if this doesn't rebound quickly, the outlook is going to turn even more pessimistic," he said, adding that results from Standard Chartered bank on Tuesday will be examined very closely.
In Asia, Tokyo lost 3.81 percent, Hong Kong shed 3.9 percent and Sydney fell 2.8 percent, with all the banks under pressure.
A plunge in Japanese new vehicle sales and a record contraction in factory output in South Korea added to worries about the region's economic downturn as consumer demand slumps in recession-hit Western markets.
"There's just no good news," Macquarie Private Wealth associate director David Halliday told Dow Jones Newswires. "The US economy is in the worst shape it's been for probably 50 or 60 years, so it's hard for equities to rally."
Date created : 2009-03-03