Global Crisis Depends

Subject: Global Crisis Depends Fri Sep 19, 2008 6:11 am

September 19, 2008 Friday

GLOBAL CRISIS DEEPENS

Morgan Stanley totters, more banks feared to crumble

HONG KONG -- Asian stocks plunged yesterday as the global financial crisis deepened, with investors fleeing on fears that more banks will go under in the worst turmoil on world markets in decades.

Gold rose sharply as investors looked for shelter from the seemingly endless torrent of bad news. Morgan Stanley, one of the last two major Wall Street banks still standing, was reported to be in emergency merger talks.

The firm saw 24 percent of its share value wiped away Wednesday, as investors found no solace in the bold $85 billion US bailout of insurance giant AIG — a move Washington had hoped would prevent a worldwide meltdown.

But markets across Asia took a battering. Hong Kong shed 7.4 percent by mid-day, with the Hang Seng dropping below 17,000 points for the first time in more than two years.

Japan lost 2.2 percent as the Nikkei hit its lowest close in more than three years. Australia fell 2.4 percent, near a three-year bottom. Taiwan dropped 2.7 percent and South Korea shed 2.3 percent. Shanghai was off 5.8 percent.

Every market in Asia was down. India was off 3.2 percent, the Philippines closed off 4.25 percent and Singapore was down 4.5 percent at the break. Thailand lost 5.8 percent in the morning session.

The declines tracked another session of woe overnight on Wall Street, where fears for the health of Morgan Stanley and other US banks sent the Dow Jones average off 4.06 percent.

“The market is trading under the assumption that every financial institution is going under,” said Michael Petroff, portfolio manager for Heartland Advisors.

“It’s now emotional,” he said. “People have removed some part of the fundamentals and are only trading on momentum.”

Shares in Morgan Stanley and Goldman Sachs — the last two major Wall Street investment banks standing following the recent upheavals — plunged dramatically in US trade, dropping 24 and 14 percent respectively.

The Wall Street Journal and New York Times reported that Morgan Stanley, whose stock fell to its lowest level since 1998, was mulling a merger with Wachovia, a US commercial bank.

Meanwhile Britain’s biggest mortgage lender HBOS reached a quick deal Wednesday to merge with rival Lloyds TSB.

Many market-watchers have blamed short-sellers for driving down the market, and the US Securities and Exchange Commission announced new restrictions effective Thursday to limit the practice.

Traders said the worry was turning into panic, following this week’s collapse of Lehman Brothers and the US government’s takeover of AIG. Some compared the crisis to the 1907 panic that saw a series of bank failures.

Russia’s stock market suspended trading for a third day on Thursday after the bourse suffered its worst fall since the 1998 financial crisis.

There were sharp tumbles elsewhere overnight in Europe. The FTSE 100 in London lost 2.25 percent, the CAC 40 in Paris dropped 2.1 percent and in Frankfurt, the DAX was off 1.75 percent.

Spot gold prices in Hong Kong were up more than 80 dollars over the previous day, hovering around 868 dollars an ounce as investors sought safety away from the turmoil on the markets first set off by the US subprime crisis last year.

As the gloom deepened, analysts said there was no end in sight.

“The selloff is likely to continue,” said Castor Pang at Sun Hung Kai Financial in Hong Kong. “It’s hard to say when it’s going to end, as the global turmoil has yet to settle.”

The Bank of Japan injected emergency funds into the markets for a third straight day, putting in 2.5 trillion yen ($24 billion) to try to end the turbulence.