Markets Shaken By Bank Losses

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Billions of pounds, euros and yen were wiped off European and Asian share prices yesterday as markets responded to Tuesday’s collapse on Wall Street over huge US banking and corporate losses.

Billions of dollars were wiped off share prices on the New York Stock Exchange on Tuesday with the key Dow Jones Industrial index closing 277 points down.

This came after US banking giant, Citigroup, announced a net loss of almost $10bn (£5bn) for the last three months of 2007.

Citigroup chief executive Vikram Pandit said the loss had been caused by a $18.1bn exposure to bad mortgage debt.

The bank said revenues during the fourth quarter fell 70 per cent from a year earlier to $7.2bn.

Evidence of a US banking collapse mounted yesterday with the announcement of losses by JP Morgan Chase.

The US bank said its profits for the last three months of 2007 fell a huge 34 per cent as a result of its exposure to bad US mortgage debts.

Net income was $2.97bn in the quarter to the end of December, down from $4.53bn a year earlier, the bank said.

In Tokyo yesterday, the Nikkei index fell to its lowest in more than two years, closing 3.4 per cent lower at 13,504.51.

Japan’s Prime Minister Yasuo Fukuda warned that the huge losses at Citigroup ‘may affect not only the US economy, but also the world economy.’

Meanwhile, figures out yesterday showed higher energy and food costs in 2007 pushed US inflation up by the largest amount in 17 years.

Consumer prices rose by 4.1 per cent for all of 2007, up sharply from a 2.5 per cent increase in 2006, with consumers especially feeling the pain when they filled up their gas tanks or shopped for groceries.

The US slump is gaining momentum and Wall Street heading for a crash that, as one bank said recently, will make the 1929 crash ‘look like a walk in the park’.

On Tuesday, traders were also shaken to hear that both Citigroup and Merrill Lynch had sought loans of $21bn from Asian and Middle East investors.

Citigroup executives said on Tuesday that the bank had raised $14.5bn to shore up its finances, including almost $7bn from a state-controlled Singapore investment fund.

Investors include the government of Singapore Investment Corporation Pte Ltd, the Kuwait Investment Authority, Prince Alwaleed bin Talal bin Abdulaziz of Saudi Arabia, former Citigroup chief executive Sanford Weill and other investors.

Merrill Lynch announced on Tuesday that it had raised $6.6bn dollars in fresh capital from foreign and US investors, including the Kuwait Investment Authority.

Many investors are now predicting that interest rate cuts will be needed to keep the US economy going, and yesterday saw a further fall in the US dollar as a result.