US interest rates hit their lowest level at the short end since 1941, according to some estimates. The Dow closed down 4.1% at a three year low (but ONLY the second biggest fall of the year!). It was another dramatic day of trading that swept world markets.
A UK bank was forced to find a safe home with a rival and now there's reports the huge Morgan Stanley investment bank is looking to merge with the Wachovia bank, which has also suffered big losses from subprime released debt. Morgan Stanley had revealed a small, 3% drop in its latest quarterly profit, the best from a US bank for months, but that wasn't enough.
Washington Mutual, the troubled US Savings and Loan was reportedly setting up a process to be sold. It has $US143 billion in retail deposits. Gold jumped by more than $US87 an ounce to $US868, the biggest rise in nine years; oil rose $US6 a barrel to more than $97 a barrel as investors sought protection from stockmarkets.
US interest rates plunged, but in the commercial markets, there was no money available: 10 year bonds fell to 3.41% in New York dealing, the two year bond to a yield of 1.64%, but three month Treasury notes fell to a range of 0.40% to 0.70%, the lowest for decades. European markets were higher early, but slumped as banks were hammered. The US was down all day and Asian markets ended lower after early gains on the back of the US Federal rescue's bailout of AIG.
But in London shares in HBOS (which owns BankWest here) fell more than 30% yesterday in early London trading amid concerns about its reliance on wholesale funding after Lehman Brothers' collapse.
HBOS and Lloyds TSB later revealed they were in merger talks as the pressures grew on HBOS to be taken over of collapse. Talks saw agreement on a near $A25 billion merger of the two that seems to have official approval as a way of saving HBOS.
Russia injected $US44 billion into its markets, halted trading for a second day and gave several banks more time to repay previous cash advances. But that wasn't enough and trading on the stockmarket was later stopped for a third day, but it didn't resume.
Russia was forced to close its two main stock exchanges to halt a rout that has led to the steepest declines since the August 1998 crisis.
The two key bourses, Micex and RTS, said they were suspending trading until further notice from the state's main financial regulator after shares began to fall as a new wave of forced equity sales on margin calls consumed dealings and cash dried up. Over $US700 billion in value has been wiped off Russian shares and it is the first stockmarket to freeze during the crisis, a situation reminiscent of the country's default a decade ago last month.
US Government short term interest rates fell to near 66 year lows, short term interbank rates in London soared, and a drying up of finance for bond issues was reported across Europe and the US. Trans Atlantic lending was halted by a surge in spreads that made lending prohibitive. The Financial Times headline said it all "Panic grips credit markets".
HBOS is the UK's largest mortgage lender and its shares have been hit since Lehman imploded, but they opened trading Wednesday in London up 10%, but then they fell sharply and reports emerged of the Lloyds' talks. Central banks in Japan and Australia injected $US33 billion into their financial systems to try to calm markets.
The Reserve Bank here pumped in more than $A4 billion in an injection that was of a similar size to those late last year as the credit crunch was erupting. Asian financial shares fell as the bailout of American International Group failed to ease concerns that credit-related losses will cause more financial failures.
The US Securities and Exchange Commission banned naked short selling again (a bit late perhaps, after relaxing it a month ago after a month long ban). In Australia, Macquarie Group fell more than 7% even after denying a newspaper report that the company may face difficulty in refinancing debt It was a four year low for Macquarie.
Finance stocks weakened after CNBC reported that Morgan Stanley was considering seeking a merger partner. That saw some markets, like Australia's turn and spreads on Morgan Stanley debt widen as investors fretted about another investment bank.
Morgan Stanley had brought forward its latest quarterly earnings by a day and revealed a drop in profit of just 3%, the best by an American group for months.
Tokyo rebounded from Tuesday's sell down: The Nikkei rose 1.2%. But China's CSI 300 Index (which tracks yuan-denominated A shares listed on China's two exchanges) dropped to a 21 month low. It fell 3.6%, to 1,929.14 at the close, the lowest close since late December 2006. Hong Kong's Hang Seng Index lost 2% after rising early.
In Australia shares ended a roller-coaster day in the red with the ASX200 index off 0.6%, or 28.6 points at 4722.2. The market clawed back about one-third of its losses from Monday and Tuesday, banks fell in the early afternoon as worries resurfaced and that CNBC report was circulated about Morgan Stanley.
The Commonwealth Bank fell 1.5% to $41.08 and the National Australia Bank fell 2.3% to $21.40. Falling oil and metals prices hit the miners. Rio Tinto fell 2.2% to $104.47 and BHP Billiton fell 0.3% to $36.28.
