Global stock markets were again in turmoil today, falling to their lowest in five years amid expectations that government efforts to stabilise the financial system would not keep economies worldwide out of a deep recession and that losses from bad loans would continue to soar.
Wall Street fell sharply in opening trading, following similar falls in markets across Europe and Asia.
The Dow Jones Industrial Average plunged 5 per cent in the first minutes of trading, while the hi-tech Nasdaq index dropped as much as 6 per cent at one point.
The Dublin market was also down 60 points cent at close tonight, with the main bank shares all in negative territory, most notably Irish Life & Permanent which was down 30 per cent to close at €2.15.
London's FTSE, the German DAX and the Paris CAC all shed up to 8 per cent of their value. This followed a near 10 per cent collapse in Japan’s Nikkei overnight.
Banks worldwide are trying to reduce balance sheet risk after taking on too many mortgages and complex debt, which no longer have buyers.
The industry has also seen soaring credit losses, which are likely to keep rising if housing prices keep falling, unemployment moves higher, and deteriorating economies make it more difficult for retail and business customers to pay bills.
The US sector was rocked by the latest merger to save an ailing lender.
PNC Financial Services Group agreed to buy Cleveland's National City Corp for $5.2 billion in stock. The transaction values National City at $2.23 per share, 19 per cent below where it closed yesterday.
"This is part and parcel of the eventual cleanout" of leverage in the financial system, said Marshall Front, chairman of Front Barnett Associates LLC in Chicago.
"We are aware of hedge funds that are being forced to sell, and banks are forcing customers to bring margins up. Mutual funds are getting large redemptions, and exchange traders are under extreme pressure."
National City would join Bear Stearns Cos, Merrill Lynch & Co, Sovereign Bancorp Inc, Wachovia Corp and Washington Mutual Inc among US financial companies that have been or are being swallowed up by lenders considered healthier.
Oil also slid more than $5 a barrel today as gloom about a global economic downturn that is sapping fuel demand took the steam out of an Opec agreement to cut output.
Ministers of the Organization of the Petroleum Exporting Countries agreed at an emergency meeting in Vienna to take 1.5 million barrels a day of crude, about 5 per cent of its supply, off the world market.
US light crude for December delivery traded down $3.15 at $64.69 a barrel earlier. It had touched $62.65, its lowest since May 2007. It has fallen more than $40 a barrel in a month.
There was also turmoil on the currency markets with the dollar and yen - considered among the safer currencies - surging to multi-year highs against European currencies such as the euro and sterling as investors repatriated investments in search of shelter and speculation of global interest rate cuts weakened those currencies with the highest rates now.
Reuters