Finance giants need billions as losses deepen
Wednesday, 4 March 2009
WASHINGTON, March 3 (AFP): Markets tumbled yesterday as two global financial giants revealed they need billions more to survive, with AIG posting record loses and HSBC reporting annual profits had slumped.
The calls for more capital sent stocks plunging to multiyear lows around the world, even as economic data from the United States was better than expected.
In Washington, the American International Group was offered a revamped bailout as it announced a quarterly loss of 61.7 billion dollars-the biggest in US corporate history-pushing up its net loss for 2008 to 99.3 billion dollars.
The US government, which had already pumped some 150 billion dollars into AIG, said the restructured aid package sought to avert a potentially catastrophic collapse of what had been the world's biggest insurer.
A failure at AIG, a company which operates in 130 countries, could send new shockwaves through an economy already ravaged by recession, officials said.
"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," the US Treasury and the Federal Reserve said in a joint statement.
The new plan also restructures the existing aid to AIG by reducing the hefty dividend payments required under the original bailout.
"The policy behind this federal support seems clearly focused on avoiding a second Lehman-type failure and subsequent market meltdown," David Kotok at Cumberland Advisors said. "There are no limits to the amount of federal credit that can be extended in support of this new policy."
Elsewhere company results brought similar bad news, with global banking giant HSBC revealing it needs nearly 18 billion dollars of new capital to withstand the financial crisis after a profit collapse.
The bank-which will also cut 6,100 jobs-reported a 70- per cent plunge in annual net profit last year and said it hoped to raise 12.5 billion pounds (17.8 billion dollars, 14.2 billion euros) in a record British rights issue. HSBC had been regarded as one of the more robust global banks and has refused British government financial assistance in contrast to some of its rivals.
Compounding that sentiment, US mortgage finance giant Freddie Mac, taken over by the government in September, confirmed its announcement made last month that it would seek up to 35 billion more dollars under a line of credit set up with the Treasury.
As Eastern Europe continued to feel impact of the credit crisis, International Monetary Fund boss Dominique Strauss-Kahn voiced concern about the European Union's role in stemming that crisis, after EU leaders ruled out a regional bailout plan for economies there.
"Obviously, this weekend, the Europeans were not at their best. They were almost unable to find any kind of common solution," Strauss-Kahn said in an interview with National Public Radio.
On Wall Street, the Dow Jones Industrial Average skidded 4.24 percent to close at 6,763.29, its first close below 7,000 points and the weakest since April 1997.
The broad-market Standard & Poor's 500 index sank 4.66 percent to 700.82, its lowest close since late 1996.
The Nasdaq fell 3.99 percent to 1,322.85, capping a calamitous session for global markets.
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 2003.
In Frankfurt, the DAX fell 3.48 percent and in Paris the CAC 40 tumbled 4.48 percent to a six-year low.
Japan's Nikkei stock index fell one percent in morning trade on Tuesday, coming close to a 26-year low after a Wall Street plunge. The Nikkei-225 dropped 75.26 points, or 1.03 percent, to 7,204.89 by the lunch break, approaching its October intra-day low of 6,994.90 which was the weakest since 1982.
Figures from several major car-producing countries showed auto sales plunging, with France and particularly heavyweight Japan hit hard by the global downturn.
The calls for more capital sent stocks plunging to multiyear lows around the world, even as economic data from the United States was better than expected.
In Washington, the American International Group was offered a revamped bailout as it announced a quarterly loss of 61.7 billion dollars-the biggest in US corporate history-pushing up its net loss for 2008 to 99.3 billion dollars.
The US government, which had already pumped some 150 billion dollars into AIG, said the restructured aid package sought to avert a potentially catastrophic collapse of what had been the world's biggest insurer.
A failure at AIG, a company which operates in 130 countries, could send new shockwaves through an economy already ravaged by recession, officials said.
"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," the US Treasury and the Federal Reserve said in a joint statement.
The new plan also restructures the existing aid to AIG by reducing the hefty dividend payments required under the original bailout.
"The policy behind this federal support seems clearly focused on avoiding a second Lehman-type failure and subsequent market meltdown," David Kotok at Cumberland Advisors said. "There are no limits to the amount of federal credit that can be extended in support of this new policy."
Elsewhere company results brought similar bad news, with global banking giant HSBC revealing it needs nearly 18 billion dollars of new capital to withstand the financial crisis after a profit collapse.
The bank-which will also cut 6,100 jobs-reported a 70- per cent plunge in annual net profit last year and said it hoped to raise 12.5 billion pounds (17.8 billion dollars, 14.2 billion euros) in a record British rights issue. HSBC had been regarded as one of the more robust global banks and has refused British government financial assistance in contrast to some of its rivals.
Compounding that sentiment, US mortgage finance giant Freddie Mac, taken over by the government in September, confirmed its announcement made last month that it would seek up to 35 billion more dollars under a line of credit set up with the Treasury.
As Eastern Europe continued to feel impact of the credit crisis, International Monetary Fund boss Dominique Strauss-Kahn voiced concern about the European Union's role in stemming that crisis, after EU leaders ruled out a regional bailout plan for economies there.
"Obviously, this weekend, the Europeans were not at their best. They were almost unable to find any kind of common solution," Strauss-Kahn said in an interview with National Public Radio.
On Wall Street, the Dow Jones Industrial Average skidded 4.24 percent to close at 6,763.29, its first close below 7,000 points and the weakest since April 1997.
The broad-market Standard & Poor's 500 index sank 4.66 percent to 700.82, its lowest close since late 1996.
The Nasdaq fell 3.99 percent to 1,322.85, capping a calamitous session for global markets.
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 2003.
In Frankfurt, the DAX fell 3.48 percent and in Paris the CAC 40 tumbled 4.48 percent to a six-year low.
Japan's Nikkei stock index fell one percent in morning trade on Tuesday, coming close to a 26-year low after a Wall Street plunge. The Nikkei-225 dropped 75.26 points, or 1.03 percent, to 7,204.89 by the lunch break, approaching its October intra-day low of 6,994.90 which was the weakest since 1982.
Figures from several major car-producing countries showed auto sales plunging, with France and particularly heavyweight Japan hit hard by the global downturn.