Shares nosedived in London and New York today as traders dumped stock following the collapse of US investment bank Lehman Brothers, which has left thousands of staff facing redundancy.
As distressed employees arrived at Lehman's offices in Canary Wharf and on Wall Street, with some fearing that they may not be paid this month, the FTSE 100 index of leading shares plunged by more than 5%. By the close it was down 212.5 points at 5204.5, down 3.9%, with £50bn wiped off the value of Briain's top 100 companies.
The Dow Jones industrial average also fell sharply, losing 283 points by early afternoon in New York to 11138, a 2.5% decline.
HBOS, which owns Britain's biggest mortgage lender, the Halifax, led the London fallers for most of the day, shedding 17.5% of its value by the close as the credit crunch entered a new phase and investors piled into gold and government bonds.
Markets were left reeling by the triple whammy of the failure of Lehman Brothers, the shock sale of Merrill Lynch, and the revelation that AIG, the world's largest insurance firm, may need to raise as much as $40bn (£22.2bn).
Lehman became the biggest casualty of the ongoing financial crisis early this morning when it admitted it will file for Chapter 11 bankruptcy, after last-ditch rescue talks collapsed.
'My career has been screwed'
Staff arriving at Lehman's Canary Wharf offices today had to negotiate crowds of media and security guards before being told that they were excused work for the rest of today. Some left the bank carrying their belongings in cardboard boxes, while others sorted out their expenses or spent the balance of their credit at the canteen. Some staff even spoke of heavy drinking up on the seventh floor of the building.
The atmosphere outside was a mixture of anger, shock and confusion, especially among the graduate trainees - who only started work at Lehman this month.
"My career has been screwed," said Jack Reynolds, who joined the graduate scheme last Monday.
And Duo Ai, aged 26 from New York, who works in the research department, said that there was a lot of anger about Lehman's demise.
"Everyone's understanding is that everyone has to go. Everyone is clearing their desks and everyone is very sad," said Ai, who must now apply for a new visa to stay in the UK.
Ai added that staff are concerned that they may not be paid this month.
Edouard d'Archimbaud, 24, from Paris, had a particularly nasty shock when he arrived in Canary Wharf for his first day of work as a trader this morning. Having overcome travel problems following the Eurostar fire, he was told that everyone at the bank had been fired.
"I've taken out a six-month lease on a flat and I don't know how I will pay for it," he said.
The bank employs 26,000 people worlwide, including 4,000 staff in London and another 1,000 in High Wycombe. A rumour even swept the City that the bonuses already handed to staff could be clawed back, if it could be proven that Lehman was no longer solvent when the money was paid.
Across the Atlantic, staff leaving Lehman's New York office found that they had become the city's latest tourist attraction - as Lehman-branded items began appearing on eBay.
Market gloom
Banks were hit hard in London, amid fears that they could suffer badly from Lehman's collapse into bankruptcy. HBOS lost more than 30% at one stage but closed down 49.5p or 17.5% at 232.5p. Barclays ended down 34.5p at 316p and Royal Bank of Scotland lost 23.4p at 210.5p.
Today's losses wiped out the FTSE's recovery last Thursday and Friday, pushing it closer to its lowest closing point in the last year, 5071 points, set on July 16 2008.
Stockmarkets across Europe also took a bath, with Germany's DAX index losing 2.7% and the French CAC falling by 3.8%.
On Wall Street, the Dow Jones industrial average fell 2.5%, or 283 points, to 11138 by 6.15pm BST. Shares in AIG crashed more than 50%, while Merrill Lynch gained 26% after being bought by Bank of America.
The sharp falls came despite the central banks pumping billions of fresh liquidity into the system in an attempt to stabilise the market. The Bank of England offered £5bn of new funding, which was five times oversubscribed, and the European Central Bank awarded €30bn (£23.8bn) which was three times oversubscribed.
John McFall MP, chair of the Treasury select committee, told Guardian.co.uk today that he fears that more banks will collapse.
"I don't think we've seen a weekend like it since the late 1920s," said McFall. "It proves that the market is different. Indeed there is no market, it's all falling back on the state."
And City commentator David Buik warned that a painful recession was inevitable.
"The fact that banks' capital bases have been hit hard again means there is less money to be lent and in a more discerning fashion, which will result in less disposable income being spent in the shopping malls which will trigger higher unemployment and the inevitable fall in to recession," he said.
The European markets were the first major indices to react to the drama on Wall Street, as both the Tokyo and Shanghai stock exchanges were closed for a public holiday. Smaller markets in Asia had already shown they were spooked by the events, with Taiwan losing over 4%.
And while share prices fell, bringing more pain to long-suffering investors, commodities including gold rose sharply.
