Lehman bankrupt, Merrill sold; worst day on Wall Street since 9/11 shakes major markets worldwide, shares tumble

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In one of the most dramatic days in Wall Street’s history, Lehman Brothers, the 158-year-old, fourth-largest U.S. investment bank that predates the Civil War and weathered the Great Depression, filed the largest bankruptcy in American history; while Merrill Lynch, the third largest investment firm, has agreed to sell itself to Bank of America, the nation's largest bank.

Investors suffered their worst losses since the terrorist attacks of 2001. Amid worries that the bankruptcy of Lehman Brothers and the sale of Merrill Lynch might not be enough to stop the downward spiral, stocks fell sharply in the last half hour of trading. By the end of the day, the Dow Jones industrial average had dropped 504.48 points, or 4.4 percent, as a record volume of more than 8 billion shares traded hands on the New York Stock Exchange. It was the biggest decline since Sept. 17, 2001 - the day the index reopened after the 9/11 terrorist attacks - when it fell 7 percent, or 684.81 points.

Asia tumbled first on the news Monday, followed by the Middle East, Russia and then Europe before the shockwave hit the North and South American markets. In Canada, stocks fell about three percent while the Brazilian market, South America's largest, lost five percent at the open but later steadied to show a loss of around four percent. In Asia, where Tokyo and Hong Kong were among several markets closed for a public holiday, shares fell sharply, with Sydney down 1.8 percent and Singapore off 3.27 percent.

Japanese stocks plunged to a three-year low. Aozora Bank Ltd. tumbled 16 percent, the most since its listing, after a filing showed it was Lehman's biggest creditor. Tokio Marine Holdings Inc. led a gauge of insurers to the biggest drop since Oct. 20, 1987, the day after "Black Monday." Inpex Holdings Inc., Japan's biggest oil explorer, fell by a record after crude sank to a seven-month low. The Nikkei 225 Stock Average dropped 605.04, or 5 percent, to close at 11,609.72 in Tokyo, a level not seen since July 2005. The broader Topix index fell 59.63, or 5.1 percent, to 1,117.57, the lowest since May 2005. All 33 Topix industry groups declined.

South Korean stocks nose-dived more than 6 per cent to an 18-month low Tuesday on panic selling following the demise of Lehman Brothers Holdings, analysts said. The local currency plunged to the lowest level against the U.S. dollar since 2004. The benchmark Korea Composite Stock Price Index (KOSPI) plummeted 90.17 points, or 6.1 per cent, to 1,387.75. Volume was moderate at 387.2 million shares worth 6.28 trillion won (US$5.4 billion), with losers outpacing gainers 810 to 63.

Australian shares fell 1.4 percent to a two and half year closing low on Tuesday, but recovered from an early trough as some investors bet that global central banks could join hands to stabilize fragile markets. Sentiment remained downbeat, however, and nervous investors focused on the fight for survival of U.S. insurance giant American International Group Inc. "AIG worries me the most," said Lee Mickelburough, a partner with Perennial Growth Management, adding that AIG was bigger than Lehman and its role underwriting risk meant it was more intertwined with the financial system. He said if AIG fell over, the market would have far more problems to deal with, involving firms whose paper is insured by AIG. New Zealand's NZX-50 index lost 92.6 points, or 2.8 percent to 3,227.30, after touching a low of 3,219.6, its lowest in nearly two months.

The US banking crisis sent a shockwave through European stock markets, with the European Central Bank and EU institutions trying to calm nerves as traders fear more bad news. Among Europe's largest trading floors, the FTSE exchange in London and Euronext 100 in Paris lost around €81 billion each in value while the DAX trading floor in Frankfurt lost €27 billion.

Royal Bank of Scotland lost 10 percent and Barclays was down 9.84 percent. It was a similar day in Frankfurt, with Commerzbank plunging 9.55 percent as Deutsche Bank shed 6.76 percent. Elsewhere in Europe, Brussels lost 3.49 percent, Madrid tumbled 4.50 percent, Italy was down 3.72 percent, Dutch stocks were off 3.64 percent and Switzerland fell 3.83 percent.

Shares in Spain, Italy, the Netherlands, Austria, Greece, Poland, Romania, the Czech republic, Slovenia and Lithuania also fell by 3.5 percent or more, with only Sweden, Finland and Estonia emerging relatively unscathed. Shares in Spain, Italy, the Netherlands, Austria, Greece, Poland, Romania, the Czech republic, Slovenia and Lithuania also fell by 3.5 percent or more, with only Sweden, Finland and Estonia emerging relatively unscathed.

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Photos courtesy of Mary Altaffer / Associated Press, Nathan Denette / Canadian Press, Times Online UK, Fred R. Conrad / The New York Times, Agencies

Original Source: NY Times, EUobserver, Dallas News, Bloomberg, interactive investor, Sydney Morning Herald, and TradingMarkets.com

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