The demise of two of Wall Street's most powerful investment banks opens a new and perilous chapter in the global credit crisis.
Lehman Brothers, the 158-year-old firm, filed for bankruptcy protection after a desperate weekend push by the US government to find it a buyer failed.
The world's largest brokerage, Merrill Lynch, fell into the arms of Bank of America, selling itself for US$50 billion (Dh183.6bn) in stock.
Financial markets worldwide reeled as the US Federal Reserve shovelled more credit at the ailing financial sector, and American International Group, one of the world's largest property and casualty insurers, asked the Fed for a $40bn loan.
The fallout from billions of dollars in new losses and institutions going under is likely to spread through the global economy, economists and bankers say, stifling growth and costing many people far from the financial industry their jobs as the money machine that drives global commerce sputters.
"The first thing that happens is that people become even less trustful of banks, and banks find it more difficult to deal with each other," said Jeremy Parrish, chief executive of Standard Chartered Bank's operations in Abu Dhabi. "It clogs up the system. The grease of the system is taken up."
One major concern is how well the fragile US economy, the world's largest, would shoulder the blow. Unemployment was rising and consumers were already in retreat before headlines and broadcasts about Wall Street's woes began yesterday morning. Any further pullback by consumers would reverberate around the globe, dampening US demand for the Gulf's oil, Chinese manufacturing exports and European luxury goods.
Markets shuddered yesterday as fears of a renewed global credit crunch spread from Asia across the Middle East to Europe. While major Asian markets were largely closed for a holiday, Mumbai's benchmark stock index dropped 3.7 per cent. London's FTSE 100 fell as much as 3.92 per cent and France's CAC 40 dropped 3.78 per cent.
Oil prices plummeted below $95 a barrel. The price of gold jumped 2.6 per cent as investors sought the perceived safety of precious metal. Another favourite of investors seeking safety amid times of turmoil, US Treasuries, soared by the most since the September 11 terrorist attack.
Although US markets were a modest one per cent to two per cent lower in early trading, Sept 15 2008 is nonetheless a day that will go down in Wall Street lore. Lehman's Chapter 11 bankruptcy filing could turn out to be the largest in US history, surpassing the collapse of Drexel Burnham Lambert in 1990 and WorldCom's failure in 2002.
To stave off a collapse of the financial system, the Fed announced that for the first time in its 95-year existence it would accept shares as collateral for loans, even as reeling markets made it a near certainty that most shares would decline in value.
Some hold Lehman responsible for much of the subprime crisis. It was the fourth-largest US investment bank but the largest underwriter of subprime debt. Some blame Lehman for failing to raise more capital earlier to offset its $613bn in debt, an amount more than double the size of the UAE's entire economy.
Lehman's collapse followed three days of intense bargaining between its Wall Street rivals, the Fed and the US Treasury Department. Determined not to use taxpayer funds to bail out Lehman, government officials were hoping a deal could be brokered to crack Lehman apart and sell it in pieces. But with no federal money to sweeten the deal, the prospective buyers, Barclays of Britain and the Bank of America, baulked.
Instead, Bank of America ended up in talks with Lehman's rival Merrill Lynch. Merrill also became a victim of the subprime rot and speculation that it was sitting on too many losses to survive. As Lehman's fate was sealed at the Federal Reserve Bank of New York on Sunday, the CEO of Merrill, John Thain, turned to a suitor he had once spurned, Bank of America, the nation's largest retail bank. The back room deal ensures Merrill's survival, but ends its history as an independent firm, one that started in 1914 when Charles Merrill opened his office on Wall Street declaring: "I have no fear of failure, provided I use my heart and head, hands and feet ? and work like hell."
Concerns have now shifted to AIG, whose share price fell 46 per cent last week amid concerns that it might also succumb. Yesterday Robert Willumstad, AIG's chief executive, reportedly approached the Fed asking for a $40 billion bridge loan.
Bankers and economists say the latest crisis on Wall Street raises new questions about the future of the financial industry and how to regulate it.
"There's a lack of belief in the system that is going to take a long, long time to build back," said Mohamed Ramady, a former banker and a visiting associate professor at King Fahd University of Petroleum and Minerals in Dhahran, Saudi Arabia.
Central banks such as the Fed, which once oversaw only banks, are now being compelled to exercise oversight over the entire securities industry. Many question whether efforts to prop up the banks with easy credit and, in the case of Bear Stearns, taxpayers' money, are rewarding wealthy bankers for making bad investments.
Such unprecedented intervention, they say, will inevitably result in greater regulation of financial firms and the markets in which they operate, raising questions about the very future of free markets and capitalism.
Most immediately, Lehman's failure will remove one of the largest players in global financial markets, making it more difficult for investors to trade stocks, bonds and other securities.
Moreover, the prospect that Lehman's most damaged assets may suddenly flood on to the markets as part of its bankruptcy proceedings may prompt investors and banks to curb their risk by reeling in credit. That would raise borrowing costs for companies, reducing profit margins and crimping growth in a difficult economic environment.
"There could be an impact on the availability of credit and funds to other risk assets, including in emerging markets," said Hung Tran, director of the emerging markets policy department at Institute for International Finance in Washington DC.
Even if they manage to obtain adequate credit, Mr Tran said, emerging market companies stand to be hurt by tightening credit in the US and Europe.
"And any curtailment of credit growth to businesses and consumer borrowers in the US and Europe would reinforce the slowing of the economies in these areas.
"And if that translates into a general slowing of the global economy that would impact emerging markets in terms of demand for their trade and commodity exports, including oil."
Some economists warn that the Fed is running out of options. It has already depleted its reserve of short-term Treasury bills, the securities it uses to inject liquidity into the market, from $277 billion last June to $21 billion, according to ANZ Bank.
Test
Director: S Sashikanth
Cast: Nayanthara, Siddharth, Meera Jasmine, R Madhavan
Star rating: 2/5
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
The specs: 2018 Audi RS5
Price, base: Dh359,200
Engine: 2.9L twin-turbo V6
Transmission: Eight-speed automatic
Power: 450hp at 5,700rpm
Torque: 600Nm at 1,900rpm
Fuel economy, combined: 8.7L / 100km
Tips for job-seekers
- Do not submit your application through the Easy Apply button on LinkedIn. Employers receive between 600 and 800 replies for each job advert on the platform. If you are the right fit for a job, connect to a relevant person in the company on LinkedIn and send them a direct message.
- Make sure you are an exact fit for the job advertised. If you are an HR manager with five years’ experience in retail and the job requires a similar candidate with five years’ experience in consumer, you should apply. But if you have no experience in HR, do not apply for the job.
David Mackenzie, founder of recruitment agency Mackenzie Jones Middle East
THE DETAILS
Deadpool 2
Dir: David Leitch
Starring: Ryan Reynolds, Josh Brolin, Justin Dennison, Zazie Beetz
Four stars
The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
What is the FNC?
The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
The FNC’s main functions include passing, amending or rejecting federal draft laws, discussing international treaties and agreements, and offering recommendations on general subjects raised during sessions.
Federal draft laws must first pass through the FNC for recommendations when members can amend the laws to suit the needs of citizens. The draft laws are then forwarded to the Cabinet for consideration and approval.
Since 2006, half of the members have been elected by UAE citizens to serve four-year terms and the other half are appointed by the Ruler’s Courts of the seven emirates.
In the 2015 elections, 78 of the 252 candidates were women. Women also represented 48 per cent of all voters and 67 per cent of the voters were under the age of 40.
More from Neighbourhood Watch:
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
OPINIONS ON PALESTINE & ISRAEL
Apple product price list
iPad Pro
11" - $799 (64GB)
12.9" - $999 (64GB)
MacBook Air
$1,199
Mac Mini
$799
57%20Seconds
%3Cp%3E%3Cstrong%3EDirector%3A%3C%2Fstrong%3E%20Rusty%20Cundieff%0D%3Cbr%3E%3Cstrong%3EStars%3A%20%3C%2Fstrong%3EJosh%20Hutcherson%2C%20Morgan%20Freeman%2C%20Greg%20Germann%2C%20Lovie%20Simone%0D%3Cbr%3E%3Cstrong%3ERating%3A%20%3C%2Fstrong%3E2%2F5%0D%3Cbr%3E%0D%3Cbr%3E%3C%2Fp%3E%0A
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950
Best Foreign Language Film nominees
Capernaum (Lebanon)
Cold War (Poland)
Never Look Away (Germany)
Roma (Mexico)
Shoplifters (Japan)
More coverage from the Future Forum
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
More from Neighbourhood Watch:
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
HOW TO WATCH
Facebook: TheNationalNews
Twitter: @thenationalnews
Instagram: @thenationalnews.com
TikTok: @thenationalnews
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
