The FTSE100 has plunged more than 3.6% this morning after US investment bank Lehman Brothers filed for bankruptcy overnight.
The UK's index of leading shares opened at 5416.7 and has now fallen to 5218.3, as news of the collapse of the US's fourth biggest investment bank smashed investor confidence.
Barclays and Bank of America had been in weekend talks to save Lehman, but failed to make a deal to prevent its rapid failure.
Lehman Brothers Holdings will now file for Chapter 11 bankruptcy protection – while its principal UK trading subsidiary, Lehman Brothers International (Europe), was placed into administration earlier this morning.
Paris’ CAC 40 has dived 4.32% to 4145.55 so far, while Frankfurt’s Dax is down 3.4% to 6023.04.
Bank stocks have been hammered in London – with HBOS plunging 15.6%, RBS 9.07% lower and Barclays down 8.27%. Insurers Friends Provident and Prudential are also in sharp decline, falling 8.22% and 8.17% respectively.
In an amazing 24 hours on Wall Street, it also emerged Bank of America bought Merrill Lynch for about $50bn after walking away from a possible Lehman deal.
Bank of America will pay about $29 for each Merrill share, which is a 70% premium to Merrill’s Friday closing price.
The move ensures Merrill will not become another casualty of the credit crisis, after already writing down more than $40bn in assets over the past year.
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