Shares in US investment bank Lehman Brothers have plunged 30% on fears the the group will not be able to raise the funds it needs to cover losses.

Lehman has been seeking ways to raise $6bn after sustaining credit crunch-related write-downs and losses.

There are fears that a potential investment from Korea Development Bank has fallen through.

Wall Street sent the firm’s stock down to $8. The bank’s share price is down more than 90% this year.

Lehman, the fourth-largest US investment bank, had hoped to secure a deal with the Korean fund before announcing third-quarter earnings on 18 September.

Lehman and KDB are thought to have been in talks for two months about the prospect of the state-run Korean bank taking a stake in Lehman.

Overseas interest

Lehman has been linked with a number of overseas financial firms as it tries to shore up its finances.

Recent reports have suggested that Japanese brokers Nomura Holdings are considering buying a stake in Lehman.

Other financial firms from China, Qatar and Abu Dhabi have also been linked to Lehman.

The bank is also said to be meeting with potential buyers of its Neuberger Berman asset management unit to raise funds.

News reported by The BBC

The world’s poorest countries could see the impact of the credit crunch worsen next year, a UN report has warned.

Growth in developing countries is expected to be 1% lower this year as a result of the world slowdown.

But the pain could be greater next year, according to Unctad, the UN agency that speaks for developing countries.

It warns that a combination of high food and oil prices, and slowing global demand, could squeeze poor countries.

Inflation threat over-stated

Unctad’s Secretary General, Supachai Panaitchpadki, told BBC News that both rich and poor countries should be “wary” of raising interest rates to curb inflation.

“In the current fragile condition of the global economy, measures to tighten monetary policy would exacerbate the global slowdown,” Unctad’s Trade and Development Report says.

Unctad believes that the danger of inflation is over-stated, as the slowdown will curb inflationary pressures, and commodity and oil prices will stabilise broadly around current levels.

However, it says that the lack of “policy coordination” on both monetary policy and exchange rates is hurting the prospects for recovery.

Unctad says it is extraordinary that in the US, interest rates have been cut, while in Europe they have been raised during the crisis.

And it warns that further adjustments in the dollar will be painful unless the current account surplus countries, including Germany, Japan and China, expand their domestic economies.

“These divergent policies may invite renewed speculation in foreign exchange markets instead of calming the system,” the report adds.

Global imbalances

Poor countries are completely dependant on donor countries due to global economic crunch. I fear that hundreds of thousands more people in poor countries will go beyond poverty line.
Syed A Mateen , Karachi, Pakistan
Send us your commentsDr Supachai says that competition among Asian exporters by keeping exchange rates low will ultimately prove counter-productive – and he argues that China should move more quickly to adjust its over-valued currency.

He says that the imbalance between a closely-regulated system of world trade, and a much more loosely regulated international financial system has become more apparent since the credit crunch began.

“The financial turbulence, the speculative forces contributing to commodity price hikes and instability, and the apparent failure of foreign-exchange markets to bring about changes in exchange rates that reflect current-account trends suggest that there is an urgent need for reviewing the institutional framework of the global economy,” the report says.

Commodity worries

Unctad says that high commodity prices for food, minerals and oil are having mixed effects on developing countries.

While some primary product exporters are enjoying boom conditions, the money is not trickling down to reach the poor.

The higher price of food, in particular, is hitting the urban poor and making it more difficult to reach the Millennium Development Goals.

And the dependence on one or two primary products for exports makes many developing countries vulnerable to rapid changes in commodity prices.

This is particularly true in Africa, which is expected to grow on average by 6% in 2008, stronger than in many years, on the back of higher oil and mineral prices.

Most African countries – 45 in total – depend on commodities for 50% of their exports, and in more than half of them, one single commodity makes up 50% of exports.

The same is true of 20 of 38 Least Developed Countries.

Unctad says that the commodity boom, though fundamentally driven by the economic expansion in emerging market countries, was pushed higher by speculation in financial markets.

It is therefore concerned that such speculation could also “amplify the downward movement” especially if “forecasts for global growth need to be adjusted downwards as a result of further turmoil in financial markets”.

Tax on petrol

Unctad says that in order to meet the Millennium Development Goals, rich countries must increase their aid flows by around 50%, to between $50bn (£28bn) and $60bn, as promised but not delivered at the Gleneagles Summit.

And it says that more money is needed if poor developing countries are to increase their economic growth rates.

The report suggests that new financing mechanisms might be considered to raise such sums, including a possible one cent tax on petrol worldwide – which it says could raise $180bn for development.

Previous suggestions for such global taxation have fallen on deaf ears, including an earlier plan to tax global foreign currency taxation, and a solidarity levy on global air travel (which has been introduced by France and five other countries, and is yielding 200m euros yearly to fight diseases in poor countries).

News reported by The BBC

The Nationwide Building Society is in talks to merge with two of its smaller rivals, the Derbyshire and Cheshire Building Societies.

The Nationwide, the UK’s biggest mutual lender with 14 million members, is to step in to support the two firms with the approval of financial regulators.

Smaller lenders are under growing pressure due to the credit crunch.

The BBC’s Business Editor Robert Peston said members of the two smaller firms would not get any windfall payments.

Tough climate

Nationwide confirmed that it was in “advanced discussions” with the Derbyshire and Cheshire organisations about separate mergers.

The Derbyshire is the larger of the two, with 500,000 members, 50 branches across the Midlands, the North East and Yorkshire and total assets worth more than £7bn.

“The City watchdog, the FSA, wants them under the stewardship of the more robust Nationwide” BBC Business Editor Robert Peston

The Cheshire has about 400,000 members, operating 60 building society and estate agency branches.

It has assets of just under £5bn.

Both societies saw their profits fall last year, to £8.7m and £8.1m respectively, amid tough conditions in housing and credit markets.

Like all lenders, building societies have cut the amount of loans on offer and raised rates in response to the credit squeeze, although both Derbyshire and Cheshire insist they have strong mortgage books.

However, the negative publicity surrounding the near-collapse of Northern Rock has affected smaller banks and mutual lenders more.

When the Nationwide merged with the Portman last year, the latter’s members pocketed windfall sums of between £200 and £1,000.

But our correspondent said the sharp decline in the housing market ruled out the possibility of windfall payments in this instance.

News reported by The BBC

The credit crunch is likely to last well into 2010, the head of the UK’s largest mortgage provider has warned.

HBOS chief Andy Hornby told the BBC it would take 18 months before US house prices started to rise again.

That was needed “to give the confidence back into the system for banks to start lending again,” he said.

His comments suggested there was little that the UK Government could do to stimulate the markets, the BBC’s business editor Robert Peston said.

‘Confidence needed’

Mr Hornby – whose bank owns the Halifax and Bank of Scotland – said British banks would continue to suffer major problems in offering loans until they could once again raise significant sums on wholesale financial markets.

“It (the credit crunch) will take a long time to play out” Andy Hornby Chief executive, HBOS

About two-thirds of wholesale funding received by UK banks comes from overseas – primarily from the US.

And the HBOS chief said that US money-market investors would not resume channelling of money to UK banks for mortgage-lending until US house prices started to recover – a process he said was set to last well into 2010.

“My personal view, for what it’s worth, is that it will take 18 months to play through the system,” Mr Hornby told our business editor in the latest of his Leading Questions programmes.

“It’s going to take 18 months before US house prices have started to rise again – which is what’s required for banks to have the confidence to start lending again.

“It will take a long time to play out.”

Adds to gloom

Mr Hornby added that there was “no doubt” that the UK was to see house price deflation on a scale not seen since the early 1990′s.

But he added that unemployment – a factor which underpins people’s abilities to pay their mortgages – would not reach the highs of that era.

His comments add to a gloomy week of economic news, following chancellor Alistair Darling saying that the economic times faced globally “were arguably the worst they’ve been in 60 years”.

Separately, the Organisation for Economic Cooperation and Development (OECD) has forecast that the UK economy will fall into recession this year – comments which sent sterling to its lowest level against the dollar since early 2006.

Meanwhile London’s index of leading blue-chip shares, the FTSE 100, lost 7% in value this week – its largest fall since July 2002.

Too dependent

“Mr Hornby also implies that there’s little the government can do to restore positive momentum to the economy” Robert Peston BBC Business Editor

Mr Hornby’s assessment implied that the government could do little to persuade UK banks to start providing more normal amounts of loans to homebuyers and businesses, our business editor said.

“Since it was the reduction in the availability of credit that precipitated the economic slowdown in the UK, Mr Hornby also implies that there’s little the Government can do to restore positive momentum to the economy.”

Many argue that the prime cause of the credit crunch in the UK was that banks had become too dependent on selling their mortgages to global investors in the form of mortgage-backed securities.

So the sudden unavailability of these deals deprived UK banks of much of the finance they needed – something which led to the eventual nationalisation of Northern Rock.

Many banks have taken efforts to shore up their balance sheets during the credit crisis.

HBOS raised £4bn in a rights issue, but largely from underwriters after the majority of shareholders snubbed the deal.

It also saw profits before tax fall 72% in the first six months of 2008 against the background of the crisis and a tougher economic climate.

News reported by The BBC

The UK is facing its worst economic crisis in 60 years, Chancellor Alistair Darling has admitted.

He told the Guardian newspaper that the economic downturn would be more “profound and long-lasting” than most people had feared.

Using strong language, Mr Darling acknowledged voters were angry with Labour’s handling of the economy.

Ministers are expected to announce a package of measures next week to kick-start the moribund housing market.

Voter anger

House prices are falling at their fastest rate in 18 years, leading to fears of a wave of repossessions in the upcoming months.

Mortgage lending has slowed dramatically due to the credit crunch while key indicators have suggested that the economy could be poised to go into recession in the near future.

The economy showed no growth in the second quarter of the year while building firms and retailers have laid off thousands of staff in recent weeks amid fears that the economy will deteriorate further.

A member of the Bank of England’s Monetary Policy Committee said on Friday that radical action was needed to ensure the crisis did not get worse and warned of a sharp rise in unemployment.

In his interview, the Chancellor admitted the government had failed to get the message across that it understood people’s concerns about rising living costs and growing job insecurity.

He said that voters were “pissed off” with Labour’s handling of the economy, a key issue at the next election.

The Chancellor has been criticised for sending contradictory signals over possible measures to assist homebuyers, particularly the prospect of a temporary suspension of stamp duty on home purchases.

News reported by The BBC

Japanese carmaker Toyota has cut its vehicle sales forecast for next year by nearly 7% as a result of demand softening in Western markets.

It expects to sell 9.7 million vehicles in 2009, against an earlier forecast of 10.4 million. Last month, it cut its 2008 forecast to 9.5 million vehicles.

High fuel prices and the credit crunch are making consumers less likely to buy a new vehicle.

Toyota also said it would speed up development of fuel-efficient vehicles.

Energy shift

As energy prices rise, customers are moving away from gas-guzzlers, increasing the attraction of more energy-efficient models such as Toyota’s Prius hybrid.

“We are looking at the current shift towards fuel-efficient cars (in the United States) as a structural change in demand,” Toyota President Katsuaki Watanabe told a news conference.

“We intend to respond quickly and flexibly to this environment.”

The news of the changed forecast barely impacted Toyota’s share price.

“For the last few months, the company began to say its previous target was impossible and they’ve scaled back gradually, so everybody’s used to the idea,” said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities.

News reported by The BBC

French bank Credit Agricole has reported a 94% fall in second-quarter profits after being hit by a loss at Calyon, its investment banking unit.

Net profit was 76m euros (£61.15m; $112.4m), down from 1.29bn euros in the same period last year, as the credit crunch took its toll on the bank.

The bank was hit by write-downs totalling 1.1bn euros related to the credit crisis and monoline insurers.

Calyon made a second-quarter loss of 855m euros.

Shares in Credit Agricole have fallen by about 40% since the start of the year.

The bank completed a 5.9bn-euro rights issue in July to boost its finances and is also seeking to raise 5bn euros by selling assets.

News reported by The BBC

Denmark’s central bank is to lead a buyout of struggling lender Roskilde Bank after no private buyer came forward to purchase the company.

The move comes after Roskilde secured a 750m Danish crowns ($150m; £81m) bailout from the Danish Nationalbanken, back in July.

Roskilde said at the time that it was putting itself up for sale after bigger than expected bad debt losses.

Trading in Roskilde shares was suspended on Monday.

Nationalbanken said it would buy all Roskilde assets and take over all debt and other liabilities.

The bank has 24 branches and about 100,000 customers.

It is the second small-sized Danish bank to get itself into financial difficulties as a result of the credit crunch.

Earlier this year rival Trelleborg was forced to sell itself to larger lender Sydbank.

News reported by The BBC

Mars has become the latest snack firm to admit the credit crunch is eating into its business.

The Snickers bar and M&Ms maker said it would be raising the wholesale price of its goods to offset rising raw material, packaging and energy costs.

The news came days after fellow US firm Hershey raised its product prices.

Mars also said it would be cutting the size of some of its goods. In the UK, a number of firms have shrunk snack sizes to stave off price rises.

“We have attempted to hold off on further price changes this year and only took this action after very careful consideration on the impact to our valued customers based on current market pressures,” Mars said in a statement.

On Monday, rival Hershey said it would be increasing its wholesale prices by about 10% in the US as it warned full-year profits would be at the lower end of its forecasts.

Confectionery and snack firms have been hit by the fall-out from rising commodity prices driving up the cost of everything from cocoa, sugar and peanuts to fuel.

Shrinking

Cadbury’s and Nestle are just some of the UK companies who have admitted current economic woes are beginning to bite.

They say that in an effort to prevent price rises for pressured consumers they have scaled back their product – offering smaller snacks for the same price.

Now a Cadbury’s Family Share chocolate bar weighs in at 230g rather than 250g.

Proctor & Gamble’s Pringle’s have less pop – weighing 170g rather than 200g.

And you’ll be offering your last Rolo a lot sooner – Nestle are now putting just 10 of the sweets into a pack rather than 11.

Even brewer Scottish & Newcastle has cut back on the amount of cans in its multipacks of Strongbow cider while Kraft have shaved 2.5g from each of its Dairylea cheese triangles.

News reported by The BBC

Mortgage rates are back to where they were in August 2007 at the onset of the credit crunch, according to research by price comparison website Moneyfacts.

The average rate on a two-year fixed deal is now 6.59% – almost the same as 6.56% in August 2007 and down from 7.08% in early July.

However, the costs associated with mortgages remain high, Moneyfacts said.

The better rates are only available to those with big deposits and lenders are also charging higher fees.

Moneyfacts said that the average mortgage arrangement fee was now £964 compared with £803 in August 2007.

Furthermore, there is less competition in the marketplace, with only 3,748 products on offer compared with 13,027 in August 2007.

Borrowers are also required to put down much higher deposits than a year ago. An average of 20% is now the norm, Moneyfacts says.

“The pricing is getting back to where we were a year ago, but the appetite for lending is diminished,” said Darren Cook, a spokesman for Moneyfacts.

Better margins

While the rates are at similar levels, banks are potentially making more profits on mortgages than a year ago.

Official interest rates, on which fixed mortgage rates are indirectly based, are now 5% compared with 5.75% in August 2007, which means lenders are getting better returns on the products offered.

Last summer 33 lenders were offering borrowers 100% mortgages compared with just two lenders in August this year.

Abbey, Nationwide and HBOS have been among the lenders that have been cutting their rates.

Lending to homeowners has slumped dramatically in 2008, because the credit crunch has dried up the supply of funds available to banks.

News reported by The BBC