Weeks that tested capitalism
3 Nov 08
The first fortnight of October 2008 will be remembered as among the most volatile in financial market history, when the face of banking in Britain and around the world was fundamentally changed by government intervention
by Richard Goslan
1 October> UK under pressure to follow Ireland’s lead
The British Government comes under pressure to extend the threshold of protection for bank depositors after Ireland announces that savers at the country’s six leading banks will receive an unlimited guarantee on their funds.
2 October> US Senate approves banking rescue plan
It’s second time lucky as legislators in the upper house vote overwhelmingly in favour of a $700 billion (£380 billion) scheme to salvage the country’s stricken financial system with an injection of public money.
6 October> Germany guarantees savings to avert panic
Germany says it will guarantee all private German bank accounts — currently worth €568 billion (£441 billion) — to prevent panic withdrawals, as financial fears spread to Europe’s largest economy. There is annoyance that German Chancellor Angela Merkel has acted unilaterally, just after an economic summit in Paris at which she agreed there should be greater cross-border co-ordination of crisis measures.
7 October> Markets routed in global sell-off
Stock prices collapse around the world amid growing fears that the credit crisis will trigger a global recession. The wave of selling sweeps through markets despite a scramble by governments to tackle the crisis, leading to speculation that co-ordinated emergency rate cuts by the Federal Reserve and other central banks might be in the offing. In London, the FTSE 100 suffers its biggest one-day points loss. The Dow Jones Industrial Average closes down 3.6 per cent at 9,955.50 after being as much as 7.75 per cent down during the day.
8 October> Alistair Darling unveils bank rescue
The Chancellor says Britain’s largest banks are to be partly nationalised after Gordon Brown decides to pump in tens of billions of pounds to avert collapse. Referring to “extraordinary market conditions”, the Treasury says it will put up to £250 billion into the banking system in an effort to keep banks lending. It also offers a guarantee to banks issuing medium-term debt, which could mean backing a further £250 billion of bank borrowings. But the money comes with the demand for dividend cuts and the end of big bonuses at the banks.
9 October> Central banks cut interest rates
Asian central banks join western counterparts in co-ordinated interest rate cuts, hoping to curb the risk of the crisis sparking a severe global recession. The US Federal Reserve, European Central Bank (ECB), Bank of England, and the central banks of Canada, Sweden and Switzerland cut interest rates by half a percentage point. The Fed cuts its base lending rate to 1.5 per cent, the ECB to 3.75 per cent, and the Bank of England to 4.5 per cent.
9 October> UK invokes anti-terror law to retrieve Icelandic deposits
The UK Government resorts to anti-terrorism powers to recoup money owed to UK depositors in the failed Icelandic bank Landsbanki, in a move that risks sending Britain’s relations with Reykjavik to their lowest since the 1970s “cod wars”.
9 October> UK banks thrown £400 billion lifeline
Britain’s largest banks prepare to boost their capital reserves after the Government launches a £400 billion rescue plan to restore confidence among financial institutions and avert a severe economic slowdown.
10 October> UK and Iceland clash on crisis
Britain’s dispute with Iceland becomes increasingly acrimonious after the nationalisation of the Nordic country’s largest banks put close to £800m of UK local authority money at risk, prompting Gordon Brown to threaten to seize the assets of Icelandic companies.
10 October> Wall Street in biggest fall since 1987 crash
The US stock market suffers its largest loss since the crash of 1987 amid panic over General Motors, Morgan Stanley and several big insurance companies. Share prices in the US, which had opened higher, plunge in the final hour of frenzied trading, with the S&P 500 index closing down 7.6 per cent at 909.92 and the Dow Jones Industrial Average losing 7.3 per cent to 8,579.19, closing below 9,000 for the first time since 2003.
13 October> European banks rescue plan agreed
No major bank in Europe will be allowed to fail, leaders of the European Union pledge after a summit meeting in Paris. EU governments say they will guarantee loans between banks until the end of 2009, and say they will strengthen banks’ balance sheets with public capital in the form of preference shares.
13 October> RBS, Lloyds TSB and HBOS in government bail-out
The UK Government unveils the details of a plan to pump £37 billion of public money into three of the UK’s leading banks – the Royal Bank of Scotland, Lloyds TSB and HBOS. After a weekend of negotiations the three banks agree to strengthen their balance sheets with a combination of government and privately raised capital.
The Government says it will put £20 billion into RBS and £17 billion into HBOS and Lloyds TSB, following the planned merger between the two banks. Barclays says it intends to raise £6.5 billion from the private sector. Under the terms of the bail-out, the state will own about 60 per cent of RBS and 40 per cent of the merged Lloyds TSB and HBOS.
RBS chief executive Sir Fred Goodwin CA, chairman Sir Tom McKillop and director Johnny Cameron step down. Stephen Hester, chief executive of property developer British Land, takes over as chief executive.
At HBOS, chief executive Andy Hornby and chairman Lord Stevenson are to step down once the merger with Lloyds TSB is completed.
14 October> World stock markets rise after governments roll out bank rescue packages
Financial markets react positively to the massive programme of economic measures unveiled by governments around the world.
15 October> US government to take stakes in banks as part of rescue package
The US Government follows the British and European lead by unveiling a plan to buy equity stakes in US banks. The $250 billion (£143 billion) will be found from within the package already agreed by Congress.
Half of the cash earmarked for equity stakes will go to nine banks: Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, Merrill Lynch, Goldman Sachs, Morgan Stanley, Bank of New York Mellon andState Street.
16 October> Unemployment looks set to reach 2 million by Christmas
The number of people out of work in the UK shoots up to 1.79 million, as the state of the economy sparks still further concern. The jobless total goes up in the three months to August by 164,000 on the previous quarter, representing the largest rise for 17 years. The new figures bring the unemployment rate to 5.7 per cent of the workforce, from 5.2 per cent in the previous quarter.