Roddy Graham's Blog: 18 September 2008 - Economic rollercoaster, part 2
18 September 2008
Roddy Graham is chairman of the ICFM and commercial director of Leasedrive Velo
Last week I referred to one hell of a rollercoaster economic year. Little did I, or anybody else, know what a ride we would have this week following the demise of Lehman Brothers.
My focus last week was on the price of oil, which has now dropped again below $100 a barrel. This week my focus, like everyone else's is on the stock markets. We've seen falls across the world but not nearly so sharp as on Black Monday.
Last night the FTSE 100 dropped below the 5000 mark as the London banking sector was subject to volatility on news of advanced talks between Lloyds TSB and HBOS to effectively 'bail out' the latter - now confirmed. This follows a dramatic loss in stock market confidence since Monday which saw the HBOS share price drop by 40% after the Lehman Brothers news broke.
Over the pond, the US Government has taken control of yet another business, hot on the heels of Freddie Mac and Fannie Mae, this time Manchester United's sponsors, AIG. The Federal Reserve bailed out the world's largest insurer with an $85bn emergency bail-out. At 2.00am yesterday morning, Barclays agreed a $1.75bn deal to buy the core business of Lehman Brothers, the investment bank that filed for bankruptcy on Monday. It had tried buying the bank over the weekend but pulled out to see it file for Chapter 11 bankruptcy. What we are witnessing is Wall Street suffering its worst financial crises since the Great Depression.
In Russia trading on two exchanges was halted yesterday as share prices plummeted.
We could be forgiven for panicking but that is the last thing anybody should be doing. We should remain calm and not talk things down as the doom-mongers have been doing since last year and the "profit-whisperers" have been doing these past few weeks.
I do not need to spell out what this means for the fleet industry. All the talk has been of the effects of a credit crunch, with the full effects of the wash-out of the sub-prime market in the USA yet to be felt.
We're not feeling a wash-out now, more a tidal wave effect. I just hope it does not become a Tsunami!
The word from the wise is that if the HBOS/Lloyds TSB merger is successfully consummated, with a 'bye' from the competition commission, then this would certainly more than steady the ship in London.
Overseas might be a different matter.
Nobody can tell where it all will end, how many unsupported debts there are out there. One thing is certain, there will be need for sounder financial regulation. Expect corrective measures to be taken but hopefully no knee-jerk reaction, which might depress the markets further.
Economists still maintain our recession, when it comes sooner rather than later, will not be as deep as the one of the early nineties.
What is clear is that it is those leasing companies that have maintained a tight ship these past few years which will stay afloat. For our industry sadly there will be some losers. A further consolidation of the market, as will happen in the banking sector, is inevitable.
Hold on tight, the rollercoaster ride is not over by a long way.