The global financial crisis hit home today with HSBC reporting a 70 per cent fall in profit, Japan suffering plunging car sales and oil falling by $1.
Oil declines as world economy takes a hit
Plunging Japanese car sales and a record drop in South Korea's industrial output underlined the ravaging impact of the global financial crisis today, as concerns pummelled stocks. Also, oil prices dropped by more than a dollar on expectations of prolonged weakness in demand for energy, dealers said. New York's main futures contract, light sweet crude for delivery in April, fell $1.31 (Dh4.81) to $43.45 a barrel in electronic deals before the start of floor trading. In London, Brent North Sea crude for April shed $1.27 to $45.08 a barrel. Stock markets in Asia and Europe suffered losses after Wall Street sank to 12-year lows in the face of deepening gloom over the global economy and the plight of major banks. Fears over the health of the banking sector also grew after HSBC reported a 70 per cent fall in annual net profit as bad debts surged, and said it planned to raise almost $18 billion by issuing new shares. In Japan, industry data showed sales of new cars, trucks and buses plunged 32.4 per cent in February compared to a year earlier in a sector battered by a steep decline in spending, with consumers opting to save amid the downturn.
The seventh straight-month decline comes as Asia's biggest economy endures its worst recession in decades. Fears that South Korea is slipping into recession faster than expected were deepened by official figures showing industrial output tumbled at the sharpest rate on record in January. "The data reflects a continued economic downturn," said Yoon Myung-Jun of the National Statistical Office, attributing the decline to reduced automobile and electrical component production.
The NSO said production in mining and manufacturing shrank 25.6 per cent in January from a year earlier compared with a revised 18.7 per cent year-on-year decline in December. It is the biggest contraction since the data was first compiled in January 1970. A Moody's analyst Daniel Melser said the figures heralded "the worst period for manufacturing in many years". In Shanghai, deputy commerce minister Zhong Shan warned the financial crisis had not bottomed out yet and China's foreign trade in 2009 would face "a severe situation," state media reported.
Independent brokerage CLSA said activity in China's manufacturing sector declined for a seventh consecutive month in February but the contraction slowed from previous months. The gloomy news saw Asian stocks fall on the back of Wall Street's dive to its lowest levels in about 12 years Friday. Japan's Nikkei stock index tumbled 3.81 per cent, South Korean shares closed 4.2 per cent lower and Hong Kong shares ended a gruelling morning session down 3.8 per cent.
The sell-off followed figures showing the US economy suffered a 6.2 per cent drop in activity in the fourth quarter while the eurozone shed 250,000 jobs in January. Banking fears were exacerbated by HSBC announcing a rights issue amid the slump in net profit and after the US government said Friday it would increase its stake in ailing Citigroup to 36 per cent. Meanwhile, according to the Wall Street Journal, insurance giant AIG is to receive up to an additional $30bn in federal assistance.
Under the new plan, American International Group would repay most of the $40bn it owes the Federal Reserve with equity stakes in two of its overseas units. The company is already expected to announce a fourth-quarter loss of about $60bn later today. The US government bailed out AIG for more than $150bn in 2008 after a home mortgage crisis that sent shockwaves across the world's financial markets. Elsewhere, media and telecoms giant Vivendi announced a 1.38bn euro loss in the fourth quarter.
The financial crisis was sparked by so-called subprime loans in the United States made to borrowers who were not fully credit-worthy. The loans were also resold as complicated investment instruments to banks, institutions and private investors around the world. Once large-scale defaults hit, the impact was felt worldwide. Governments have mobilised trillions of dollars to counter the crisis, and that had some positive effects between November and February, the Bank for International Settlements said.
However the impact of such massive state aid packages on budget balances is leading to intense pressure on the government debt market, the world's largest central banking body said in its latest quarterly review. British Prime Minister Gordon Brown said on Sunday he will head to Washington this week hoping to win President Barack Obama's backing for a "global grand bargain" to save the world economy.
He earlier attended an emergency European Union summit in Brussels, where leaders ruled out a regional bailout plan for eastern Europe, instead offering only case-by-case aid. *AFP