ANALYSIS: Panic merger highlights crisis in City of London
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Published
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Thu, 18 Sep 2008 02:35
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London - The government-brokered rescue of Britain's biggest mortgage lender HBOS has come as proof - if any was needed - that the City of London is at the centre of the storm that has engulfed the global economy and thrown international markets into turmoil. The hasty union between Lloyds TSB, Britain's fourth-biggest high street bank, and top mortgage lender HBOS - Halifax Bank of Scotland - into the biggest-ever banking institution in the country, has been dubbed the "panic merger."The manner of its creation, and the sheer scale of the deal, are measures of the jittery nerves not only in the City, which prides itself as being Europe's foremost financial district, but also in the government, which has looked on helplessly as the turmoil escalated this week. The collapse of Lehman Brothers in the US was the final straw needed to lay open the British economy's unhealthy reliance on an inflated property market, and its dependence on unlimited borrowing and consumer spending, analysts believe. "I havenever seen anything like this in my 46 years in the City," one banker told the BBC. "While the depositors are calm the markets react violently. Business confidence has completely gone."The minute Lehman collapsed, predators circled over ailing HBOS, which had seen its share price halved over the past year and reach a rock bottom price of 88 pence this week. The government, terrified of having to preside over another banking failure after the near-collpase of mortgage lender Northern Rock last year, panicked and pushed Lloyds and HBOS into a merger, commentators said. Scenes this week of Lehman Brothers' employees in London carrying away their office belongings in cardboard boxes, and others drowning their sorrows in lagers and lattes, will become commonplace in the City, experts predict. "The whole town's got this wobbly feeling, wondering where it's all going to stop. It makes you very concerned when the big names start going down," one City worker said. In the 1990s boom, the banks and instituions in the City had for many become like a second home, where employees worked hard and played hard but also enjoyed the protection of institutions which paid huge bonuses and fitted staff out with gym kits, baseball caps and pre-paid credit cards for the canteen. The shock of Lehman Brothers, and now the panic merger, has put an abrupt end to that feeling of security. This week, a management consultancy predicted that 100,000 banking and finance jobs would be lost in the City next year because of the economic downturn. At the same time, both unemployment and inflation will be creeping up, as consumer spending is slowing and households are weighed down by spiralling costs. The government insists that the current difficulties are based exclusively on external factors - the worldwide credit crunch and the rise in oil and food prices. But Norman Lamont, the Conservative Chancellor of the Exchequer during the last serious economic crisis in the 1970s, does not agree with the Labour government's assessment. "The causes are not all international. We have created our own bubble here. It has been obvious for three or four years that something like this was going to happen," he said on Thursday.
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