Nerves are frayed again on Wall Street, where bankers worry about their jobs while the spectre of Lehman Brothers' collapse still haunts the financial world three years later.
“August was outright brutal,” Jefferies & Company Chairman Richard Handler said after the investment bank released its third-quarter results. “August was the third-worst month in the history of US credit markets, after September and October 2008.”
In mid-September 2008, the US investment bank Lehman Brothers filed for bankruptcy protection, precipitating a global crisis that continues to echo.
Europe's debt crisis and the weak US economy are now paralysing the banking industry, sparking fears of new problems to come.
Unresolved problems had already been lingering since 2008, with many US homeowners struggling to repay mortgages.
Investors burned by mortgage-backed securities gone bad are demanding billions of dollars in damages from the banks that sold them, and government regulators are tightening the screws on the financial sector. All this diminishes profits and deters risk-taking.
The dismal outlook has prompted some investors to shun bank shares. The KBW Bank Index, which consists of the stocks of 24
major US banks, has fallen about 30 per cent since the beginning of the year.
Bank of America's stock price has plummeted by more than half. In the first six months of 2011, the biggest US bank lost 7.4
Moody's Investors Service, which downgraded the bank's credit ratings, does not exclude the possibility of a bankruptcy, which could have far-reaching consequences. Bank of America has nearly four times the assets that Lehman Brothers had on its books, boasts one of the country's most extensive branch networks and some 58
Previously, it would have been regarded as “too big to fail.” But the US government - itself deeply in debt and weakened by the financial crisis - is now less likely to come to its rescue, Moody's said.
Even if major banks do not collapse, many of their employees are worried about their jobs.
Bank of America has announced plans to slash about 30,000 jobs over the next few years to cut costs. Jobs at healthier rivals, such as JPMorgan Chase and Goldman Sachs, are not safe either, and employees who get to stay will have to make do with smaller bonuses.
Wall Street has always followed a philosophy of hire and fire - but now the interval between the busts is growing shorter.
Many analysts have cut their profit forecasts for big US banks. The moment of truth comes in mid-October, when the financial institutions release third-quarter results. - Sapa-dpa