By Mary Jordan and Philip Pan
Washington Post Foreign Service
Saturday, September 20, 2008
LONDON, Sept. 19 -- From London to Moscow, European stock markets broke records for one-day gains as shares that had been plummeting all week sharply reversed course to end one of the most turbulent weeks ever.
In London the FTSE 100 rocketed 8.8 percent. In Moscow, authorities suspended trading on their stock market again -- but this time because it was rising too quickly. And from Dublin to Frankfurt, shares, led by those of banks, recorded major advances.
"We were very close to the abyss Thursday," Philippe Bonnefoy, chairman of Geneva-based Cedar Partners hedge fund. But thanks to the "fantastic" market response to U.S. government rescue plans, he said, "we are breathing a sigh of relief."
In Britain, there were cheers for government regulators' emergency ban on short-selling, a tactic in which people attempt to profit from stock values falling. Short-sellers have become a villain in this crisis, with analysts and headlines saying the practice was out of control. The Daily Mail called short-sellers "robbers in pinstripes."
Britain's biggest lender, HBOS, was forced into a merger with Lloyds this week, and many analysts said short-sellers were partly to blame. Thousands of bank employees -- by some estimates as many as 40,000 -- will lose their jobs in the merger.
"I am very angry that we can have a situation of a bank being forced into a merger by basically a short-selling bunch of spivs and speculators in the financial markets," said Alex Salmond, leader of the Scottish National Party.
Bonnefoy, of Cedar Partners, said in an interview that he thought it was "a good idea" to temporarily halt short-selling, but only as a "circuit breaker" -- an emergency measure "for a moment of contemplation amidst all the mania." Bonnefoy said betting on stocks going down is part of the capitalist system, and "you can't ban it, or you sound like the Soviet Union."
The ban is set to last until Jan. 16 and is to be reviewed in a month.
The volatility in Russia has been particularly acute. Earlier in the week, the government shut down the market during a devastating sell-off. Then Friday, the benchmark MICEX index soared 29 percent and its dollar-denominated RTS index climbed 22 percent. That recovered most, but not all, of the week's losses. A record three-day plunge had wiped out nearly a quarter of the value of both markets.
The remarkable rebound follows a series of emergency moves by the Kremlin to prevent bank failures and pump money into the financial system, including a plan for the government to spend as much as $20 billion buying stocks on the market to bolster prices.
"The government and the central bank have sufficient reserves to defend the currency and the financial system," Prime Minister Vladimir Putin told an investment forum, arguing that the sell-off had left the market "highly undervalued."
In Dublin stocks shot up 25 percent in morning trading and then ended 10.2 percent ahead for the day, a record. Paris jumped 9.3 percent, Milan was up 7.7 percent, Zurich climbed 6 percent and Frankfurt rose 5.6 percent.
London, the biggest financial headquarters in Europe, has been severely affected by the fallout from the U.S. credit crunch. In Canary Wharf, the financial hub along the Thames where many of the biggest banks have glitzy offices, accountants and bankruptcy lawyers worked inside the 33-story Lehman building guarded by police.
Lehman's collapse Monday has left nearly 5,000 people in its London offices uncertain about their future.
"People are shocked at the speed of what is happening," said Jane McDonald, a lawyer with banking clients who works in Canary Wharf. Few think the bad news is over, she said, as she ate lunch amid thousands of others enjoying the afternoon sunshine along the docks and outdoor cafes. She said no one is rejoicing yet in the market rebound because "we want to know what is going to happen next."
Tom Rovery, who works in the Timpson shoe repair stall in the Canary wharf subway station, said of his customers, "You can see the worry in their face."
Two traders who didn't want to be named spent their lunch hour drinking pints of beer at the popular Slug and Lettuce bar. On their BlackBerrys, they forwarded joke headlines related to the U.S. government's efforts to halt the market slide, including "U.S. Treasury to insure good weather for a week," and "U.S. Treasury to insure personal happiness."
"At least we can joke today," said one trader, a 29-year-old who kept minute-by-minute watch on the market's climb. "If the market had gone down again, we might not be laughing."
At a men's tailored shirt shop beside Lehman's landmark building, shopkeeper Simon Dessalgen said the wild swings are unsettling and definitely not good for business. At least people who have lost their jobs now need crisp new shirts for job interviews, he said. "I don't know what a credit crunch is," the shopkeeper added with a tape measure around his neck in his empty store. "But I know when people aren't spending money like they used to."
Pan reported from Moscow. Special correspondent Karla Adam contributed to this report.