Lehman Brothers, HBoS, Merrill Lynch...

After a turbulent week on the worlds financial markets we take stock.....

Lehman Brothers fell foul of the sub prime mortgage market in the US and announced on Sunday that they were unable to recover their losses after Barclays and Bank of America failed to save them with a joint takeover. At the same time there was an emergency takeover of Merrill Lynch for approximately $50bn by Bank of America and the insurance company AIG also announced they were in trouble.

Whilst Merrill Lynch has been saved from becoming another casualty of the credit crunch, the aftershock following the Lehman Brothers crash is being felt across the World this week as investors lose confidence and share prices suffer. The FTSE 100 was down 185 points on Monday morning following Sundays announcements and this was mirrored on an international scale.

To top it all, UK banking giant HBoS was in serious trouble this week and there were fears over them going the same way as Lehman Brothers and Northern Rock. In a sudden turn of events, Lloyds TSB has bought the troubled bank for £12.2bn in a controversial move. In other circumstances this takeover would have been refused under the competition laws as it is set to give the bank control over one in every three mortgages in the UK. However, in these exceptional circumstances it was felt that the risk of the bank failing far outweighed concerns over competition in the market if Lloyds TSB took control.

All of this has had a major effect on share prices as the FTSE has been through a bumpy ride this week, hitting its lowest level since 2005.

Effects on borrowers

Whilst the mortgage market seems to be experiencing a relaxation in terms of rates in this country with lower borrowing costs from the Halifax and the Woolwich in recent weeks, other countries may not be so lucky because Continental banks are currently squeezing borrowers. Unlike the European Central Bank the Bank of England seems anxious to avoid deflation which should see them cutting interest rates again over the coming months with November being the most likely time, providing a welcome relief to homeowners with tracker mortgages.

One dark cloud on the UK mortgage horizon concerns the loans to value that lenders are likely to be comfortable with and we do, unfortunately, expect 95% borrowing to disappear in the short term at least which could mean that those with smaller deposits who intend to buy should act quickly.

One mans pain is another mans gain!

Ironically, now may be the perfect time to begin drip feeding money into the stock market as any short term bumps should even themselves out in the long term. The last time we saw a day like Monday in the markets was September 11th when the Twin Towers were hit and stock exchanges soon bounced back.

If you can view your investments as a long term fund then there is no reason why you cant profit from the misfortune of Lehman Brothers although it would be advisable to refrain from investing if you need access to the funds in the short term. Traditionally, investing when the markets are down is the best bet when it comes to long term gains and the current conditions cannot last forever.

Customers of HBoS are urged not to panic as it's business as usual since the Lloyds TSB takeover was announced. If anything they can rest assured that the move will almost certainly secure the future of the bank for the duration of the credit crunch and beyond.

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