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| Lehman collapse: what has happened to the markets since? | Lehman collapse: what has happened to the markets since? |
| (2 months later) | |
| Stock market returns since Lehman’s collapse | Stock market returns since Lehman’s collapse |
| Lehman Brothers filed for bankruptcy on 15 September 2008, prompting a fall in the FTSE 100 of 4%. It was the beginning of a slump that by Christmas of that year had resulted in 23.4% being wiped off the value of Britain’s top 100 companies. | Lehman Brothers filed for bankruptcy on 15 September 2008, prompting a fall in the FTSE 100 of 4%. It was the beginning of a slump that by Christmas of that year had resulted in 23.4% being wiped off the value of Britain’s top 100 companies. |
| As a stock market crash, it ranks alongside the dotcom bubble and the shock of 1987, says the analyst Laith Khalaf of stockbrokers Hargreaves Lansdown. However, while living standardshave flatlined since that date, the stock market revival has been nothing short of spectacular. An investment of £10,000 in the FTSE All-share index in August 2008, before the Lehman crash, would now be worth £14,893, without including dividends, and £21,352 with dividends reinvested. | As a stock market crash, it ranks alongside the dotcom bubble and the shock of 1987, says the analyst Laith Khalaf of stockbrokers Hargreaves Lansdown. However, while living standardshave flatlined since that date, the stock market revival has been nothing short of spectacular. An investment of £10,000 in the FTSE All-share index in August 2008, before the Lehman crash, would now be worth £14,893, without including dividends, and £21,352 with dividends reinvested. |
| The US markets have gained even more. A £10,000 investment in the S&P 500 in September 2008 would now be worth nearly £40,000, with dividends reinvested. That phenomenal performance is partly down to the rise in value of the Faang stocks – Facebook, Apple, Amazon, Netflix and Google – and also helped by the weaker pound boosting returns for UK investors. | The US markets have gained even more. A £10,000 investment in the S&P 500 in September 2008 would now be worth nearly £40,000, with dividends reinvested. That phenomenal performance is partly down to the rise in value of the Faang stocks – Facebook, Apple, Amazon, Netflix and Google – and also helped by the weaker pound boosting returns for UK investors. |
| Best performing shares in the FTSE 100 since Lehman | Best performing shares in the FTSE 100 since Lehman |
| London Stock Exchange Group + 545% | London Stock Exchange Group + 545% |
| Intercontinental Hotels +515% | Intercontinental Hotels +515% |
| Fashion chain Next, Costa coffee and Premier Inn group Whitbread and Sky TV are all up more than 200% | Fashion chain Next, Costa coffee and Premier Inn group Whitbread and Sky TV are all up more than 200% |
| Worst performing shares from FTSE 100 when Lehman collapsed | Worst performing shares from FTSE 100 when Lehman collapsed |
| Lonmin (mining business, extracting platinum in South Africa) -99.8% | Lonmin (mining business, extracting platinum in South Africa) -99.8% |
| Royal Bank of Scotland -89.7% | Royal Bank of Scotland -89.7% |
| Lloyds Banking Group, Thomas Cook, outsourcing firm Capita and transport firm First Group are all still down more than 50% | Lloyds Banking Group, Thomas Cook, outsourcing firm Capita and transport firm First Group are all still down more than 50% |
| UK recession and recovery | UK recession and recovery |
| Economic output fell by 6.1% after the crash and it took 21 quarters for GDP to return to pre-crisis levels, according to ONS data. Real wages are still below pre-crisis levels. In September 2008, regular pay stood at £465 a week, compared with £461 today when inflation is taken into account. It dipped to £442 per week in March 2014, also according to figures from the ONS. | Economic output fell by 6.1% after the crash and it took 21 quarters for GDP to return to pre-crisis levels, according to ONS data. Real wages are still below pre-crisis levels. In September 2008, regular pay stood at £465 a week, compared with £461 today when inflation is taken into account. It dipped to £442 per week in March 2014, also according to figures from the ONS. |
| Lehman Brothers filed for bankruptcy on 15 September 2008. With $639bn in assets, it was the biggest bankruptcy filing in history – 10 times the failure of the fraud-riddled energy company Enron. | Lehman Brothers filed for bankruptcy on 15 September 2008. With $639bn in assets, it was the biggest bankruptcy filing in history – 10 times the failure of the fraud-riddled energy company Enron. |
| The collapse of Lehman, which was the oldest and fourth-largest US investment bank, with 25,000 employees (including 4,500 in Canary Wharf), sparked the global financial crisis. | The collapse of Lehman, which was the oldest and fourth-largest US investment bank, with 25,000 employees (including 4,500 in Canary Wharf), sparked the global financial crisis. |
| Lehman’s demise was driven by its exposure to subprime mortgages. Too many home loans had been extended to borrowers with no chance of ever repaying them. There was even a nickname for them – “ninja” loans – for people with no income and no job or assets. Those risky loans were sliced up and bundled with less risky ones and sold off in parcels to banks around the world. The belief was that these collateralised securities offered high returns at minimal risk. The belief was that not all mortgage borrowers would default at the same time. That belief was wrong. | Lehman’s demise was driven by its exposure to subprime mortgages. Too many home loans had been extended to borrowers with no chance of ever repaying them. There was even a nickname for them – “ninja” loans – for people with no income and no job or assets. Those risky loans were sliced up and bundled with less risky ones and sold off in parcels to banks around the world. The belief was that these collateralised securities offered high returns at minimal risk. The belief was that not all mortgage borrowers would default at the same time. That belief was wrong. |
| Lehman’s fate was sealed when Alistair Darling, the then chancellor, refused to provide state guarantees for the bank’s takeover by Barclays. Bob Diamond, who was then the head of Barclays’ investment bank, had been trying to broker over the weekend of 13-14 September. Darling later recalled: “I could not imagine standing up in the House of Commons on the Monday morning explaining that we had put the UK taxpayer in hock so that Barclays could buy Lehman. Half the Barclays board was relieved.” | Lehman’s fate was sealed when Alistair Darling, the then chancellor, refused to provide state guarantees for the bank’s takeover by Barclays. Bob Diamond, who was then the head of Barclays’ investment bank, had been trying to broker over the weekend of 13-14 September. Darling later recalled: “I could not imagine standing up in the House of Commons on the Monday morning explaining that we had put the UK taxpayer in hock so that Barclays could buy Lehman. Half the Barclays board was relieved.” |
| At 1am in New York on Monday 15 September the bankruptcy of Lehman Brothers was declared. Reporters and photographers descended on its offices, taking those now-famous photos of Lehman employees carrying out their belongings in cardboard boxes. Rupert Neate | At 1am in New York on Monday 15 September the bankruptcy of Lehman Brothers was declared. Reporters and photographers descended on its offices, taking those now-famous photos of Lehman employees carrying out their belongings in cardboard boxes. Rupert Neate |
| Employment, though, has soared in the last 10 years and unemployment has dropped to lows not seen since 1975. Following the 2008-09 recession the unemployment rate rose to 8.5% but has now receded to 4% – the lowest level for 43 years. | Employment, though, has soared in the last 10 years and unemployment has dropped to lows not seen since 1975. Following the 2008-09 recession the unemployment rate rose to 8.5% but has now receded to 4% – the lowest level for 43 years. |
| Pension black holes | Pension black holes |
| Low interest rates and the Bank of England’s quantitative easing programme have driven down the interest rates pension funds can earn over the long term. The 10-year gilt yield, which is a proxy for the interest rate paid on government bonds, fell from 4.5% before the collapse of Lehman to around 3% in the aftermath, then fell back to below 2% during the eurozone debt crisis, then to a little over 0.5% after the Brexit vote. | Low interest rates and the Bank of England’s quantitative easing programme have driven down the interest rates pension funds can earn over the long term. The 10-year gilt yield, which is a proxy for the interest rate paid on government bonds, fell from 4.5% before the collapse of Lehman to around 3% in the aftermath, then fell back to below 2% during the eurozone debt crisis, then to a little over 0.5% after the Brexit vote. |
| Pension liabilities, which are the long-term costs faced by a retirement plan, rise as gilt yields fall. So while lower interest payments on government debt is good for the Treasury, pension funds found their deficits widening. The 10-year gilt is now 1.49%. | Pension liabilities, which are the long-term costs faced by a retirement plan, rise as gilt yields fall. So while lower interest payments on government debt is good for the Treasury, pension funds found their deficits widening. The 10-year gilt is now 1.49%. |
| House prices | House prices |
| Like share prices, house prices dipped following the crash only to recover in most parts of the country – and spectacularly in London. | Like share prices, house prices dipped following the crash only to recover in most parts of the country – and spectacularly in London. |
| In September 2007 the average UK house price was £190,032. By March 2009 it was £154,452, according to ONS/HM Land Resistry data. The average house price is now £228,384. | In September 2007 the average UK house price was £190,032. By March 2009 it was £154,452, according to ONS/HM Land Resistry data. The average house price is now £228,384. |
| The strongest growth has been in the capital, the east and the south-east of England. Prices in Northern Ireland and the north-east are still below September 2007 levels. | The strongest growth has been in the capital, the east and the south-east of England. Prices in Northern Ireland and the north-east are still below September 2007 levels. |
| A lost decade for savers | A lost decade for savers |
| Huge sums have poured into savings accounts since the crash. Unfortunately the low interest rates adopted to help the economy mean the average interest paid on deposit accounts has slumped from 3.1% in 2008 to 0.43%, according to Bank of England figures. | Huge sums have poured into savings accounts since the crash. Unfortunately the low interest rates adopted to help the economy mean the average interest paid on deposit accounts has slumped from 3.1% in 2008 to 0.43%, according to Bank of England figures. |
| Many accounts pay no interest at all and the sums in these has swollen from £48bn in September 2008 to £164bn today. A sum of £10,000 held on deposit for the last 10 years would now be worth £10,852 – or £8,790 when inflation is taken into account. | Many accounts pay no interest at all and the sums in these has swollen from £48bn in September 2008 to £164bn today. A sum of £10,000 held on deposit for the last 10 years would now be worth £10,852 – or £8,790 when inflation is taken into account. |
| All figures supplied by Hargreaves Lansdown | All figures supplied by Hargreaves Lansdown |
| Lehman Brothers | Lehman Brothers |
| Banking | Banking |
| Financial crisis | Financial crisis |
| Economics | Economics |
| Financial sector | Financial sector |
| Property | Property |
| House prices | |
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