Freefalling stocks pile pressure on G7 policymakers

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Crisis deals under severe pressureIMF unsure if worst financial crisis is over

LONDON: The world’s economic powers faced huge pressure on Friday to devise drastic remedies to revive the banking system and end panic selling in financial markets.

Finance ministers and central bankers from the Group of Seven nations meet in Washington against a backdrop of plunging shares after bank bailouts, liquidity injections and coordinated interest rate cuts failed to get funds flowing again.

Morgan Stanley will be in the spotlight on Wall Street, which looked set to follow European and Asian stock markets and fall sharply.

Investors appeared unconvinced about Morgan Stanley’s deal with Japan’s Mitsubishi UFJ. Shares in the bank have lost nearly half their value in the last three days on worries Mitsubishi UFJ may back out of injecting much-needed capital.

Underlining the impact of the crisis, General Electric Co reported a 22 percent drop in third-quarter net income, with the global crunch hurting its hefty GE Capital arm.

In a bid to unfreeze bank lending, the U.S. government is weighing guaranteeing billions of dollars in bank debt and temporarily insuring all U.S. bank deposits, The Wall Street Journal reported.

European shares were down around seven percent, having already lost more than 15 percent in the previous four days. They were at their lowest level since 2003.

Japan’s Nikkei earlier tumbled nearly 10 percent, registering its biggest one-day drop since a 1987 crash and losing nearly a quarter of its value in a week.

Bourses in Iceland, Russia, Austria, Indonesia, Romania and Ukraine all closed as a result of the share price falls.

“It’s as if the financial system has lost its capacity to function,” said Mike Lenhoff, chief market strategist at Brewin Dolphin in London.

G7 MEETING

The crisis claimed its first Japanese financial institution — unlisted Yamato Life Insurance Co., which had $2.7 billion debts. The government looked to prop up smaller banks.

Focus was on the G7 meeting later on Friday and on a meeting of G20 ministers — which includes large emerging economies such as Brazil — on Saturday.

The ministers and bankers face intense pressure to coordinate a response to restore faith in the financial system.

“It’s time for the ‘kitchen sink’ — as in, throw everything there is at the problem and in such scale that the ‘shock and awe’ break the current cycle of fear,” Charles Diebel, a rate strategist at Nomura, said in a note to clients.