Wall Street Shock Shakes World Financial Market

Lehman Brothers, the fourth-largest U.S. investment bank with 158 years of history, has filed for bankruptcy protection, rattling world financial markets.

Lehman filed for bankruptcy with the U.S. Bankruptcy Court for the Southern District of New York early yesterday morning after negotiations with Bank of America and Barclays to buy the troubled bank failed.

This bankruptcy is expected to deal a massive blow to the Korean financial sector, according to the Financial Services Commission yesterday. Korean banks and securities and insurance companies had more than 700 million U.S. dollars combined in bonds and derivatives issued by Lehman at of the end of June.

Merrill Lynch, the world’s largest stock brokerage and third-largest U.S. investment bank with 94 years of history, will be taken over by Bank of America.

The Wall Street Journal and other U.S. media said Bank of America will buy Merrill Lynch for 44 billion dollars. In response, Korea Investment Corp., the third largest shareholder of the troubled U.S. brokerage with a stake worth two billion dollars, scurried to find out details of the buyout.

Korean financial companies are likely to suffer damage from the impending doom facing the two U.S. corporate giants given their high investments in them.

At the same time, U.S. insurance giant AIG is reported to have sought a massive emergency loan worth 40 billion dollars from the Federal Reserve Bank, according to the New York Times.

Asian stock markets all plummeted yesterday due to the seismic shock from Wall Street. The Taiwan Stock Exchange closed at 6,052.45, down 4.09 percent (258.23 points) from Friday. Stock markets in Korea, China, Hong Kong and Japan were all closed for a public holiday and are likely to see a similar plunge today.

The Korean government is scheduled to hold an emergency meeting with representatives from the Strategy and Finance Ministry, the Financial Supervisory Commission and the Bank of Korea this morning. The agenda will be the likely repercussions of Lehman’s bankruptcy on the Korean financial market.

higgledy@donga.com parky@donga.com