Aftershock plunges economies into crisis

Dow plunges amid dire warnings from all sectors

Special report: terrorism in the US

Julia Finch and Jill Treanor Thursday September 20, 2001 The Guardian

The full financial toll of last week's terrorist attacks started to become apparent yesterday as a stream of big companies across Europe and America warned of sharp falls in sales and profits. The deluge of bad corporate news from more than 50 companies in the United States alone dealt a further blow to already nervous stock markets and exacerbated the difficulties facing global economic policy-makers.

Despite the series of emergency interest rate cuts around the world to shore up confidence in the financial markets, the bellwether Dow Jones index had fallen by 420 points to 8,484- more than 4% - by early afternoon, leaving it at its lowest level for more than three years, and more than 11% lower than when the suicide hijackers struck. In the UK, the FTSE 100 index fell 127 points to 4721. Some £80bn has now been wiped off the value of Britain's top companies in the past week.

In the immediate aftermath of the atrocity, companies were unable to quantify the damage to their prospects. A week on, they are now beginning to calculate the financial impact of the abrupt downturn in spending, travelling and orders.

The pain is being felt across all sectors of commerce.

Abandoned

Seattle-based Boeing yesterday confirmed 31,000 job losses as a result of pulled orders for new planes. The Italian designer label Prada abandoned plans for a cash-raising £1.3bn stock exchange listing as a result of turmoil in the markets and the uncertain outlook for big-ticket luxuries bought primarily by tourists.

Speaking ahead of today's meeting of EU finance ministers in Liege, Ernst Welteke, the president of Germany's Bundesbank, described the problems facing the monetary authorities as "unprecedented" last night.

Mr Welteke said that central banks and governments were now working in the dark to keep the world economy alive without any post-attack economic data or any precedent to follow. "This is now a calculation of a greater number of unknowns than before," he said.

The scale of pre-attack problems was demonstrated yesterday when a Canadian fibre-optics manufacturer, JSD Uniphase, recorded the world's biggest corporate loss of £38bn.

Other companies that were already under pressure from looming recession are now claiming to be close to collapse.

Several airlines have already warned that they are close to bankruptcy. Yesterday American Airlines - which had two planes hijacked - and a rival carrier, Continental, stepped up pressure on the Bush administration for a swift financial rescue package. Continental warned that it may be forced to seek Chapter 11 protection from creditors as early as next week.

In the UK, British Airways, which is poised to announce thousands of job losses this morning, and Sir Richard Branson's Virgin are also seeking cash help. The chief executives of six European airlines are to meet the EU transport commissioner, Loyola de Palacia, today to call for tax breaks and compensation for losses suffered in the past week.

European airlines believe they face a combined loss of £20m for each day their north Atlantic planes were grounded.

Any failures among the airlines could have reverberations in the banking sector, which finances the purchase of aircraft through lease arrangements.

Insurance companies are also still trying to tot up the cost. By yesterday, 55 of them had calculated they face £10bn of claims and the final figure is likely to be much higher.

The leisure industry is also being battered by a fear of travelling. Europe's biggest hotel group, Accor, warned that the 15% rise in its earnings next year would now be wiped out and confirmed plans to cut costs - and inevitably jobs.

Car manufacturers around the world will not be spared. The credit rating agency Standard & Poor's said that demand for new cars and trucks is now expected to be "exceptionally weak for at least the next six months". It expressed particular concerns about Ford, which released its profits yesterday, and General Motors. Even without the impact of last week's events, the UK arm of Ford lost a much greater than expected £636m.

The media company Viacom and Europe's biggest broadcaster, RTL, cast more gloom over the TV industry when they admitted that advertising had gone into freefall in the past week.

The fall in the US stock market is regarded as crucial to future prospects of the global economy. Richard Jeffrey, an analyst Charterhouse Economics said the plunge in the Dow Jones index would shatter US consumer confidence because some 50% of Americans own shares.

"The fall has a wealth effect and that will hit spending," Mr Jeffrey said.

•100,000 jobs are likely to go in the US airline industry

•Boeing is to axe 31,000 staff as orders for new planes are cancelled

•New York may have lost up to a fifth of prime office space in its financial district

•European airlines estimate their losses in the days when North Atlantic routes were closed at around £80m

•55 insurance companies have so far estimated the cost of disaster payouts at £10bn - and counting

•The Dow Jones and FTSE-100 indices are at their lowest for three years.

•More than 50 US companies yesterday issued profits warnings

•£80bn has been wiped off the value of leading UK companies in the past week

•US Federal Reserve has pumped more than $150bn into the world financial system to shore up confidence

•Sales in some West End stores in London were down 30% in the wake of the attacks last week

http://www.guardian.co.uk/wtccrash/story/0,1300,554912,00.html

-- Martin Thompson (mthom1927@aol.com), September 20, 2001