Bankers fear Lehman could spur recession

Dubai: Gulf markets continued to reel under bearish sentiment on Tuesday following the spectacular collapse of banking behemoth Lehman Brothers on Sunday.

The Dubai Financial Market General Index fell 2.2 per cent to 3,945.30 while the Abu Dhabi Securities Exchange Index squeezed out a marginal gain of 0.42 per cent, closing at 3,770.44.

Two-day losses in the UAE have hit Dh25.39 billion, piling up Dh4.39 billion on Tuesday on top of Sunday's Dh21 billlion slaughter.

In Dubai, market regulator Dubai Financial Services Authority (DFSA) stopped operations of Lehman Brothers until further notice. "On 15 September 2008 Lehman's was placed under administration in the United Kingdom," DFSA said in a statement on Tuesday.

"The effect of that action was to place control of Lehman and all its operations, including its Dubai International Financial Centre branch operation, under control of the administrators, PriceWaterhouse Coopers. Until and unless the administrators determine otherwise, Lehman is precluded from conducting business."

The Dubai Mercantile Exchange, the DIFC-based commodities exchange, also suspended Lehman's membership. As the magnitude of the global crisis began to sink in, financial markets, regulators and banks across the region have started to assess their exposure.

"We have done an initial assessment, but [exposure] is marginal," Sanjay Uppal, Chief Financial Officer of Emirates NBD, the largest regional bank by assets, told Reuters yesterday. Many analysts, however, said it is too early to rule out any risk, and Saudi central bank governor Hamad Saud Al Sayyari echoed this sentiment.

"At the moment ... I don't see any risk, but this crisis just started yesterday," he told reporters on the sidelines of the meetings of GCC central bank governors in Jeddah. UAE Central Bank Governor Sultan Nasser Al Suwaidi and Oman Governor Hamud Bin Sangur Al Zadjali said banks in their respective countries are not affected by the current crisis. Anal-ysts fear that the macro impact of the US financial crisis has the potential to tailspin into a global recession, with oil heading south on weak demand, and the dollar slipping if the US Fed is forced to cut interest rates.

Prey to speculation

Oil fell more than 4 per cent to $91.75 a barrel. "What I think is we are insulated but we are not isolated," said Marios Mara-theftis, regional head of research at Standard Chartered. As the day advanced, Wall Street fell prey to speculation about a possible rescue of American International Group Inc after disappointing quarterly results from Goldman Sachs Group Inc failed to lift the deep gloom over financial markets.

US stocks briefly turned positive and European shares pared losses after CNBC television, said a government role in an AIG bailout was being discussed but that no resolution had been reached. Sentiment also brightened on hopes the Fed would cut interest rates to calm turbulent fin-ancial markets.