Wall Street bank Lehman Brothers has filed for Chapter 11 of the U.S. Bankruptcy Code after emergency talks with the US Treasury decided not to fund the bank. The result of the Lehman Brothers crash will not only affect those in the states but will (and has already) hit both businesses and consumers across the UK.

The 150-year-old bank has ties with many banks and pension funds across England, Scotland and Wales, and has caused considerable losses on the stock market as a result of its collapse which occurred only yesterday (15th September).

With economies already weakened by the credit crunch, the crash of Lehman Brothers could not have come at a worst time. According to The Share Centre high street banks Barclays, Lloyds TSB and Royal Bank of Scotland have witnessed their share prices drop considerably, with HBOS topping the loser league with a share price drop of more than 24%. 

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During the past year Lehman reported billion-dollar losses and saw its share price plummet more than 95%.  However when the bank asked for help from the US Treasury, who have recently bailed out another American based bank Fannie Mae and Freddie Mac by nationalising the firm, they refused to use public money to rescue the business.

The Financial Services Authority (FSA) is working closely with the US authorities to ensure an orderly wind down of its principal UK trading subsidiary, Lehman Brothers International (Europe), which was placed into administration on the 15th September.

The Collapse of Lehman Brothers: How will consumers be effected by the Lehman Brothers Bankruptcy?

 “This is a shocking disappointment for an already fragile market,” comments Kevin Mountford, head of savings at moneysupermarket.com.

“Over the weekend many commentators suggested good news was on the way for consumers in the form of mortgage rate cuts following the US government’s bail out of Freddie Mac and Fannie Mae.”

“However, the collapse of Lehman will have put a swift end to those hopes,” adds Mountford.

Consumer confidence will be hit hard by the news, “especially amongst savers” says Mountford. He continues:

“The likelihood is that competitive rates will continue. Savings rates will remain strong and we may even see more competitive deals launched as banks, building societies and other financial institutions fight for deposits.”

Mountford asks for consumers not to panic but to keep an eye on the best buy tables over the coming weeks. He also calls for the Government to take decisive action and help revive consumer confidence – “or there is a real danger many people will prefer to keep their savings under the mattress than in their bank!”

The Collapse of Lehman Brothers: What does it mean for investors?

According to The Share Centre, UK investors can expect banks to continue in their reluctant to lend to each other.

Investors holding UK banking shares will see no improvement to their stock while those considering buying into the weakness at present should probably remain on the sidelines until the picture is a little clearer.

“While there are no safe havens in the banking sector at present, more adventurous investors looking to take advantage of the volatile markets and the weakness in the banking sector could do worse than HSBC, which is considered less risky than most due to its international brand,” advises Graham Spooner, Investment Adviser at The Share Centre.