Effects of Lehman collapse predicted

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Effects of Lehman collapse predicted

Pensions and shares will be among the financial areas to be affected by the collapse of Lehman Brothers.

The US's fourth-largest investment bank's declaration of bankruptcy has been widely reported.

Mercer's Financial Strategy Group said that losses due to holdings in equity markets would mean pensions are affected and also said the bank's demise would prove "the first real test of the documentation underlying many 'Liability Driven Investment' or LDI strategies".

He said that many pension funds use derivative contracts such as interest rates and inflation swaps and that Lehman's demise would cause a lot of derivative contracts between it and pension funds to be ended.

Meanwhile, the Share Centre said investor confidence would suffer and agitate banks' existing reluctance to lend to each other.

It suggested that people "considering buying into the weakness at present" should postpone any action "until the picture is a little clearer" although HSBC is considered safer due to its international nature.

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