The international financial turmoil came closer to home yesterday when a British bank that has loaned about $3 billion to New Zealand businesses was swallowed in a $32 billion emergency takeover.
The British Government stepped in to help smooth the deal for HBOS to be bought by Lloyds TSB, amid fears of possible bankruptcy for HBOS and calamity for its 15 million savers.
Under the deal, HBOS's New Zealand and Australian operations could be sold and investments reviewed.
The panic in global markets reached "historic intensity" yesterday, according to Britain's Financial Times.
"Barometers of financial stress hit record peaks across the world," it said.
So keen were investors to find a haven that they piled money into short-term US Treasury bills, even though they were offering only 0.02 per cent interest, the lowest rate since January 1941.
In the US, the stock market took another dive, hit by selling from investors worried that the financial crisis was spinning so far out of control that even government rescues couldn't stop it.
Share prices in New Zealand, Australia and throughout Asia fell sharply again yesterday.
The New Zealand market plunged 3.4 per cent - its worst one-day drop since November 5, 2002.
In Russia, the market remained closed after big drops in share prices on Wednesday.
The US Federal Reserve announced last night a US$180 billion ($275.14 billion) cash line to fight the financial crisis.
The move was to fight "continued elevated pressures in US dollar short-term funding markets", it said.
The Federal Reserve said those actions, and the latest more technical measures to relieve tension on the dollar money market, "are designed to improve the liquidity conditions in global financial markets".
It acted minutes after the Bank of England announced that leading central banks around the world would make a concerted onslaught through intervention in money markets.
These extraordinary statements came after huge falls on stock markets and in US Treasury bond yields, a surge in the price of gold, reports that investment bank Morgan Stanley is looking for help after the collapse of Lehman Brothers, and uncertainty after the bail-out of US insurance giant AIG.
Harvard economics professor Kenneth Rogoff said America would need "very deep pockets" to fix the system.
"It is hard to imagine how the US Government is going to succeed in creating a firewall against further contagion without spending five to 10 times more than it has already - that is, an amount closer to US$1000 billion to US$2000 billion."
Yesterday was the fourth consecutive day of turmoil for the American financial system.
As the stock market staggered, the price of gold, which rises in times of panic, jumped by as much as US$90.40 an ounce to US$870.90 an ounce.
It was the metal's biggest one-day rise.
Bonds, a traditional safe haven for investors, also climbed.
The Wall St Journal said: "The US financial system resembles a patient in intensive care. The body is trying to fight off a disease that is spreading and as it does so, the body convulses, settles for a time and then convulses again. The illness seems to be overwhelming the self-healing tendencies of markets."
In New Zealand, the merger of Lloyds TSB and HBOS has sparked talk that the combined company could sell HBOS Australia, which lends money to property and finance companies in New Zealand through its subsidiary, BOS International.
Those loans include $35 million helping to prop up consumer finance company Geneva, a $70 million loan to the failed Dominion Finance and a proposal to increase lending from $75 million to $150 million to help save Strategic Finance.
It has also made extensive loans to New Zealand property developers, including $151 million to Christchurch's Infinity Group for its Pegasus Town residential development expected to house 5000 people, and undisclosed loans thought to be more than $300 million each to retail property developer New Zealand Retail Property Group, the owner of Auckland's Milford, Westgate and Highpoint shopping centres and Landco, the developer of a new Mt Wellington subdivision.
Market commentator Arthur Lim said the HBOS takeover was a continuation of the "sorting out of the financial services sector".
"When the crisis broke last year, billions were pumped into the markets to no avail. They just staved off the day of reckoning.
"Merrill Lynch and HBOS are being acquired at prices that make acquisitions work."
A spokesman for HBOS Australia said he could not comment on what the buy-out would mean for the business, but as far as it was concerned it was "business as usual".
Pegasus Group spokeswoman Hetty van Hale said she did not believe its loan would be affected by the change in ownership.
Also closer to home, shares in Australian investment bank Macquarie plummeted 23 per cent in one day - from A$33.93 to A$26.05 - after ratings agency Standard and Poor's down-graded its outlook for the company from stable to negative.