My finance view

Downgrades of three U.S. investment banks, an ouster of Wachovia’s chief executive, and a bleak U.K. housing market outlook from a British mortgage lender shook markets on Monday, reigniting fears that the global credit crunch will continue to hurt the world economy.

Standard & Poor’s on Monday cut the credit ratings of Lehman Brothers (LEH.N: Quote, Profile, Research), Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research), and Morgan Stanley (MS.N: Quote, Profile, Research), and said the outlook for the large U.S. investment banks was now mostly negative.

The rating agency also warned that it may cut Wachovia Corp (WB.N: Quote, Profile, Research) after the U.S. bank ousted its chief executive Ken Thompson, following growing legal troubles and loan losses tied to the purchase of a big mortgage lender just before the U.S. housing market imploded.

S&P’s action rocked global markets already smarting from a stark warning on the state of UK housing from British lender Bradford & Bingley (BB.L: Quote, Profile, Research), as it tumbled into a loss for the first four months of the year and had to secure funding from a private equity group.

“It just reminds everyone how tenuous the situation is in the financial system now,” said Carl Lantz, U.S cash advances. interest rate strategist at Credit Suisse in New York.

Monday’s events sent U.S. and European stock indexes broadly lower and spurred a run to the safety of government bonds.

Several widely watched measures of investor anxiety also surged, reflecting the renewed investor nervousness.

The TED spread, which tracks the relationship between three-month U.S. Treasury bills and the London Interbank Offered Rate, moved to its widest in two weeks, and the Chicago Board Options Exchange Volatility Index, or VIX, shot up by the most in more than two months.  

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