SEPTEMBER 18, 2008
F1 fiddles on as Wall Street burns
The insular world of Formula 1 eats money, which is fine as long as money is available to spend. The upheavals in the financial world in recent weeks will have an effect on confidence in the business world and that will probably result in companies being less likely to invest in expensive F1 sponsorships.
The American financial industry may seem a long way from the world of F1 but with shares tumbling in value, banks going to the wall and the government bailing out insurers, these are unsettled time. US shares dropped by four percent on Wednesday to record a three-year low and this was reflected in trading overnight in Japan. In the financial sector there are fears that the last of the big investment banks, Morgan Stanley and Goldman Sachs, may run into trouble following the collapse of Lehman Brothers and the purchase of Merrill Lynch by the Bank of America. In addition the US Federal Reserve has poured $85bn into the insurance firm AIG to save it from bankruptcy. This follows similar bailouts of government sponsored mortgage finance giants Fannie Mae and Freddie Mac.
Morgan Stanley has suffered a drop in share price of 25% and is reported to be considering a merger with the Wachovia Bank, while Goldman Sachs shares dropped 14% in value as confidence fell.
In times of crisis there are always opportunities and Britain's Barclays Bank has bought the core assets of Lehman Brothers for $1.75bn. This means that, in theory at least, the shares of the Formula One group owned by Lehman Brothers (and the debts outstanding to the bank from the company) and now owned by Barclays.
The mayhem in the financial world and the tightening of credit and consumer spending are likely to impact on all consumer companies, not least the car manufacturers and so the need for cost-cutting in Formula 1 remains more important than ever, lest the sport starts to lose players who need to pull back and save money.
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