Edward Bonham Carter, chief executive of Jupiter Asset Management, comments on Monday's dramatic events on Wall Street:

"As Alan Greenspan, the former head of the US Federal Reserve, has pointed out, these are seminal events. It looks as though the Fed has chosen not to provide government support for Lehman Brothers, which has had to file for Chapter 11 bankruptcy. However, only the holding company has filed for Chapter 11, meaning that some of Lehman's subsidiaries can continue trading. This allows time for buyers to be found for businesses such as its broker-dealer arm.

"In addition, Bank of America has agreed to buy Merrill Lynch - probably with the encouragement of the Federal Reserve - as the central bank seeks to avoid the domino effect of systemic collapse. As if that were not enough, AIG, one of the world's biggest insurers, is looking to raise capital after its share price tumbled on Friday.

"These events are likely to shake confidence in the financial system and lead to a fall in inflation. One would expect economic confidence to take another knock as a result, and the probability of interest rate cuts to increase. Without rate cuts, the coming economic recession will be significantly exacerbated.

"History will judge whether the Fed's decision not to save Lehman proves to be the correct one. Such inaction suggests that for the effective operation of shareholder capitalism, firms must be allowed to fail.

"The authorities are placing belief in the proposition that an investment bank such as Lehman can go out of business without triggering widespread panic in the rest of the system. At the same time, it remains the key role of authorities in the US, Europe and the UK to ensure that while shareholders are exposed, individual depositors and the banking system are protected. Confidence in these must be maintained above all else.

"As yet, it is too early to establish what the full consequences of these events will be. However, the stock market is likely to remain volatile and investor confidence fragile as the true impact of these events and the wider effect on economic growth is assessed.

"One would expect investors to reassess their portfolios in light of these events and seek out what they perceive as safe havens during this period of uncertainty. However, while the investment environment remains volatile, investors should recognise that it is in these sort of conditions that significant investment opportunities can emerge. As such, they can present a buying opportunity for those prepared to take a long term view. It is also in such volatile conditions that the practice of drip-feeding investments into the stock market through regular savings schemes can prove beneficial.

Our focus as fund managers remains on identifying high quality businesses with strong management teams and pricing power as these will retain the ability to grow and gain market share from their rivals despite the difficult environment."

Further background information - Questions and Answers

What has happened?
This week, dramatic events have taken place in the American financial system and these continue to unfold. Investment bank Lehman Brothers has filed for Chapter 11 bankruptcy and Bank of America has agreed to a $50bn rescue takeover of Merrill Lynch.

AIG, the world's largest insurer, has sought $40bn of emergency funding from the Federal Reserve, the US's central bank, after its share price collapsed on Friday. Ten of the world's largest banks have agreed to establish a $70bn emergency fund in an attempt to stop the risk of financial collapse spreading. The Federal Reserve has widened the type of bank loan collateral it will accept to include equities.

Stock markets around the world have reacted sharply to these events.

What do these events mean for markets?
While the immediate impact has been for share prices to fall, it is too early as yet to say exactly how stock markets will assess these seismic events over the longer term. Investors will need some perspective, which only comes with time, to work out how the collapse of a major investment bank will affect markets and other institutions.

It is worth noting that the US Federal Reserve, which has been willing to support other American institutions such as mortgage lenders Fannie Mae and Freddie Mac, has evidently decided that allowing Lehman Brothers to collapse would not trigger panic in the rest of the financial system. Lehman's problems have been well-flagged since smaller rival Bear Stearns collapsed in March.

The lack of Fed intervention effectively draws a line in the sand as to how far it is prepared to go to help investment banks (which do not take deposits from individuals). At the same time, it remains the key responsibility of authorities in the US, Europe and the UK to protect individual depositors and the banking system as a whole. One would expect the authorities to step in immediately to protect investors should a deposit-taking institution run into difficulty.

How do today's events affect individual investors?
While problems at individual institutions have been recognised since the credit crunch started, the coincidence of several major events happening simultaneously in so short a period has rocked world markets. This will result in a period of heightened volatility and, as often happens during significant world events, investors should expect to see share prices suffer across the board, almost regardless of the real prospects for individual companies.

At the same time, many will expect this upheaval in the financial markets to translate into further economic woe as credit problems spread into the wider economy. It will, however, increase the probability of interest rate cuts by central banks. This should help the struggling mortgage market, ease the pressure on consumers and eventually stimulate the economy into recovery.

Investors will need to look through these events and realise that such uncertainty ultimately creates the sort of exceptional buying opportunities that leads to sound long term investment.

NOTE
Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM) are both authorised and regulated by the Financial Services Authority and their registered address is 1 Grosvenor Place London SW1X 7JJ. They are both subsidiaries of Jupiter Investment Management Group Limited and the group is collectively known as "Jupiter". The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.