Blue-chip stocks sunk deeper into the red today as the US Government bank bail-out failed to reassure investors fearful of further woes in the European banking sector.
News of the coordinated European governmental rescue of Belgium’s Fortis bank sparked concerns of contagion across the continent.
Bradford & Bingley’s nationalisation had already seen the FTSE 100 Index tumble on opening today, but the Footsie’s decline gathered pace, falling by 3.6%.
And the pound saw its biggest one-day loss in 15 years today amid the stock market turmoil.
Banking shares were among stocks most under pressure in London, despite agreement being reached on the $700bn (€487bn) lifeline.
The US plan, which still needs approval in both houses of Congress, will give the administration broad power to use taxpayers’ money to purchase billions of home mortgage-related assets held by cash-starved financial firms. But it includes stronger spending controls at the insistence of lawmakers.
Analysts said it was too early to pass judgment on the plan, particularly in light of B&B’s demise and the European bail-out of banking and insurance giant Fortis over the weekend.
The Fortis deal marked the largest bail-out of a European financial institution so far, with the governments of Belgium, Luxembourg and the Netherlands combining forces to pump in €11.2bn cash.
But in London, Royal Bank of Scotland suffered as it emerged that Fortis must now sell its stake in ABN, bought as part of the near £50bn (€62.7bn) takeover led by RBS last year.
Fortis, which is the UK’s third largest private car insurer, paid €24bn for its holding in October 2007, and said prior to Sunday’s bail-out that it needed to raise around €5bn in cash to maintain financial ratios as it integrated ABN’s Dutch retail operations. Fortis previously insisted it could meet that shortfall by selling other assets.
Meanwhile, the Icelandic government said it was taking control of the struggling Glitnir bank, marking the first major banking nationalisation in the country since the start of the credit crisis.
The worries for the wider European banking sector compounded caution among investors over the US Government plans to help buy “toxic” bank debts.
Matt Buckland, a dealer at CMC Markets, said: “The fact the funds won’t be released in one lot but instead a series of tranches is certainly detracting from its appeal and this, combined with the very visible scars of the credit squeeze, will again weigh in sentiment.”
Heavy falls on Asian markets had set the scene for tough trading in London today.
Tokyo’s Nikkei 225 index was down 1.7% while Hong Kong’s Hang Seng Index shed more than 4%.
Among other banking stocks down heavily in London trading today, Barclays fell 8% 23.5p to 343p and merger partners Halifax Bank of Scotland and Lloyds TSB fell 15.5p to 157.8p and 13.5p to 237.5p respectively.
Housebuilders were also impacted by the latest blow to confidence, with Taylor Wimpey off 5p at 38p and Barratt Developments off 9.5p to 112p.