Finance stocks take fresh hammering on FTSE

Financial stocks took a fresh hammering today after investment bank Morgan Stanley issued a downbeat note on the sector.

With retail-based shares also struggling, the FTSE 100 Index dropped by more than 1% or 90 points to 6296.6 by lunchtime.

Morgan Stanley’s warning that earnings in the UK banking sector may have peaked followed similar downbeat messages from across the Atlantic.

Stocks were already under pressure after a cut in profit estimates from Deutsche Bank for the top five investment banks in the US. This was on top of Credit Suisse widening its fourth-quarter loss estimates for Bear Stearns.

The guidance came amid concerns about UK interbank lending rates, which are back near levels seen at the height of the credit crunch.

Barclays fell 5%, or 30p to 531p, while Halifax Bank of Scotland and Lloyds TSB dropped more than 4%, off 36.5p at 763.5p and 24.5p at 466.25p respectively. Royal Bank of Scotland slipped 23.75p to 440p as investors awaited a trading update from the company on Thursday.

Mortgage bank Northern Rock dipped a further 6p to 103p amid reports that the Virgin-led takeover was under pressure from rival suitors keen to snatch its preferred bidder status.

The housebuilding sector also wobbled after Morgan Stanley warned that house prices could fall 10% over the next year. Taylor Wimpey dipped 8.55p to 193.2p, Barratt Developments eased 20.75p to 448.25p and Persimmon fell 32p to 756.5p.

Pubs group Mitchells & Butlers extended yesterday’s falls made on downbeat broker notes, down 18.5p to 528p, as was Enterprise Inns, off 17.5p at 489.5p.

Good news from Tesco, with 4% third quarter sales growth in line with forecasts, saw shares initially rise but the retailer failed to hold on to gains, slipping 10p to 477.75p amid fears about 2008 trading prospects.

B&Q owner Kingfisher was also impacted, with shares down 7.8p to 150.5p.

British Airways led the fallers board, down 6% or 21.5p to 322.25p, after a cautious note on the European airline sector from ABN Amro.

Outside the top flight, pubs group Greene King lost 7% after it said it was braced for a tougher second half of its financial year. Shares fell 62.5p to 753.5p, even though first half figures were at the top end of expectations.

Restaurant Group topped the list of FTSE 250 fallers, as investors continued to leave the stock after yesterday’s profits warning from Clapham House Group. Shares were down by more than 10% for a second successive session, off 20p at 172.25p.