FTSE boot for Northern Rock

Stricken bank Northern Rock was today named as one of seven blue chip firms set for relegation from the FTSE 100 Index in its biggest shake-up since the September 11 terrorist attacks.

The crisis hit lender is poised to drop into the FTSE 250 after its recent woes saw it fall to 331st place, narrowly avoiding the humiliation of a fall straight into small cap territory.

Northern Rock’s demotion will be confirmed tomorrow when the FTSE committee meets to discuss the latest quarterly reshuffle, which is based on the market capitalisation of firms calculated using today’s closing share prices.

Six others are likely to accompany Northern Rock in being ejected from the elite index as the turmoil in financial markets takes its toll.

Stocks have endured heightened volatility since the summer’s credit crunch, which led to Northern Rock’s funding crisis and the subsequent run on the bank.

Also on the way out of the top flight is newspaper group Daily Mail & General Trust, now ranked 118th, and in 117th place, sugars and ingredients firm Tate & Lyle, which recently reported a 19% drop in profits, will all be relegated.

They are likely to be joined by Currys owner DSG International, which recently unveiled a 25% fall in first-half profits, Punch Taverns and housebuilder Barratt Developments, which only joined the FTSE 100 in June after its £2.2 billion takeover of Wilson Bowden.

All Bar One and Harvester owner Mitchells & Butlers are also on the relegation list.

Shares in Mitchells & Butlers, which stands in 120th position, have been gradually drifting downwards since mid-May, when they touched the 900p mark, to close at 507p today.

The group recently reported slowing sales growth and said costs linked to a shelved property deal with entrepreneur Robert Tchenguiz had risen to £260 million.

Companies due to take their place are Cairn Energy, Kelda Group whose time in the index could be short-lived as it is in the process of being taken over by an infrastructure consortium, Thomson holiday operator TUI Travel and bus and rail firm First Group.

Others that look set to be on the way up include Admiral, the car insurance group that was only created in 1991, security firm G4S and fashion house Burberry.

If the reshuffle does go ahead as predicted it will be the biggest change since September 11, 2001, when eight companies dropped out of the top flight index.

Share prices on the day had dived, with the FTSE 100 dropping by 287.7 points to 4746, as the market responded to the shock terrorist attacks.

Northern Rock is by far the biggest casualty of the recent turbulence on financial markets, having seen its share price plunge by more than 85% to just 104.4p today following September’s revelation that it had agreed emergency funding with the Bank of England.

The bank is currently valued at around £430 million, a far cry from its peak of more than £5 billion in February this year, but enough for it to rank towards the bottom end of the FTSE 250 mid-cap index.