FTSE on the decline

Fears the global financial crisis could get worse in the coming months derailed the UK banking sector’s recent share price recovery today.

Sentiment was hit by reports of a Government bail-out for mortgage firms Fannie Mae and Freddie Mac, plus speculation about weaker-than-expected third-quarter results from Lehman Brothers.

A former IMF chief economist, Kenneth Rogoff, added to the worries by warning the US economy was not out of the woods and that a large US bank could collapse in the next few months.

A fall of 1.5% for the Dow Jones Industrial Average on Monday night sent the FTSE 100 Index into negative territory early on, with the top flight 107.1 points lower at 5343.1 by lunchtime.

Banks have recently shown tentative signs of improvement, but the blow to confidence meant the sector accounted for a large slice of today’s losses.

Halifax Bank of Scotland lost 6% or 17.75 at 281.75, Barclays slipped 17 to 325.75, Royal Bank of Scotland fell 12 to 216.5 and Lloyds TSB eased 16.5 to 289.5.

Property stocks were also lower after warehouse specialist Brixton reported half-year losses and gave an insight into the turmoil facing the market, particularly the current confusion over valuations.

Brixton – a FTSE 250 Index stock – fell nearly 7% or 16.25 to 231.5 while in the top flight Hammerson slipped 54.5 to 868.5 and British Land eased 32.5 to 716.5.

The weaker sentiment caused by Brixton’s results also impacted housebuilders in the FTSE 250, with Persimmon down 21 to 311 ahead of half-year results later in the week. Barratt Developments was off 7.75 at 121.5 and Taylor Wimpey fell 3.5 to 43.25p.

Newspaper group Trinity Mirror fell 8.25 to 102.25 and Johnston Press dropped 5 to 55, a decline of 8%, as investors dived for cover amid the uncertainty.

Defensive-looking stocks attracted buying interest in the FTSE 100 Index, with medical devices firm Smith & Nephew ahead 19 at 637.5 and power generation firm Scottish & Southern Energy 32 stronger to 1471.

In the FTSE 250 Index, satellite communications services firm Inmarsat surged 15 to 503 on the successful launch of its third Inmarsat-4 satellite.

The current constellation of two satellites delivers mobile broadband services to 85% of the world’s landmass and covering 98% of the world’s population. The third I-4 will complete the global coverage for Inmarsat’s broadband services.