Merger talks between banking giants HBOS and Lloyds TSB failed to prevent a late slide on the London market today after heavy falls on Wall Street dragged stocks lower.
News of a possible tie-up between the two top five banks had provided a boost earlier in the day, but the FTSE 100 Index closed deep in the red for the third straight session.
The Footsie shed 2.3%, down 113.2 points at 4912.4 – its lowest close since May 2005.
In America, the Dow Jones Industrial Average plummeted by nearly 3% in early trade, despite the $85bn US Government bail-out of insurance giant AIG. Gloomy economic news in the States added to the stock misery.
Halifax Bank of Scotland suffered a further 19% plunge in its share price, with earlier gains seen on its merger news wiped out amid persistent investor caution.
The UK’s biggest mortgage lender closed down 34.9p at 147.1p, having been more than 20% up at one stage in another dramatic day’s trading.
Potential merger partner Lloyds TSB also lost double digit gains to close unchanged at 279.75p.
But Barclays, which confirmed today that it was buying some Lehman Brothers assets including its North American investment banking business, held firm in positive territory, rising 3%, or 9.75p to 317.75p.
Elsewhere in the sector Royal Bank of Scotland shed 10%, or 19.7p to 169.4p. In the FTSE 250, Bradford & Bingley fell 1p to 29p after hitting record lows earlier in the session after a ratings downgrade from Moody’s.
Some insurers were on steadier ground after a rocky past two days on the Lehman and AIG concerns. Legal & General moved 1.4p higher to 89.9p and Admiral rose 2p to 859.5p.
However, Norwich Union parent Aviva saw a brief rebound come to an end in spite of efforts to reassure over its exposure to AIG and Lehman Brothers, closing down 4.5p at 455.5p.
Miners meanwhile offered some support to the top flight with Ferrexpo leading advances, up 6.9p to 168.2p. Lonmin – also on the risers board – gained 91p to 2633p.
Supermarkets too were rare gainers, with Morrisons up 10p at 256.5p and Sainsbury’s ahead 7.75p at 361.75.
But confidence in the retail sector was not helped by details of a near £100 million half-year loss at high street chain Woolworths. Shares in the group were 0.06p lower at 6p.
In choppy trading, FTSE 100 firm Next fell 61p to 1072p but in the second tier Currys owner DSG International added 2.75p to 52.25p and Debenhams was 1p better at 43p.
The biggest Footsie risers were John Wood Group up 5.25p at 18p, Ferrexpo ahead by 6.9p at 168.2p, Morrisons up 10p at 256.5p and Lonmin up 91p at 2633p.
The biggest Footsie fallers were Halifax Bank of Scotland down 34.9p at 147.1p, Kazakhmys off 76p at 630p, Royal Bank of Scotland down 19.7p at 169.4p and Anglo American down 209p at 2049p.