Banking shares suffer in London

Barclays and Lloyds Banking Group suffered more heavy losses today as the bloodbath in the banking sector showed no signs of easing.

The pair fell 20% and 11% respectively as fears of nationalisation and further credit write-downs continued to cloud sentiment towards the industry.

The rest of the market was also under pressure after the Dow Jones Industrial Average slumped 4% last night in its biggest-ever inauguration day decline. Investors were on holiday on Monday so yesterday’s session provided the first opportunity to react to the deepening crisis in the financial sector.

The FTSE 100 Index moved closer to the 4,000 barrier in morning trading, with the top flight index down 62.3 points at 4029.1.

Traders were also watching the pound, which continued to fall against the dollar after another round of depressing economic news – this time involving unemployment figures and public sector borrowing.

Barclays led the fallers board with a drop of 15p to 57.9p – its lowest level since 1985 – while Lloyds Banking Group was off 5.6p at 39.2p. Lloyds was briefly in positive territory, but retreated amid fears it could be next in line for nationalisation.

Royal Bank of Scotland, which slumped 67% on Monday, was 0.6 higher at 11p.

The insurance sector was also under pressure as traders speculated on the sector’s capital requirements. Shares in Aviva were down 3% or 7.5p at 291.25p but Prudential recovered from a weak start to stand 7.75p higher at 301.25p.

On a quiet day for corporate news, Daily Mail & General Trust shares were up 3.75p at 264.25p after announcing a deal to sell a majority stake in the Evening Standard to Russian oligarch and former KGB agent Alexander Lebedev.