RBS share slump leads to FTSE fall

Royal Bank of Scotland shares slumped 13% today after weaker-than-expected results exploded the recent mood of optimism in the bank sector.

The state-owned firm also reported £7.5 billion of bad debts as chief executive Stephen Hester warned the recovery will take some time.

The Government held a paper profit of £1 billion on its 70% stake last night, but this was wiped out by a fall of 6.81p to 46.64p as shares surrendered recent gains in spectacular fashion.

Markets overall were in cautious mood due to the prospect of US job numbers later today, leaving the FTSE 100 Index 58.1 points lower at 4632.4 by mid-morning.

Miners were responsible for much of the slump, with Kazakhmys off 32.5p at 888.5p, Xstrata 40p lower at 780p and Rio Tinto down 115p at 2380p.

Investors took refuge in defensive stocks as United Utilities rose 0.8p to 436.3p, Scottish & Southern Energy lifted 11p to 1099p and Severn Trent cheered 2p to 936p. Vodafone topped the risers board with a gain of 2p to 126.45p.

As well as RBS, which posted a net loss of £1 billion for the six months to June 30, Lloyds Banking Group retreated with a fall of 6.9p to 97.8p.

Lloyds shares have risen in recent days on speculation the economic recovery may prompt the bank to raise capital independently and negotiate a watered-down version of the Government’s toxic asset protection scheme.

Those banks without state aid also fell, with Barclays down 14.8p to 339.2p and HSBC off 21p to 640p.

Elsewhere, retailers were given some encouragement by another strong set of weekly sales figures from department store business John Lewis. Marks & Spencer climbed more than 2% early on, but later gave back the gains to stand 1.4p lower at 344.4p.