The London market fell 1.5% today as banking shares took a hammering amid fresh fears about the eurozone debt crisis.
Barclays, Royal Bank of Scotland and Lloyds saw their shares dive more than 6% despite none of the four UK banks having failed banking stress tests, which were published after the market closed on Friday.
The FTSE 100 Index fell 90.9 points to 5752.8, dragged down by the banking sector after analysts said the findings did not take into account the full likelihood of a Greek debt default.
European markets were also hit, with the Dax in Germany down more than 1% and the CAC 40 in France down 2%. In the US, the Dow Jones Industrial Average was also off more than 1% as fears continued that the US could default on its debts.
The pound was up against the euro at 1.14 but was down at 1.60 against the dollar.
Gold prices hit fresh highs of 1607 US dollars an ounce at one point during the day, as it was seen as a safe haven amid the financial turmoil and renewed fears over the banks.
The four UK banks were among 90 tested by the European Banking Authority to assess how their finances could stand up to much lower growth, lower stock markets and higher interest rates. Only eight of the 90 banks tested failed, though a further 16 only scraped through.
The banks saw their share price falls extended in late trading after Spanish and Italian bond yields rose, meaning the countries will be forced to pay more to borrow money on the currency markets, intensifying jitters about the strength of the eurozone.
Royal Bank of Scotland, which at 6.3% was the nearest of the UK’s banks to the pass mark of 5% for the cushion of core tier one capital, declined 2.1p to 33p.
Lloyds Banking Group, which held 7.7% capital, was the biggest faller, down 3.3p at 41.3p.
Today’s falls come on the day that UK Financial Investments, which runs the Government’s stake in the bailed out banks, said in its annual report that shares in Lloyds and RBS need to rise to 63.1p and 49.9p respectively before the Government can recoup its money.
Barclays, which is believed to have a high level of exposure to the debt-pressured countries on the Iberian peninsula, was down 15.7p at 207.7p. It held 7.3% tier one capital,
HSBC, which at 8.5% capital was the highest scoring of the UK banks, was also off more than 1% or 8.7p at 591.2p.
In the FTSE 250 Index, Thomas Cook shares fell despite its announcement of a one-year extension to its £1 billion banking facilities through to May 2014. Shares, which were rocked by a third profits warning in a year last week, fell 3.5p to 67p.
The biggest Footsie risers were Fresnillo up 34p at 1659p, Randgold Resources ahead 95p at 5560p, Arm Holdings up 5p at 569p, BSkyB ahead 4p at 713.5p.
The biggest Footsie fallers were Lloyds Banking Group down 3.3p at 41.3p, Barclays off 15.7p at 207.7p, Royal Bank of Scotland down 2.1p at 33p, and GKN off 11.1p at 227.9p.