Royal Bank of Scotland shares slumped 12% today as litigation fears, weak economic data and the eurozone debt crisis drained market confidence.
The FTSE 100 Index finished nearly 4% or 189.4 points lower at 5102.6, broadly in line with markets in Europe where signs of higher borrowing costs in Spain and Italy also hammered stocks in Paris and Frankfurt.
With markets also lower on Friday following weak jobs data in the United States, today’s bloodbath took losses in the FTSE 100 Index to £82bn over its last two sessions – erasing tentative recovery signs in previous days.
The latest sovereign debt fears meant the euro tumbled by around 1% against the US dollar, while it was broadly flat against the pound at 1.14.
Downbeat readings from purchasing managers in Europe’s service sector economies added to the recession fears, with the survey from the UK showing the worst performance since the foot and mouth crisis of 2001.
Banks and insurers bore the brunt of the latest sell-off, with RBS down 3.1p to 21.8p after the US Federal Housing Finance Agency (FHFA) filed claims against three UK banks as part of actions relating to the sub-prime mortgage scandal.
The claims allege that the banks misrepresented the quality of billions of dollars of home loans sold to America’s state-backed mortgage giants Fannie Mae and Freddie Mac.
RBS said it would vigorously defend itself against the claims, but shares still slumped to near their recent low of 19.6p after it was singled out by a broker as the most vulnerable British target of the claims.
Barclays fell 11.05p to 154.15p and HSBC slipped 20p to 504.5p, while Lloyds Banking Group was 2.5p lower at 30.65p despite not being on the FHFA list.
Among insurers, Prudential slumped 5% or 32.5p to 564.5p and Legal & General dropped 6.35p to 94.55p.
Meanwhile, the retail sector was again reeling after womenswear business Alexon, which owns brands including Kaliko and Ann Harvey, said sales slumped in the first three weeks of August.
Its profits warning heightened nerves at the start of a busy week for trading updates, including from Dixons, which slumped 1p to 11p. Argos and Homebase owner Home Retail Group, which is due to post an update on Thursday, dropped 9.3p to 115p after Credit Suisse cut its target price.
Mothercare fell 15p to 343.7p, while Alexon slumped 29% or 2p to 5p, even though it said it was in talks over a potential sale of the business.
In a rare bright spot for the London market, shares in housebuilder Berkeley jumped 5% – up 57p to 1236p – after it said it expected to hit profit targets at least two years earlier than originally planned.
The only FTSE 100 riser was Randgold Resources, up 65p at 6735p.
The biggest FTSE 100 fallers were Royal Bank of Scotland down 3.1p at 21.8p, Lloyds Banking Group off 2.5p at 30.65p, Barclays down 11.05p at 154.14p and Legal & General off 6.35p at 94.55p.