European markets slumped deep into the red today as renewed fears over the continent’s debt crisis rocked banks across the continent.
In London, the FTSE 100 Index slumped 3.6% to 5102.6, knocking £49bn (€55bn) off the value of UK blue chips and wiping out last week’s gains
Markets elsewhere in Europe were hit even harder with the Cac-40 in Paris 4.7% lower and the Dax in Frankfurt down by 5.3%, with the uncertainty increased by US markets being shut for a public holiday.
Bank shares dragged the indices down on fears over the health of balance sheets in the sector after Deutsche Bank’s outgoing chief executive Josef Ackermann said some would not survive if they had to recognise losses on government debts at current levels.
Economic data for the services sector in the eurozone also showed it was still growing, but only just.
David Jones, market strategist at IG Index, said: “The all too familiar worry about European sovereign debt has raised its head again.
“With no chance of a boost from US markets, European investors stayed firm sellers,” he added.
The euro fell by almost 1% against the dollar at one point, while investors seeking safe havens rushed into German bonds sending yields on benchmark German debt to an all-time low.
In the UK, taxpayer-backed Royal Bank of Scotland fell more than 12% after it was singled out by a broker as the most vulnerable British target of claims made by the US Federal Housing Finance Agency (FHFA) over the subprime mortgage scandal.
Barclays and HSBC, who joined RBS on the list of 17 banks, fell 7% and 4% respectively, while Lloyds Banking Group, damaged by weakened sentiment, fell 7%.
The FHFA claims 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 sold $30.4bn of securities, Barclays sold $4.9bn) and HSBC sold €6.2bn, according to the regulator.
Broker Investec said the FHFA lawsuit could hit RBS more than its peers due to its greater exposure. But RBS has said the allegations are unfounded and it will defend itself against them vigorously.
There was more gloom for the banking sector in a report by forecasters at the Ernst & Young ITEM Club.
The financial services sector in the UK faces sluggish growth, the ITEM Club warned, threatening the recovery prospects of the wider economy.
The worst US employment data for nearly a year, showing the number of people employed in August was flat, fuelled fears of a new global recession.
The renewed concerns over growth hit the heavily weighted mining sector, sending shares in copper giants Kazakhmys and Antofagasta to the bottom of the FTSE 100 Index.
Oil prices were also damaged by the concerns over global demand, with Brent crude in London dropping more than 1% to 110.91 US dollars per barrel.
The retail sector was also on the back foot after accountancy firm BDO said the high street recorded its worst sales in two years in August as the riots that shook the country had taken a heavy toll.
This was underlined by a Purchasing Managers’ Index survey for the services sector, revealing the sharpest slowdown in growth since the foot-and-mouth crisis in 2001.