Britain's leading share index ended down 0.3 percent on Friday, led by banks dragged down by Lloyds Banking Group's plunge on a worse-than-expected loss at its HBOS unit, while oil stocks offered some support. The FTSE 100 closed 12.65 points lower at 4,189.59, after trading as high as 4,291.57.
The index was down 2.4 percent this week and is down 5.5 percent for the year after falling more than 31 percent last year. Lloyds slumped more than 32 percent after the lender said HBOS made a hefty loss last year due to bigger-than-expected bad loans.
"This merger is turning out to be the merger from hell for Lloyds," said Martin Slaney, head of derivatives at GFT Global Markets. More than 216 million Lloyds shares changed hands, compared with a daily average of 65.9 million in the past 30 trading days.
"We have seen this huge loss from HBOS, which was not expected at all by the market, considering only a few weeks ago they were expecting a loss of half of what they had announced," said Angus Campbell, head of sales at Capital Spreads. "It's terrible for Lloyds shareholders, terrible for HBOS shareholders, terrible for the banking sector as a whole."
The announcement dragged other banks lower, giving up their earlier gains on news that the US government was hammering out a programme to subsidise mortgages for homeowners before they fall into loan arrears. Royal Bank of Scotland sank 9.2 percent, Barclays lost 4.3 percent and HSBC fell 0.7 percent.
In the financial sector, Legal & General sagged 9.5 percent. Deutsche Bank, which cut its price target on the insurer, said that "increased default assumptions on corporate bonds would prove most damaging for L&G, whose current assumption is out of line with UK peers, and where its exposure is above average".
The US Congress was expected to pass a $789 billion economic stimulus package later in the day aimed at unleashing large spending and tax cuts to help yank the economy out of a 14-month recession. A survey showed US consumers' confidence fell to its lowest in three months in February as sentiment grew increasingly gloomy over an economic downturn that most expected to last five more years.
Oil producers added the most points to the index as crude prices firmed. Royal Dutch Shell, BG Group and Tullow Oil were up 1.7 to 4.7 percent. Miners also rose, with BHP Billiton up 1.6 percent, Xstrata gaining 4.5 percent and Kazakhmys rising 4.2 percent.
The London Stock Exchange advanced 3.8 percent after it said Xavier Rolet, an equities trading veteran who ran Lehman Brothers in France, has been appointed as the bourse's new chief executive. Home improvement retail group Kingfisher added 3.7 percent after UBS raised it to "buy" from "neutral" and upped its price target. This helped peer Home Retail, which added 3.7 percent.
Financial markets will look to the meeting of Group of Seven (G7) financial leaders in Rome on Friday and Saturday for further action to arrest the worsening economic crisis, triggered by a meltdown in risky US subprime mortgages.
"Considering what's gone in the past recently with politicians trying to rectify the situation with the economic crisis and the financial markets, it hasn't boded that well. Financial markets aren't expecting too much to come out of that," Campbell of Capital Spreads said.
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