Britain's top share index plummeted on Monday to a three-year closing low, part of a global equities slide triggered by tottering banks and ahead of a vote by US lawmakers on a $700 billion rescue plan. The FTSE 100 index ended down 269.7 points, or 5.3 percent, at 4,818.8, after losing 2.1 percent on Friday.
The blue chip index has fallen 12 percent in September, on track for its biggest monthly fall since the stock market crash of 1987. The credit crisis that has roiled markets over the past year claimed another victim. The British government was forced to buy up the 50 billion pounds of loans, mostly mortgages, held by Bradford & Bingley. The government brokered a take-over of lender HBOS earlier this month and nationalised Northern Rock in February.
Banking shares accounted for a quarter of the index's slump, with Royal Bank of Scotland, Barclays, HBOS, HSBC, Lloyds TSB, Alliance & Leicester, Standard Chartered falling between 1.6 and 18 percent. The FTSE 350 banking index fell 6.8 percent. "The average investor has lost confidence in the banking sector after having seen so many casualties on a global basis," said Andrew Turnbull, senior sales manager at ODL Securities.
"In the short term, the banking sector looks very bleak. It is becoming clear that the market does not think that the $700 billion bailout will be enough to save the US from a deep recession," he said. Major central banks threw more resources at a deepening credit crisis, announcing a $330 billion expansion of reciprocal currency swap arrangements to boost US dollar liquidity.
The moves came as the bailout plan for US financial firms faced a vote by the House of Representatives on Monday and Citigroup said it would buy the bulk of fourth-largest US bank, Wachovia Corp. Tim Rees, director of UK equities at Insight Asset Management said: "There was enthusiasm last week about the (rescue package) but investors have had time to reflect and realise that there is no quick fix, and that while this may be a step in the right direction, it doesn't change the fundamentals."
World stock markets fell, with the MSCI main world equity index down 4.5 percent. In Europe, the FTSEurofirst 300 index of top companies closed 5.2 percent lower, while European bank stocks shed 7.8 percent. Banks continued to struggle across the globe. In the biggest European bank bailout since the credit crisis began, the Belgian, Dutch and Luxembourg governments took a large stake in Fortis with a 11.2 billion euro ($16.4 billion) injection.
Morgan Stanley agreed to sell a 21 percent equity stake to Mitsubishi UFJ Financial Group, Japan's largest bank, for $9 billion on Monday, bolstering its capital base and improving its chances for surviving the credit crisis. Miners were the second-biggest loser on the British index, tracking a sharp decline in key base metals prices. Copper hit nine-month lows, aluminium fell more than 2 percent and nickel slipped 3 percent.
Rio Tinto, Anglo American, Vedanta Resources, Xstrata, BHP Billiton, Kazakhmys, Antofagasta and Eurasian Natural Resources fell between 9.8 and 17.5 percent. Energy stocks slipped with crude prices, which sank nearly 6 percent to close to $100 a barrel. BP, Royal Dutch Shell, gas producer BG Group, Cairn Energy and Tullow Oil shed between 4.2 and 7.9 percent.
ICAP, the world's largest interdealer broker, topped the list of blue chip losers, falling 23.6 percent even as it said it expected full-year profits to be ahead of last year. Analysts said the prospect of its customer base being whittled down by bank consolidation and its caution on profit growth has weighed on the stock.