FTSE tumbles as bank worries escalate

The FTSE 100 was down 163.27 points at 4925.2 and the FTSE 250 was down 253.94 points at 8020.5 at 12.54 pm following fresh sings of stress in the global financial system: in the UK, Bradford & Bingley was nationalised while in Europe, Fortis and Hypo Real Estate had to seek emergency funding. In the credit markets, LIBOR-OIS spread, a key gauge of the perception of risk among lenders, widened to a record 219 basis points.

“The news from Fortis is particularly bad for the UK as it was one of the banks involved in the ABN Amro takeover. It has put RBS under pressure,” said one market source, referring to the Royal Bank of Scotland’s share price, which slumped to 174.1p, down 16.3 per cent or 33.9p.

Analysts played down the connection, however. Cazenove, for example, said that the problems at Fortis stem from weak capital ratios and toxic assets, “both of which reside outside RFS”, the holding company which owns ABN Amro and is a subsidiary of RBS.

The broker said: “The plight of Fortis does not have any direct capital implication for RBS.”

In the wider sector, Lloyds TSB was down 11.16 per cent or 28p at 223p while HBOS fell to 152.9p, down 11.77 per cent or 20.4p.

Moving up

There was little activity on the upside - Thomas Cook, the strongest stock on the FTSE 100 this afternoon, was up 8p at 210.75p after positing a reassuring trading update and pulling out of the Condor merger talks.

Compass was also firm, up 3.25p at 335p, after publishing a positive trading update.

Moving down

In the mining sector, Lonmin eased back to 2221p, down 248p after announcing the departure of chief executive Brad Mills. While some analysts said the change suggested that Xstrata was on track to acquire the company, the market remained unconvinced. Traders said that, given the current financial turmoil, Xstrata, which has until Thursday to formalise its 3300p per share offer, would find it hard to fund the deal.