UK: Largest One-day Loss in 7 Years

123jump.com Staff
07 Oct, 2008
New York City

Stocks nosedive in London trading. The UK benchmark index drops the most in one-day in last seven years. Mining, financials and energy related stocks declined between 10% and 15%. The Bank of England plans to offer

[R]1:00PM New York, 6:00PM London- The benchmark index plunged in a single largest day decline in 21 years. Miners and financials dive. The Bank of England to inject £40 billion into financial system.[/R]

London market averages tumbled sharply, posting the biggest decline since October 20, 1987 as financial stocks plummeted on concern that the contagion of the credit market crisis is spreading to Europe. As market jitters became deeply entrenched interbank rates soared.

Commodity stocks also fell as oil and metal prices shed on fears that the slowdown in the global economy will affect demand.

Market Sentiment

In London trading FTSE 100 fell 7.85% or 391.06 to 4,589.19.

All of the FTSE index stocks dropped with Kazakhmys leading decliners with a fall of 26.58% as oil traded below $90 per barrel and metal prices slipped.

BoE to Inject £40 billion into Financial System

U.K. Chancellor of the Exchequer Alistair Darling said in a speech to the House of Commons today that the Bank of England will tomorrow inject £40 billion as part of measures to provide liquidity into the markets. Interbank rates continue to remain high as banks are unwilling to lend one another. The crisis of confidence has nearly frozen financial markets.

The London interbank offered rate, or Libor, soared 37 basis points to 2.37% for dollar loans and euribor, that tracks loan rates euros rose 1 basis points to 5.35% today. The borrowing on Friday from the European Central Bank surged the most in last seven years as banks borrowed in short terms 24.6 billion euros and at 5.25%, at a rate 100 basis points higher.

According to Darling, the Bank of England, with support from the UK government has introduced £100 billion through the special liquidity scheme to provide funding to the banks.

The Banking Bill, which will give the Bank of England a statutory role to maintain financial stability and complement the FSA, will be introduced tomorrow. UK may plan a bank recapitalization plan for banks according to the Financial Times report. The taxpayer based recap plan will help banks to shore balance sheets and improve market liquidity.

BNP Paribas Acquires Fortis Assets in Belgium and Luxembourg

French financial institution BNP Paribas reported today that it will purchase Fortis'' assets in both Belgium and Luxembourg and the international banking franchises for 14.5 billion euros.

Through the deal, BNP Paribas will purchase from the Belgian State 75% of Fortis Bank SA/NV and 100% of Fortis Insurance Belgium, and acquire 16% of Fortis Banque Luxembourg from the Luxembourg State, increasing its controlling interest in Fortis Banque Luxembourg to 67%.

For the banking business in Belgium and Luxembourg, the lender will pay 9 billion euros in approximately 132.6 million newly-issued BNP Paribas shares, while Fortis insurance will be acquired for a cash consideration of 5.5 billion euros.

The states of Belgium and Luxembourg will become shareholders with 11.6% and 1.1% equity respectively, with the former state appointing two board members to join BNP Paribas board.

BNP Pariba''s portfolio now include 1,458 branches located in Belgium, Luxembourg, the Fintro branch network in Belgium, and investment management activities that include former ABN AMRO Asset Management.

Fortis'' units in Belgium and Luxembourg have 3 million and 280,000 retail clients respectively.

Gainers & Losers

Kazakhmys led decliners in the FTSE 100 stocks with a fall of 26.58% followed by losses in Eurasian Natural of 23.42%, in Royal Bank of Scotland of 20.46%, in Fresnillo of 19.86%, and HBOS Plc of 19.80%.

Other commodity stocks dropped as well. Xstrata lost 19.23%, Antofagasta shed 17.49%, and Anglo America slipped 15.16%.

Financial stocks declined on deep-seated fears on the health of banks. Barclays lost 14.67% and Standard Chartered fell 9.73%.

Europe Markets Review

In London FTSE 100 Index closed lower 391.10 or 7.85% to 4,589.20, in Paris CAC 40 Index decreased 368.77 or 9.04% to close at 3,711.98 and in Frankfurt DAX index lower 410.02 or 7.07% to close at 5,387.01. In Zurich trading SMI decreased 421.10 or 6.12% to close at 6,458.72.