Stock market close: Lloyds slump hits banks

By This Is Money
Updated: 12:20 EDT, 7 April 2009

The FTSE 100 index plunged deep into negative territory today as Lloyds Banking Group led financial stocks into the red.

Movers: Latest from the Stock Exchange

Lloyds closed down more than 8% or 6.8p to 72.9p after Credit Suisse lowered it to underperform and Royal Bank of Scotland confirmed it was now 70% in the hands of the Government. The FTSE 100 retreated 63.0 points to close at 3,930.5.

Traders showed their nerves in the wake of a warning from analysts at Morgan Stanley against calling an end to the bear market.

The fall was mirrorer by Wall Street. US stocks had finished lower for the first time in five days yesterday amid anxiety over quarterly earnings reports and fresh fears about banks' balance sheets. The Dow Jones industrial average dropped 157.5 points in early trade to 7,818.4.

Lloyds led the fallers in London, closely followed by RBS, which shed 10% or 3.1p to 26.7p and Barclays declined 14.9p to 157.7p.

Shares in Standard Chartered meanwhile dropped 60p to 900p this morning in the wake of the latest broker downgrade. UBS cut stock in the Asia-focused bank to 'sell' from 'neutral', with target price unchanged at 780p. It says the downgrade is mainly a valuation call, as an almost 80% rise in a month 'has left the stock ahead of itself'.

The consumer bank is experiencing sharp deterioration in profitability, and with no significant cost saving programmes, UBS does not expect things to get better.

Ben Timms, senior derivatives trader at Blue Index, says the UBS note is as detailed as it is damning: 'Given that our view on banks remains wholly bearish, the UBS neutral rating is if anything, too positive. Technically, the stock has displayed a classic sell signal.'

'The banks dragged the markets lower last year,' economist Peter Dixon of Commerzbank said. '(How the wider market performs) will depend on banks, and they won't do well going forward as all the good news is priced in.'

Legal & General was another big faller in the financial sector, down 3.5p to 47.5p, while Friends Provident slid 3.3p to 66.8p, or 5%.

The leading riser was BAE Systems after analysts said US defence secretary Robert Gates' spending programme looked favourable for the company.

In particular the F-35 joint strike fighter programme, in which BAE has a key role, is in line for increased spending. BAE shares were 5% higher, up 19.0p at 347.50p, while defence and aerospace supplier Cobham rose 3.9p to 180.4p.

Outside of the top flight, PartyGaming shares surged 14% after it announced an agreement with US authorities protecting it from being prosecuted for providing internet gambling to customers in the US prior to new laws in October 2006.

Shares in the firm jumped 31p to 250p as the deal removed a key obstacle to consolidation in the gaming sector. Rival 888 Holdings gained 7.0p to 96.75p.

Recruitment firm Michael Page International fell 4.25p to 212.0p after it reported a 32% drop in first quarter profits.

Sportswear firm JJB Sports rose 1.75p to 12.75p after it said it was 'very encouraged' by talks with its landlords and said it had finalised the terms of a company voluntary agreement (CVA) aimed at easing its rent burden and shoring up its finances.