London equities fell on Wednesday, as worries about the health of the financial sector crossed the Atlantic in the wake of confirmation that Lehman Brothers’ talks with a big potential investor had hit the rocks, along with the investment bank’s third quarter numbers.
There was further pressure in the sector from news of significant writedowns at insurer Old Mutual, a shareholder in Freddie Mac and Fannie Mae.
By the close of trade in London, the FTSE 100 had slipped 49.4 points to 5,366.2, a loss of 0.6 per cent. The FTSE 250 was 1.9 per cent lower, losing 171 points to 8,967.2
US equities made progress at the start of the trading day in New York as strength in the energy and technology sector buoyed investors.
The S&P 500 0.8 per cent higher at 1,233.8 by midday in New York, while the Dow Jones Industrial Average climbed 0.9 per cent to 11,337.42. The Nasdaq Composite index rose 1.1 per cent to 2,234.24.
But the financial sector remained at the centre of attention.
Korea Development Bank confirmed talks about its potential investment in Lehman were over, having floundered over terms and worries about current financial market conditions.
Lehman brought its third quarter earnings report forward by over a week. It reported a preliminary loss per share for the period of $5.92, greater than the $3.43 loss forecast. Its shares fell 8 per cent $8.40 in pre-market trade in the aftermath of the numbers as investors scrutinised a statement saying it was “committed to examining all strategic alternatives” to maximise shareholder value.
It also said the “vast majority” of its commercial real estate assets” would be sold and cut the annual dividend to $0.05 per share.
Richard Fuld, the chief executive, said: “This is an extraordinary time for our industry and one of the toughest periods in the firm’s history.”
Lehman’s shares were highly volatile, standing 2.0 per cent higher at $7.95 after investors appeared to take some encouragement from Lehman Brothers’ executives explanation of its third quarter figures after publication of the results had initially provoked a further wave of anxiety.
In London, Old Mutual revealed a $135m writedown on exposure to Freddie Mac and Fannie Mae related assets. The company also announced the departure of Jim Sutcliffe, the former head of Skandia, as its chief executive. He will be replaced by Julian Roberts. Shares in Old Mutual lost 4 per cent to 97.4p by the close of trade.
The rest of the financial sector was unsettled by the wider implications of travails of their American peers. Barclays fell 5.2 per cent to 346¾p, HBOS was 2.8 per cent lower at 299¾p and Royal Bank of Scotland fell 3.6 per cent to 240p. RSA Insurance lost 6.5 per cent to 151.9p and Prudential was 0.7 per cent weaker at 572½p.
Merger talks between London’s Tullett Prebon and GFI of the US, the interdealer brokers, ended without agreeement, derailing their bid to create a company bigger than Icap, the industry’s current leader. Tullett’s shares fell 3.8 per cent to 382p.
Away from the financial sector, retailers added to pressure on the wider market after Next unveiled a 12 per cent fall in interim profit and said trading conditions remained “very volatile”. Shares in the fashion chain lost 2 per cent to £11.20. Marks & Spencer was also unsettled by the news, losing 4 per cent to 248p.
Sports Direct was 2.3 per cent weaker at 76¼p after it reported flat first quarter sales and said trading conditions remained the toughest in its history.
Oil stocks provided some support after Opec’s surprise decision to cut output. Cairn Energy led the sector, up 1.6 per cent at £25.15, BG Group was 0.9 per cent higher at £10.56 and Tullow Oil rose 0.4 per cent to 734p. There was less momentum for the oil majors, as investors kept one eye on weaker crude prices. BP fell 1 per cent higher to 502½p and Royal Dutch Shell edged 0.4 per cent higher at £16.86.
Asian indices also fell, although Chinese markets were more resilient. The Nikkei 225 dropped 0.7 per cent to 12,313.84, while the broader Topix dropped 0.2 per cent to 1,189.68. Exporters were hurt for a second day as the dollar dropped slightly against the yen, recently trading at Y107.20, from a daily high on Tuesday of Y108.12.
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