LONDON (ShareCast) - Financial stocks were the main victims as Footsie slumped into the red following the collapse of US investment bank Lehman Brothers and the sale of Merrill Lynch to Bank of America.
The Bank of England has stepped in to provide an additional £5bn of funds for three days in a bid to settle the short-term money markets.
Meanwhile, the Financial Services Authority has said it will ask UK banks to provide it with details of their liabilities with Lehman.
Former Wall Street giant Lehman is to file for Chapter 11 bankruptcy after frenetic attempts to find a buyer for the struggling investment bank come to nothing.
The Chapter 11 filing will not include its broker-dealer operations and other units, including Neuberger Berman, which remain up for sale. Plans to sell its investment operation also remain ongoing.
UK bank Barclays confirmed it had considered a combination with Lehman but did not proceed with a proposal. "We confirm that Barclays considered a combination with Lehman Brothers and did not proceed because it was not possible to conclude a transaction in the best interests of Barclay’s shareholders," said Barclays.
Meanwhile, Bank of America has agreed to buy investment bank Merrill Lynch, the world's largest broker, for $50bn. Most experts agree that Merrill chairman John Thain was left with little option given the perilous state of the US financial system and $50bn of write-downs at the Thundering Herd since the credit crisis began just over a year ago.
HBOS is the biggest faller in a shattered banking sector, shedding almost a third of its value as investors bail out of the stock on concerns that renewed liquidity problems will hit its mortgage business. Barclays may have dodged a bullet in deciding not to take on Lehman but it still gets marked down sharply, along with Royal Bank of Scotland. Elsewhere in the financial sector, hedge fund manager Man Group also gets pounded, as does inter-broker dealer ICAP.
Insurers also fell back after American Insurance Group (AIG) slumped in the US amid talk it is seeking support from the Federal Reserve. Friends Provident led the sector lower.
Outside of the financial sector housebuilders were pummelled on fears that the latest blow to the banking system will result in a renewed tightening of credit availability, as does plumbers’ merchant Wolseley. Pub groups also react negatively to the resurgence of credit crunch worries, with Enterprise Inns, Mitchells & Butlers and Punch Taverns all nursing double-digit falls.
With the consolidation of its blue-chip client base financial information firm Thomson Reuters is on the back foot while at the smaller end of the market trading systems provider Fidessa also retreats.
Supermarket chain Sainsbury is on offer after the usually upbeat chief executive, Justin King, conceded that consumer sentiment is worse than it has ever been going into Christmas. King said in an interview with the Financial Times that customers of Britain’s third biggest supermarket chain believed “things are worse than they really are” and are beginning to change their shopping habits.
Elsewhere in supermarkets, more unfavourable broker coverage was heaped on Wm Morrison as JP Morgan downgraded its rating on the firm to ‘neutral’ from ‘overweight’ with a target price cut to 275p from 320p.
Mitchells and Butlers’ strong performance compared to the pub sector as a whole is no reason to invest in the company, KBC Peel Hunt said as it kept its ‘sell’ rating on the owner of the O’ Neills and All Bar One chains.
Landsbanki has lowered its rating on Intercontinental Hotels to ‘reduce’ from ‘hold’, citing the Holiday Inn chain owner’s exposure to a deteriorating macro-economic environment.
Computer games developer SCi Entertainment suffered a big drop in revenue during a year that saw the Tomb Raider and Championship Manager firm raise cash and cut costs to keep going.
Coffeeheaven International, which operates coffee bars in central Europe, said to date it has experienced only a limited effect from the credit crunch as it narrowed losses for the full year. Pre-tax losses for the year to March were £70,000 from the £137,000 loss last year on sales that increased 63% to £16.4m. Like-for-like increased 16%. “Sales growth in most of our markets remains robust and Coffeeheaven, as central Europe's market leader, continues to improve market share,” said the group.
Consultancy group White Young Green boosted full year pre-tax profit by 26% to £16.8m and boasted strong double digit organic growth. Revenue was up 28% to £282.1m, of which £22.4m came from acquisitions completed during the year.
Aggregates group Ennstone reports trading in recent weeks has shown a further marked deterioration and results are likely to be substantially behind current market forecasts for the year ended 31 December 2008.
Communications technology group Spirent is to return up to £50m to shareholders by way of a tender offer. The range has been set at between 70p and 85p per share inclusive, in increments of 1 penny only. The offer will close at 3pm on 14 October.
Heritage Oil is a rare bright spot after the Government of Tanzania approved farm-ins to four exploration licenses and the transfer of operational responsibilities to the group.
Support services firm to the energy sector Hargreaves Services is another winner after it delivered another set of record results with revenue, profits and margins improving in all divisions.
NHS staff supplier Nestor Healthcare is poorly after it agreed to sell its Carewatch business for up to £37m, subject to shareholder approval.
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