US banking crisis spreads to UK


Britain's beleaguered banks were enduring further stock market misery as America's banking crisis spread across the Atlantic.

Fears over exposure to the ailing US mortgage market and the prospects for multi-billion pound fundraising plans hit UK banks hard, with Barclays shares dropping to a near ten-year low.

Investors on both sides of the Atlantic were fleeing the banking sector amid a growing hysteria surrounding collapsed US bank IndyMac and the prospects for American mortgage giants Freddie Mac and Fannie Mae.

In London, Halifax Bank of Scotland shares plummeted 9%, threatening investor take-up for its £4 billion cash-call, with just two days to go before the deadline.

The mortgage bank's shares are now significantly below the "discounted" rights issue price of 275p, which could see the scheme's underwriters left with a swathe of unsold shares to offload.

The investors under Barclays' £4.5 billion move to bolster its finances are also facing potential hefty paper losses as shares sunk another 7% after a 3% fall on Tuesday. Its shares are now trading at just over 245p - below the 296p price that Japanese bank Sumitomo Mitsui Financial Group agreed to pay for its £500 million investment and under the 282p offered under the wider share placement.

Banks with exposure to the US financial sector were also being punished, with Royal Bank of Scotland down 9% as fears grew over potential trouble for its US subsidiary Citizens.

Speculation that the group may be forced into yet more multi-billion pound write-downs dragged the stock lower, while market talk also suggested that its £12 billion rights issue may now not be enough to strengthen its finances.

HBOS also has US exposure through some £40 billion in asset-backed securities, which has compounded its stock market woes in recent days, according to analysts.

Sandy Chen, banks analyst at Panmure Gordon, said the worries over UK bank credit risk and investment exposure that have been looming over the sector for more than a year were now coming to the fore. He added: "Add to that the fact that they are under pressure to raise capital in unkind markets and the sector is clearly suffering."