£50 billion meltdown

Friday 5 August 2011

AROUND £50 billion was wiped off the value of Britain's leading shares as fears over the financial crisis in the eurozone sent the country another step closer to a second recession.

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Tim Sharp and Jody Harrison

The UK’s beleaguered banking sector bore the brunt of investor panic with shares in the taxpayer-owned Royal Bank of Scotland, Lloyds and Barclays all plunging to lows not seen for more than a year before the markets closed last night.

The day’s frantic trading means taxpayers have lost around £28bn of their £65bn stakes in Lloyds and RBS.When the markets closed yesterday the FTSE-100 was down 3.4% -- the fifth consecutive trading day it had closed down. New York’s Dow Jones index was trading 4.3% down.Traders warned that a climate of fear had descended, with many investors jettisoning their shares, while the huge drop in share prices will have a dramatic effect on the savings of ordinary people -- with many investment portfolios now worth far less than they were just 24 hours ago.Those with money in a stocks and shares ISA will have taken a hit, while pension funds will also have seen their value drop if they have invested in any of the companies which saw their value fall yesterday.The markets were spooked after European Commission President Jose Manuel Barroso warned the sovereign debt crisis that has engulfed Ireland, Portugal and Greece is now spreading beyond the periphery of the eurozone, with the economies of countries such as Spain and Italy appearing vulnerable.It emerged yesterday that RBS has underwritten £840m worth of Greece’s debts -- money that may not be reclaimed if the Mediterranean country’s economy does not stabilise.There are fears the market turmoil may have a knock-on effect on the UK’s economic growth -- already all but stagnant at 0.2% during the past quarter -- and drive the country into a “double-dip” recession.Experts issued stark warnings after the scale of the meltdown became apparent.Jonathan Portes, director of the National Institute of Economics and Social Research, said: “This is the riskiest moment for the world economy since the Lehman crisis of 2008.”Frances Hudson, global strategist at Edinburgh-based Standard Life Investments, warned the eurozone crisis was going to weigh on investors for a long time: “This is going to go on for months if not years.”She also drew parallels with the now infamous collapse of Lehman Brothers in 2008 which left the market struggling to work out the price of mortgage assets. Now, she said, investors don’t know what value to put on Government debt. “The problem with eurozone exposure is that there is no real market,” she said.Bertie Thomson, senior fund manager at Aberdeen Asset Management, told The Herald investors are concerned about the state of the economy and the sovereign debt crisis in the eurozone, and companies, such as Lloyds, are being punished if theirresults are worse than expected. He said: “I think it is just indiscriminate selling. I think it is pure fear.”When the markets closed yesterday the FTSE-100 was down 3.4%, while shares in Lloyds Bank plunged 10.2% to close at 34.99p after it posted a £3.3bn loss for the first six months of the year.Royal Bank of Scotland was down 6.1% at 30.28p. Its market value slid £1.2bn to £17.9bn. Barclays’ shares fell 16.5p or 7.8% to 196p. Asia-focused HSBC escaped most of the flak, with its shares falling 15.3p or 2.6% to 578.5p.The sell-off will spark fears the UK’s stuttering recovery could grind to a halt as the eurozone copes with a widening sovereign debt crisis and the US economic resurgence looks increasingly feeble.

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£50 billion meltdown

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