Bank stocks lead global equity slump

Financial share prices have fallen sharply on international markets as the severe problems facing the banking sector internationally become clear. The new bout of nervousness sent US shares sharply lower last night, with the Dow Jones Index falling 2.68 per cent and the broader-based Nasdaq index plummeting by over 4.8 per cent.

The collapse in the value of financial shares comes at a bad time for First Active, which is hoping to raise more than £100 million from its members and institutional investors as part of its flotation on the stock market next week.

That offer to institutional investors to buy shares closes today, but First Active may struggle to get an acceptable price from major investors, given the sharp fall in financial stocks worldwide. There is also uncertainty about the likely performance of the shares when they come to the market.

The near-collapse of the US hedge fund Long-Term Capital Management (LTCM) and the emerging market debt crisis are taking their toll on the financial sector. One leading bank has announced substantial job cuts and UBS, Europe's largest bank, prepared to announce today that it is to jettison several senior executives as a result of losses from investment in LTCM.

The accumulation of bad news, which followed a profit warning from Dresdner Bank on Wednesday, led to sharp falls in bank stocks and global equity markets. Worst hit of leading markets was Frankfurt, where the DAX index fell 7.6 per cent, its worst one-day fall since 1991; the index is now down more than 2,000 points and 30 per cent from its July peak. The Dow Jones Industrial Average, which fell 237 points on Wednesday, closed down 210 points, or 2.68 per cent. This knocked on to another fall of around 10 per cent in Brazilian share prices, adding to investor nerves about the outlook for Latin America.

Financial shares in Dublin took a drubbing with more than £1 billion being wiped off the value of the sector as prices fell by almost 6 per cent. Overall, the Irish market closed nearly 4 per cent lower with the ISEQ index down over 166 points on 4111.32.

Dealers said that there was no great volume in yesterday's activity. Financial share prices were marked down as banks all over Europe fell by as much as 10 per cent with a raft of downgradings hitting blue-chip banking shares like Dresdner, Lloyds-TSB, Abbey National, Natwest and Credit Lyonnais.

Bank of Ireland suffered its biggest one-day fall since the 1987 crash with the shares trading down 89p to £11.01 while Allied Irish Banks was down 50p on 930p. The smaller financial stocks also came under the cosh from investors with Anglo Irish Bank, Irish Life and Irish Permanent all sharply lower.

The slump in stock price saw a movement of funds into Irish government bonds and the yield - or interest rate - on the 10-year gilt fell from 4.31 per cent to a record low of 4.10 per cent while the yield on long-dated gilts plunged from an overnight 4.71 per cent to 4.43 per cent at yesterday's close.

For those employed in the financial sector internationally, the most chilling news was the clear signal that the downturn in financial markets was now leading to lay-offs.

ING, the Dutch financial group, said it was shedding 1,200 jobs at ING Barings, its corporate and investment banking arm.