UK Markets Hit Six-Year Low
FTSE Falls a Further 2.5% as Markets Elsewhere Plummet

July 24, 2002

Britain's shares today fell to a fresh six-year low as banks and other financial firms caught the shockwave from a freefall in US financial giants Citigroup and JP Morgan Chase overnight.

In lunchtime trading, the FTSE 100 index of leading UK companies was down 99.2 points or 2.5% at 3758.8. Banks took 32 points off the leading index, with Barclays down 4.8% and Royal Bank of Scotland off 4.2% after investors fretted about the sector's exposure to bankrupt energy trader Enron and stricken telecoms firm WorldCom. But insurer Prudential rose 2.4%, clawing back some of its earlier loss after its mid-year results reassured investors.

Markets tumbled elsewhere, with Frankfurt down 3.2% and Paris off 2.4%. In Asia, the Nikkei 225 in Tokyo had lost more than 2.5% to close below 10,000 for the first time since February.

In the latest blow to market confidence Citigroup and JP Morgan shares slumped after congressional investigators accused the two of taking part in efforts by fallen energy trader Enron to disguise its debt. The two banks lost more than a combined $33bn in market value by the time Wall Street closed despite their denials of any wrongdoing.

With the stream of negative news on US corporate behaviour, analysts warned that sentiment - specifically the lack of confidence - was driving the markets rather than hard economic data.

"Don't be fooled by the data watchers," said analysts at State Street, a US bank. "Markets are not being priced off the day to day flow of economic data. Instead we are witnessing a cascade of bursting asset market bubbles. First it was the technology markets, then equities in general. Now it is the dollar and tomorrow it will be the consumer."

Britain's leading shares have lost 47% of their value since the index's December 1999 high. Dealers said the relentless selling was a vicious circle as institutions were finding less cash to buy equities, despite a string of reassuring earnings from UK companies.

Last week's carnage in world markets was the culmination of a two-month slump that has wiped up to one-quarter off the value off the world's top companies. In the US, the Dow Jones industrial average has hit 7,702, well off its high of 11,000 last year. "This market is nothing to do with fundamentals anymore. It's plain fear and rumour. It's the banking sector fallout coming over from the US last night. There's probably going to be some sort of payback for anyone who assisted Enron," said Stephen Ford, investment manager at brokers Brewin Dolphin.

Downing Street sought to reassure the markets by praising the "fundamental strength" of the British economy and saying it was better placed than many to survive plunging share prices.

Tony Blair's official spokesman said: "The prime minister believes in the fundamental strength of the British economy. He believes that that fundamental strength means that this country is better placed than many other countries to survive the ups and downs of the stock market."

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