Alliance & Leicester, the mortgage bank, tumbled 7 per cent to a seven-year low after its rival Bradford & Bingley took a big writedown on its exposure to toxic debt.
Bradford & Bingley had been seen by many in the City as more foresighted in dealing with the fallout in credit markets. Alliance & Leicester has exposure to asset-backed securities and structured investment vehicles, whose values have deteriorated significantly in the past few weeks, as well as an expensive £4 billion loan taken out recently with Credit Suisse.
While Bradford & Bingley fell 56¼p to 187p amid fears about further writedowns to come, Alliance & Leicester dropped 42p to 559p. Since Banco Santander, of Spain, the owner of Abbey National, ruled out bidding for A&L last week, there has been nothing to hold up its share price.
The FTSE 100 ended down 29.9 points at 5,880.1. A promising start to the day on Wall Street failed to counteract the warning from the Bank of England that cuts in interest rates would be difficult. Predictably, too, the excitement on Tuesday that was triggered by Warren Buffett, the billionaire investor, wore off as analysts said that his rescue offer to monoline insurers was more a case of cherry-picking the best assets, not one of solving the credit crunch.
Other mortgage lenders were under pressure after grim figures from the Royal Institution of Chartered Surveyors on house sales, with Northern Rock down 9½p at 95½p and HBOS off 8p at 665p.
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Paul Measday, of Cazenove, said that Barclays, down 2p at 453½p, would have more write-offs from its Barclays Capital unit with its full-year results next week, although earnings should be in line. There is talk that Barclays is involved in plans to rescue two monoline insurers, which “suggests there could be a meaningful exposure in this area”, Mr Measday said.
Wolseley ended up 1p at 697½p, despite Morgan Stanley cutting its price target from 624p to 530p and saying that there was probably worse to come for the builders’ merchant as the repair and commercial construction market in the United States hits the buffers. Morgan Stanley said Wolseley’s weak financing meant that it would have to cut its acquisition budget by more than half over the next two years, while its costs would rise as it tackles implementing computer systems and distribution in Europe.
British Energy was the top blue-chip performer, up 44p at 533p, as fears over lower output next year from its ageing nuclear stations were outweighed by excitement over its plans to cash in on plans to build new ones.
Experian, the credit checker, jumped 18¼p at 453¾p on high volume as short sellers closed out. The shares have been on the rise since a positive road show at the end of last month.
Landsbanki helped to generate interest in the FTSE 250 by naming five mid-cap stocks as its top picks for exposure to the internet. They were Hargreaves Lansdown, up 7¼p at 172p, Rightmove, up 17p at 466p, IG Group, down 2p at 98½p, N Brown, up ¼p at 253½p and Aegis, up ½p at 113p.
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New York: Stocks ended sharply higher as an unexpected rise in US retail sales in January eased recession worries. The Dow Jones industrial average finished the day 178.8 points up at 12,552.2.