London midday: Stocks sharply lower amid fears over US regional banks

(Sharecast News) - London stocks were still sharply lower by midday on Friday, with banks under the cosh amid concerns about US regional banks.

The FTSE 100 was down 1.2% at 9,322.09.

Sentiment on Wall Street took a hit on Thursday and shares of regional banks tumbled after Zions Bancorp and Western Alliance said they had been victims of fraud on loans to funds that invest in distressed commercial mortgages.

Zions Bancorp said it would take a $50m charge-off related to a loan issued by its California Bank & Trust division, while Western Alliance said it had begun legal proceedings over a bad loan.

Russ Mould, investment director at AJ Bell, said: "Pockets of the US banking sector including regional banks have given the market cause for concern. Investors have started to question why there have been a plethora of issues in a short space of time and whether this points to poor risk management and loose lending standards. This includes Zions flagging an unexpected loss on two loans and Western Alliance alleging a borrower had committed fraud.

"The pullback in UK-listed banks will be sentiment-driven. Investors have been spooked and moved to trim positions in the sector, possibly opting to have lower exposure in case a crisis is brewing. There is no evidence of any issues with the London-listed core banking names, but investors often have a knee-jerk reaction when problems appear anywhere in the sector.

"However, investors are watching one London-listed name in the broader financials sector very closely. ICG, formerly called Intermediate Capital Group, was the biggest faller on the FTSE 100 as it has exposure to private credit and asset-backed finance.

"In addition to news related to US regional banks, also weighing on sentiment were signs of liquidity pressures in America. Banks tapped the Federal Reserve's short-term lending facility for more than $15 billion over the past two days, the largest amount borrowed over a two-day period since the Covid pandemic. It looks like banks used this facility because rates were unfavourable on the repo market, potentially linked to the Fed having drained liquidity from the system through its quantitative tightening programme.

"When interest rates were low, central banks bought bonds from banks to inject cash into the financial system, called quantitative easing. In recent years, they've switched to quantitative tightening which involved letting their bonds and mortgage securities mature without buying replacements. The movements on markets seen this week will pile on more pressure for the Fed to end its quantitative tightening programme.

"It's no surprise that gold has rallied hard this year as investors are increasingly finding more things to worry about. Gold is the comfort blanket in times of stress and it has gone up again today following the banking sector woes."

In equity markets, it was a sea of red for financials, with ICG the worst performer, followed by Barclays, Schroders, St James's Place, Standard Chartered, NatWest, Lloyds and HSBC.

On the upside, Pearson rallied as the educational publisher forecast a pick-up in fourth-quarter sales, leaving it on track to meet full-year guidance. Updating on trading, Pearson said underlying sales had grown 4% in third quarter, helping lift revenues in the year-to-date by 2%.

Pearson said it had been a quarter of "good progress", with robust performances across all its businesses.

Engineer Smiths Group rose after saying late on Thursday that it had agreed to sell Smiths Interconnect to Molex, a Koch company, for an enterprise value of �1.3bn.

Man Group also gained after the fund manager reported a solid increase in assets under management, as investment performance gains picked up sharply from the first half.

Market Movers

FTSE 100 (UKX) 9,322.09 -1.21%

FTSE 250 (MCX) 21,650.55 -1.55%

techMARK (TASX) 5,464.10 -1.52%

FTSE 100 - Risers

Pearson (PSON) 1,147.00p 4.80%

Smiths Group (SMIN) 2,438.00p 3.13%

Coca-Cola HBC AG (CDI) (CCH) 3,530.00p 1.03%

Diageo (DGE) 1,816.00p 0.97%

Unilever (ULVR) 4,630.00p 0.87%

Haleon (HLN) 347.20p 0.58%

Imperial Brands (IMB) 3,005.00p 0.54%

National Grid (NG.) 1,127.50p 0.45%

British American Tobacco (BATS) 3,836.00p 0.29%

Marks & Spencer Group (MKS) 399.20p 0.25%

FTSE 100 - Fallers

ICG (ICG) 1,918.00p -6.02%

Barclays (BARC) 354.85p -5.59%

Schroders (SDR) 372.40p -4.82%

St James's Place (STJ) 1,286.50p -4.61%

Standard Chartered (STAN) 1,368.00p -4.24%

Babcock International Group (BAB) 1,135.00p -3.98%

Antofagasta (ANTO) 2,683.00p -3.66%

Entain (ENT) 808.80p -3.44%

Melrose Industries (MRO) 596.40p -3.27%

Scottish Mortgage Inv Trust (SMT) 1,090.00p -3.07%

FTSE 250 - Risers

Man Group (EMG) 195.50p 3.99%

Wizz Air Holdings (WIZZ) 1,159.00p 1.13%

BH Macro Ltd. GBP Shares (BHMG) 402.00p 0.63%

Oakley Capital Investments Limited (DI) (OCI) 555.00p 0.54%

SDCL Efficiency Income Trust (SEIT) 58.20p 0.52%

Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 296.50p 0.51%

Pantheon Infrastructure (PINT) 101.50p 0.50%

Pennon Group (PNN) 514.00p 0.39%

Petershill Partners (PHLL) 305.00p 0.33%

Barr (A.G.) (BAG) 680.00p 0.29%

FTSE 250 - Fallers

Chemring Group (CHG) 530.00p -4.50%

Oxford Biomedica (OXB) 590.00p -4.38%

Abrdn (ABDN) 196.10p -4.24%

Avon Technologies (AVON) 1,850.00p -4.15%

Fidelity China Special Situations (FCSS) 302.50p -4.12%

Lion Finance Group (BGEO) 7,365.00p -4.04%

TBC Bank Group (TBCG) 4,120.00p -3.95%

IntegraFin Holding (IHP) 348.00p -3.87%

Diversified Energy Company (DEC) 922.00p -3.86%

Carnival (CCL) 1,881.50p -3.68%