Morning:
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Bank shares were beating a retreat again today despite the best efforts of some brokers to breathe fresh life into their shares.
ING started the ball rolling by raising its rating on the UK banking sector from neutral to overweight. Royal Bank of Scotland slipped 1.4p to 20.6p, and Lloyds Banking Group shed 3.9p to 86.8p, unable to draw much comfort from a move by Cazenove to raise its rating from underperform to in line. HSBC also fell 19¾p to 523¼p in reaction to a big sell-off in the Far East this morning.
Barclays suffered a fresh blow to its reputation in the Square Mile after Moody's downgraded its long-term rating from Aa1 to Aa3 with a stable outlook.
The bank's financial strength rating has also taken a knock, downgraded from B to C with a negative outlook. The credit rating agency said the downgrades reflected its expectation of potentially significant further losses at Barclays, down 10.3p at 95.8p, as a result of writedowns on credit market exposures, as well as an increase in impairments in the UK, which could hit profitability and capital ratios.
Moody's said that after incorporating potential losses, it considered the Barclays' underlying economic capital and tangible equity as average compared with other key rating factors, such as the bank's superior franchise value and market position in deposits.
Dealers said the latest move could force the bank to draw down further on the two Middle Eastern sovereign wealth funds that lent last year in return for a large slug of equity. "Barclays could end up being controlled by Arab investors," said another dealer.
With so few traders and investors making it into work because the effect of the snow on buses and trains, share prices were left up to their own devices. As a result, Skeleton staffing was the order of the day at most of the big securities houses. In wafer-thin trading, the FTSE 100 Index retreated 56.4 to 4093.1. During the first quarter-hour of trading, total turnover was less than 55 million shares, probably a tenth of its normal levels.
Provident Financial drifted 5½p to 771½p after Citigroup downgraded the shares from hold to sell, reflecting fears about growing bad debts charges in the subprime credit card book.
Tokyo shares fell 1.5% as Hitachi plunged after warning of a record $7.8 billion (£5.4 billion) while a string of other companies with grim earnings outlooks also tumbled. The Nikkei 225 closed down 120.07 points at 7873.98.
Hong Kong investors ran for cover as doubts continued about the fate of the US "bad banks" plan and a lack of new stimulus measures from China. The Hang Seng index ended 365.23 points lower at 12,912.98. The Shanghai Composite held firm with a 0.5% gain as dealers returned for the first day's trading in the Year of the Ox.
