The FTSE 100 plunged more than 1.5 per cent on Friday morning, as mounting fears over the health of regional US banks sparked a sell-off across global stock markets. Investors crowded into ‘safe haven’ assets, with gold hitting another record high and government bond prices rising, as banking stocks plummeted and dragged global equity markets lower.
US regional lender Zions late on Thursday disclosed a $50million loss for the third quarter to reflect the impact of two bad loans, citing ‘apparent misrepresentations and contractual defaults’ And rival Western Alliance announced plans to sue a borrower, alleging fraud. The FTSE 100 slumped 1.6 per cent by mid-morning, while the domestically-focused FTSE 250 was down 1.5 per cent.
Banking stocks are bearing the brunt of selling pressure, with Barclays, Standard Chartered and NatWest all among the biggest fallers on London’s premier index after falling 5.5 to 3.7 per cent each. The worries over American smaller banks follows a 2023 regional banking crisis in the US that saw several mid-sized lenders collapse, leading to concerns about financial stability.
Private lending in the US has come under investor following bankruptcies in recent weeks of two auto-related enterprises, the auto parts company First Brands and the subprime lender Tricolor. Investors are worried the issues are a signal of much larger risks within the banking system at a time where bullish sentiment is already under pressure due to AI ‘bubble’ fears and ongoing trade tensions.
Chris Beauchamp, chief market analyst at IG, said: ‘This feels like a rerun of 2023, but it comes as the market is struggling to digest the latest US-China trade spat and spells trouble in the short-term at least. ‘Sentiment remains skittish, and the instinct will be to sell first and ask questions later.’ The FTSE’s fall declines in rival equity markets, with European banks sliding 2.4 per cent and US lenders falling 6.4 per cent on Thursday. Major Asian equity markets are also down by around 2.5 per cent each.
S&P 500 and Nasdaq futures show US equity markets on track to open 1 per cent lower later today. Gold prices regained momentum, jumping around 0.1 per cent to $4,348.72/oz. European bond yields also fell, with the 10- and 30-year gilts down by 1 and 2 basis points, respectively.
Richard Hunter, head of markets at Interactive Investor, said: ‘There are increasing signs of storm clouds gathering over markets, with little relief from the building wall of worry. ‘Already grappling with stretched stock valuations in the AI space, an unresolved government shutdown and a deteriorating relationship between Beijing and Washington, investors were exposed to a new source of concern in the form of lending practices and bad loans for US regional banks.’
