With no guidance from Wall Street, closed for Martin Luther King day, leading shares in London have sunk into the red, led by the banking sector.
A positive early reaction to the government's latest bail out plan has disappeared, outweighed by a grim update from Royal Bank of Scotland and growing fears of possible nationalisations. RBS is down 67% at 11.3p having fallen as low as 10p, with the government set to hold around 70% of the bank.
Lloyds Banking Group is 26% lower at 73p, while Barclays has lost its earlier gains to trade 8% down at 89.8p.
Dealers believe the falls have been exaggerated by short selling of the banks, after the ban on using this practice in the financial sector was lifted on Friday. That was certainly true of Barclays, where hedge fund Lansdowne Partners has just revealed it held a 0.25% short position in the bank on Friday.
Meanwhile Marc Kimsey, senior derivatives trader at CFD specialist Blue Index said many traders were adding to their short positions in RBS following the record losses announced today.
Mark McCutcheon, head of broking at IAF Securities, said:
"Why lift the shorting ban just ahead of this week-end's [bail out deal]? If it had been done a week ago, I doubt the share price reactions would have been so severe. Although the government owns a large stake in RBS, it is easy enough for investors to borrow stock to short the bank."
Under the rules laid down by the City regulator, the FSA, any disclosure of short positions taken out must be declared by 3.30 the following day. So tomorrow afternoon could prove interesting, if more bears are forced to tip their hands.
Still with financials, Prudential has fallen 31p to 304.75p as Lansdowne revealed a 0.32% short position in the insurer.
