The nervousness in the banks has re-emerged. Goldman Sachs has done some of the damage with a 45-page note on the sector.
It has downgraded Lloyds TSB from neutral to sell and cut its price target from 432p to 401p. Lloyds lost 20p to 463.25p.
Goldman said: "Having outperformed European peers by 16% over the last three months, we believe that current valuations more than reflect Lloyds' perceived defensiveness. We reduce our forecasts by 12% in 2008 and 2009 to reflect our concerns on rising impairments particularly on corporate credit for which we estimate underlying impairments rose 10 basis points during the second half."
Alliance & Leicester fell 28.5p to 529.5p as Goldman said it expected £128m of write-downs in 2008, while Barclays dropped 18p to 486p. Here Goldman is forecasting a hit of £843m this year. Royal Bank of Scotland is 12.75p lower at 368.75.
The weakness in the banks is outweighing strength in the miners, leaving the FTSE 100 33.1 points lower at 5882.8.
Elsewhere insurer Friends Provident edged up 0.5p to 135p as the Takeover Panel set a 30 April deadline for US private equity firm JC Flowers to make a bid or walk away.
Among the smaller fry, ethanol producer Renova Energy slumped 35% to 5.5p after it said the credit crunch had made it more difficult to get funding to complete its plant in Idaho.
Ambrian analyst Richard Lucas said: "Not good news from Renova, with uncertainty still hanging over its failure to agree new funding for the Heyburn plant and no agreement on debt restructuring. In positive news, the current production plant at Torrington has had a relatively good year in 2007-08. However, this will count for nothing if the new funding arrangements cannot be finalised. We reiterate our recommendation to sell or switch into GTL Resources for ethanol exposure."
Finally, an update from Landsbanki on the Rank situation: "Following on from our comment this morning, we have spoken with the company. While we have gained some comfort that the resignation does not signify a further deterioration in trading nor any threat to banking covenants, it has reinforced our view that Rank is not expecting an imminent bid approach, neither has it received one. This is the central buy case for a group that is trading at a material premium to the sector.
"We understand that the finance director's exit package includes one year's pay and he has no new job to go to."
Meanwhile Malaysia's Genting has reportedly ruled out a bid for the company. Rank is now down nearly 10% at 90p.
