Mounting fears over further heavy losses in the financial sector pushed Wall Street down for a third day after three leading US banks revealed further evidence of the damage being caused by the credit crisis.
Bank of America, the country’s second largest bank, and JP Morgan Chase, the third largest, admitted that they too could be hit by the worsening crisis. The news came as Wachovia, the fifth largest bank, said it faced a $1.7bn (£812m) fourth-quarter hit.
The Dow Jones slid 247 points at one stage, a fall of nearly 650 points over three days, as the flood of bad news cemented the view that the final three months of year will throw up even more losses.
JP Morgan, which revealed it had $40.6bn of leveraged loans and unfunded commitments on its balance sheet at the end of September, said it faces “further markdowns … if market conditions worsen for this asset class.”
Blue chip stocks took a hammering as Friday’s sharp falls on Wall Street spread to the London market in an echo of the Black Monday crash almost 20 years ago to the day.
The FTSE 100 Index dropped 101.8 points into the red by mid-session trading after a troubled market opening, which saw the Footsie fall nearly 2% in the first few minutes.
The benchmark index was mirroring heavy overnight falls in Asia, with global markets reacting to a significant sell-off in America late last week on the 20th anniversary of Black Monday.
Nearly £60 billion was wiped off the value of Britain’s blue-chip companies yesterday after mounting fears of a global credit crunch sent shares plunging as world stock markets endured a deepening rout.
The FTSE 100 index of London’s leading shares slumped by more than 4 per cent, suffering its steepest one-day percentage loss for nearly 4½ years, as it shed more than 250 points in frenzied dealing.
In points terms, the drop in the blue-chip benchmark was its fourth-biggest ever, and eclipsed even that suffered on Black Monday in 1987.
Shares were in freefall across the world yesterday, wiping hundreds of billions of dollars off pension funds and investor portfolios.
In London, the FTSE 100 index suffered its biggest losses since the year 2000, shedding £63billion as it finished 232.9 points lower at 6038.3.
It was the second day of a wave of panic-selling provoked by fears that banks are sitting on huge losses incurred from the U.S. property market.
Investors made few changes in their allocations in December but headed into 2006 with close to twice as much exposure to equities as to bonds, Reuters polls showed on Wednesday.
Surveys of 44 leading fund management companies in the United States, Japan, Britain and continental Europe showed average stocks holdings at 62.0 percent, barely changed from 61.9 percent in November.
Bond holdings were unchanged at 31.4 percent and cash remained steady at 3.9 percent. Property and alternative investments made up the remainder.
It marked the highest level of exposure to stocks since March 2005 and kept bonds at the lowest level since April 2005.