Market Report: Bankers' gloom exaggerates slump

BANKS ENDURED another pounding as Footsie crashed 156.2 points to 4,908.2 - its lowest since December. At one time the index was down to 4,881.3. It was financials, led by the banks, which powered the index through much of its long bull run. Now the gloom engulfing the nation's banking parlours is, to some extent, exaggerating the slump.

Once again money shares were demoralised by rumours of more hedge fund problems following the Long-Term Capital Management crisis. It was claimed two US funds were desperately seeking rescuers.

With fears more banking hits may materialise there was a tendency to adopt a cautious approach to bank shares. Some dealers were drawing consolation from London's relative strength compared with most European markets. However, there was some determined selling.

It was not just blue chips under pressure. The mid cap index, plunging 103 to 4,441.2., and the small cap, off 33.8 to 1,952.8, hit levels last seen more than two years ago.

Lloyds TSB led the latest banking retreat, falling 57p to 602p. National Westminster Bank, buying an Ulster stockbroker, lost 60.5p to 729.5p, and Barclays continued its headlong plunge with a further 71p decline to 890p. Overall, the retail banks suffered a 5.5 per cent loss.

Other financials feeling the strain included Allied Zurich, down 59.5p to 542.5p, and Amvescap, the US fund manager, off 34.75p to 303p.

The International Monetary Fund's warning of a global recession and continuing disappointment at the modest level of the US interest rate cut were other destructive influences. Government stocks again displayed their defensive qualities with gains of up to 1.2 points as investors switched from equities.

The telecom stampede is being transformed into a near rout as some of the recent high flyers are grounded. Colt Telecom and TeleWest Communications, both recruited to Footsie following the last review, must be wondering whether they will survive more than three months as constituents of the blue chip index. TeleWest fell 12.25p to 122.5p, against a 208.5p high, and Colt gave up 60.5p to 435p, compared with an 832p high.

The latest round of mobile subscriber figures seemed to favour Cellnet (BT and Securicor) and Vodafone against Cable & Wireless. BT, splashing out pounds 230m on a South Korean telecom stake, fell 15p to 778p and Vodafone lost 19p to 664p. Cable & Wireless gave up 10p to 551p.

Imperial Chemical Industries managed to survive a blistering review from experienced analyst Philip Morrish. He put a 210p price on the shares, which after touching 449p ended 3p higher at 466.5p. Mr Morrish, who is with Nikko, cut his current year profits estimate by 20 per cent to pounds 295m. He slashed his forecast for next year by 57 per cent pounds 195m. Delays to ICI's disposal programme and shrinking operational cash flows "only serve to exacerbate the balance sheet pressure". The Nikko man believes the payment of a final dividend "must be in doubt". ICI gained some strength from the weaker pound. Rolls-Royce was another to benefit, up 2p to 205p.

Railtrack was another refusing to be sidetracked in the gloom. The shares stretched 17p to a 1,713p record with the high-speed London link to the Channel Tunnel continuing to provide encouragement.

Centrica, the gas distributor, was the best performing Footsie constituent, gaining 4.25p to 118p on its electricity charge and the potential for its gas exports. Transport shares were hit again by John Prescott's "national disgrace" comments with FirstGroup reversing 10.5p to 412.5p and Go-Ahead 46p to 622.5p.

SmithKline Beecham had to contend with a profits downgrading. Morgan Stanley lowered this year's forecast from pounds 1.74bn to pounds 1.71bn and next from pounds 1.93bn to pounds 1.89bn.

Capital Corporation, the casino operator, was spun 14.5p higher to 74.5p as it admitted bid approaches.

The suggestion of corporate action in the leisure sector, plus a relaxation of bingo legislation, failed to bring any comfort to Rank, off 11p at 219p, lowest since 1992.

As BSkyB launched its digital television service Lehman Brothers expressed caution with a 480p target. The shares fell 8p to 493p. British American Tobacco, engaged in a City investment tour, was puffed up 14.5p to 453p, in part reflecting its divestment from financial services.

Stentor, the Irish telecom group crashed 16p to 10p after revealing a cash crisis. The shares have been as high as 198p. International Tool & Supply was suspended at 4p after reporting a possible merger with an unidentified US group.

Media Business improved 13.5p to 103.5p as bid talks continued, and Bloomsbury Publishing responded to an alliance with Microsoft with an 11.5p gain to 146.5p.

First Choice, the holidays group, was ruffled by 1 million-plus shares deals at 75p and a 2.2 million deal at 82p. The price fell from 100.5p to 86.5p.

SEAQ VOLUME: 967m

SEAQ TRADES: 70,059

GILT INDEX: N/A

SHARES OF Abacus Recruitment slipped 15p to 190p; the price touched 370p early this year. Takeover talks have been dragging on for more than three months and there are suggestions the recruitment chain is on the verge of making up its mind about the merits of the proposals which have been put forward. For two years Abacus shares were among the best performers in the stock market; they started 1996 at around 16p.

ISA INTERNATIONAL, a distributor of information processing equipment, firmed 2p to 53p as David Heap became chairman, a job he quit in 1985. He is also chief of Daisytek International, America's largest wholesaler of electronic office supplies. Mr Heap has built a 19.6 per cent stake in ISA ,which has fallen from the near 250p hit two years ago. The shares have risen from 41p since Mr Heap started stake-building.