London's reputation as a sound financial centre was being challenged last night by international investors as a further £750m was wiped off electricity share prices. The collapse brings the fall in prices to £4.25bn since Tuesday, when Professor Stephen Littlechild, the industry regulator, announced he was cracking down on electricity prices.
The collapse has infuriated investors here and in America. They are threatening to dump their new shares in electricity generators National Power and PowerGen, bought from the Government only days before.
One institutional investor described London's financial soundness as on a par with Mexico or Russia and said Britain was nothing more than a financial "banana republic".
The attack came as a serious political row brewed over the timing of Professor Littlechild's statement. He is thought to have changed his mind twice in four days over the timing of the electricity price capping. He first indicated last Friday that he would say something this week, then changed his mind over the weekend and then changed it again on Monday as dealings in the privatised National Power and PowerGen began.
His statement knocked the issue sideways. Small investors are now showing pennies of profit on the issue, while large institutional holders are nursing big losses. Even on Friday, it is understood, the Treasury took the view that a pricing statement would not affect the share price of the sector. There is widespread criticism of that view .
Some stockbrokers are considering whether to pay for their shares, a move that could force the Government to resell them. However, government advisers say there is no reason investors should not be forced to pay. More than a million private investors have already paid an average £1,000 for their first instalment but institutions are not due to pay until Monday.
The Stock Exchange declined to comment on whether it would look at the circumstances surrounding the sale of shares in National Power and PowerGen. A spokesman said: "Nothing is ever ruled in or ruled out."
John Reynolds, analyst at James Capel, said: "Investors are absolutely livid. It is quite clear that the brokers to the sale did not fully understand the regulatory issues involved." There is also a widespread view in the industry that the Treasury consistently underestimates the power of the regulator and his influence in the market place.
Chris Rowland, European electricity analyst at Merrill Lynch, said he was surprised at the intensity of the anger, particularly among overseas investors. "This was a first non-dollar equity investment for a number of clients and some are saying that they will never invest outside the US again. Some are even complaining that the UK carries the same risk as an emerging market, no better than Mexico and Russia."
The reverberations also continued for Northern Electric, which has been forced by the fall in its share price to give in to a £1.23bn hostile bid for the company by Trafalgar House. The company is waiting to see if Trafalgar wishes to proceed with the bid in the light of the regulatory uncertainty and the slump in the shares.
Northern's share price was languishing at £7.93 last night - down £1.04 on the day - compared with Trafalgar's £11-per-share offer
There was speculation that Trafalgar would abandon the bid, but a source close to the company said it was likely to wait and see.
The final deadline for acceptances of the cash alternative is 1pm on Friday.
Under Takeover Panel rules Trafalgar House cannot lower its offer. There are a series of conditions under which it could pull the offer completely.
Key among these is reaching satisfactory agreements with Professor Littlechild on Northern Electric's operating licences.Reuse content