Allied Irish fears spark Footsie slide

Published on Thursday 7 February 2002 00:00

SHARES in London fell for the third day running as investors baled out of banking and telecoms shares, stunned by news of the $750 million fraud probe at Allied Irish Banks.

The FTSE 100 index ended down 19.6 points or 0.4 per cent at 5,073.8, right at the lower end of its recent trading range of 5,000-5,400 points.

Heavyweight mobile telephone operator Vodafone alone wiped 19 points off the FTSE 100 index.

Banks hacked a further 15 points off the blue chips index, with Barclays down 35p or 1.6 per cent at 2139p and Abbey National down 29p or 2.7 per cent at 1032p.

Only oil giant BP offered a major uplift, giving the FTSE 100 about 10 points of upside after rising 11p or two per cent to 549p.

A senior trader at a European bank said: "I’m surprised it got down as far as it did today. I think Allied Irish might be a bit of a red herring.

"If it had been Barclays or Lloyds, that might have been a different thing. It’s a bit of an embarrassment but not a direct concern for London."

Allied Irish lost 17 per cent on news it was probing suspected fraud amounting to $750 million in the treasury operations of US subsidiary Allfirst, in one of the biggest trading scandals since Nick Leeson sank Barings Bank.

A volatile Wall Street kept UK shares on edge, although traders welcomed news that US computer networking firm Cisco said it would beat Wall Street average estimates for quarterly earnings per share and revenues.

The Dow Jones struggled to keep an early 40 point gain, helped by the Cisco news and an upbeat productivity report and was down 60 points by the time the London market closed.

Geoff Miller, senior investment manager at Exeter Asset Management, said: "We think things will pick up sharply when they do turn around later this year but for the time being the market’s sideways pattern will continue."

Telecoms knocked 22 points off the main FTSE 100 index, with Vodafone falling to a four-month low, down 6.75p or 4.7 per cent to 136.5p, and BT Group down 3 per cent or 4p to 227p as corporate outlook worries persisted.

Alternative telecom carrier Energis lost 1.5p or 8.3 per cent to 15.5p and Telewest Communications 2.5p or 7.3 per cent to 31.5p, while UK chip designer ARM Holdings dropped 15.25p, or 5 per cent, to 290.75p.

One senior UK equity dealer said: "Weak US subscriber numbers have spooked the market, the issue of flowback in the sector and what’s happening in Japan, with people asking ‘will they be able to turn the business around’ have all impacted on Vodafone."

But defensive drug and oil stocks provided some support, with GlaxoSmithKline up 19p or 1.2 per cent to 1690p.

Engineer Invensys bounced 4p or 4.1 per cent to 101.5p off lows. Miller said: "We are looking at defensive buying like utilities and drugs and taking advantage of stocks that have been hard hit like Aberdeen Asset Management and Allied Irish today which are fundamentally sound in the long term.

"Telecoms are still overvalued and people are buying stocks with physical assets that they can get their hands on like property companies, oil and mining shares."

Mining stocks were in favour as the price of gold surged to 305 an ounce, its highest in two years.

Anglo American jumped 37p or 3.2 per cent to 1231p, gathering momentum as it broke key chart resistance at 1215p. BHP Billiton also rose 8p or two per cent to 398p and Rio Tinto up 43p, or 3 per cent, to 1438p as investors sought safe havens like the resources sector, dealers said.

Rolls Royce fell 7.75p or five per cent to 145.5p after Goldman Sachs reiterated its bearish stance on the stock with a price target of 100p.

Market volume totalled 2.3 billion shares, with FTSE 100 losers outnumbering gainers by two to one.

The Allied Irish announcement added to market worries generated by the collapse of US energy giant Enron and news of unreported acquisitions at US industrial conglomerate Tyco.

ABN AMRO analyst Eamonn Hughes said: "This announcement could not have come at a worse time, with investors concerned about accounting irregularities and weak internal controls."

Aberdeen Asset Management fell 26.5p, or 8 per cent, to 300p on a report that the UK’s Financial Services Authority will launch a series of investigations into split capital investment trusts.

Shares in UK media firm Granada shed 5.25p or 4.6 per cent to 108.75p dragged down by worries that a change in ratings measurements by a UK audience research body could muddy an already murky advertising outlook.

Glasgow-based SMG, owner of Scottish TV and Grampian, was down 2.5p or 2 per cent, to 120p.