Banking wobble dampens the mood

The FTSE 100 index was down more than 2 per cent at 5,214.65, as renewed worries of a Greek default and a lacklustre response to American jobs data by US president Barack Obama also lowered sentiment.

Ben Critchley, sales trader at IG Index, said: “It’s been a poor end to the week for many, with optimistic tones being drummed out of the markets as the bears move back in. Increasingly, Obama’s plans are being seen as falling short of expectations, while a fractious situation in the eurozone also weighed.”

At home, brokers warned that the Independent Commission on Banking’s final report, which is due to be published on Monday, could have a severe impact on the industry.

Barclays and Royal Bank of Scotland fell sharply after Goldman Sachs highlighted the banks as the pair most at risk from the ICB reforms. Barclays lost 15p at 144p and RBS shed 1.2p at 21.5p.

Lloyds Banking Group, which is expected to be told by the ICB to sell more branches than the 632 imposed by the EU, dropped 1.9p at 34p.

Currency markets were also unsettled, with the pound making big gains against the euro for the second day running, at €1.161 on worries that attitudes towards Greece are hardening among other eurozone members. Sterling fell to $1.588 versus the dollar.

Elsewhere, eurozone debt is expected to dominate the meeting of G7 financial leaders this weekend in France, which further fuelled concerns over the exposure of Britain’s banks to the crisis.

On the other side of the Atlantic, any optimism inspired by Obama’s highly-anticipated £280 billion jobs package proved short-lived as the Dow Jones Industrial Average suffered a dismal opening, falling more than 2 per cent.

Car insurer Admiral saw its shares fall nearly 5 per cent after the UK government said the payment of referral fees in personal injury cases will be banned in a bid to tackle rising insurance costs.

Admiral, which owns Confused.com, said referral fees accounted for around 6 per cent of its UK car insurance profits, but with the Office of Fair Trading also threatening a full inquiry into the car insurance market its shares fell a further 57p to 1,307p.

Grim trading conditions for retailers continued to unnerve investors, particularly after broker Barclays Capital downgraded a number of stocks.

They included Home Retail Group, which yesterday said like-for-like sales at catalogue business Argos were down by 9 per cent.

Home’s shares fell 11p to 106.8p, while department store Debenhams was off 2.3p at 53.5p and Halfords declined 7.4p to 277.1p.

The difficult trading conditions have also impacted on pubs chain JD Wetherspoon after it reported a 6 per cent drop in full-year profits to £66.8 million. Shares fell 18p to 398p.

Back in the top flight, Tullow Oil shares jumped 15.2 per cent or 186p to 1,413p after it announced a major oil discovery off French Guiana.