Shares plunge as recession fears grow

SHARES in London and New York yesterday suffered some of their worst falls since the onset of the credit crunch on mounting concerns over bank losses and the growing prospect of recession.

In London, the FTSE 100 index plunged 190.1 points to 6,025.6, the largest single-day loss since the worst of the credit crisis last August.

Many shares suffered falls of more than 5 per cent amid concern that the financial crisis is worsening and that recession now looks likely. Shares in Royal Bank of Scotland tumbled 5.7 per cent, or 23.75p, to a new multi-year low of 392.75p, with the entire sector down on news from the US that Citigroup, the world's biggest bank, saw bad-debt write-downs reaching a staggering $18.1 billion and a $9.8bn loss in the fourth quarter. Other banks were also hit – Halifax Bank of Scotland was down 4 per cent to 640p.

On Wall Street, the Dow Jones Industrial Average slumped 277.04 to 12,501.11 on the shock news from Citigroup, while a surprise drop in December retail sales fuelled fears that recession was now unavoidable. Retail sales fell 0.4 per cent on the month, worse than expected, and a particularly disappointing result given the importance of the holiday shopping season for retailers.

Particularly unsettling was that these fresh falls come in the wake of a broad hint last week from Ben Bernanke, chairman of the US Federal Reserve, that interest rates would be cut by a further half-point at the end of the month. Not even this prospect is doing lifted the black mood.

Citigroup shares slid 7.3 per cent as the group announced job losses of 4,200, a slashed dividend and plans to raise $14.5bn from outside investors to shore up its stricken balance sheet.

Citigroup has been one of the biggest victims of the slump in the American housing market and the net loss was roughly twice as large as Wall Street had been expecting, hurting other financial shares.

Last April, Citigroup unveiled plans to cut 17,000 positions around the globe.

In the UK, whole sections of the stock market are now pricing in a recession. Severe falls have been experienced in sectors as disparate as housebuilding, retailing, commercial property, media, banks, insurance, luxury goods manufacturers and manufacturing .

Falls from the 2007 peak now extend to 40 per cent in some of the worst-hit areas. Indeed, once the surging precious metals and mining stocks are stripped out of the FTSE 100 to give a more accurate picture of the level of confidence among indigenous UK companies, the true index level is thought to be nearer 4,500.