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All aboard the FTSE rollercoaster

Just when investors thought equities had taken all the knocks they could take, the rollercoaster ride started up again this week with renewed vigour.

On Monday, the benchmark FTSE 100 index suffered its worst-ever one-day points fall, closing down 7.85 per cent to a four-year low of 4,589. It then stabilised on Tuesday but today has fallen 4 per cent to 4,406 by mid-afternoon.

All eyes in the city were on the UK banking sector which fell the hardest earlier in the week. Royal Bank of Scotland, Lloyds TSB and Barclays all tumbled on leaked news that they had met with Alistair Darling urging him to speed up governmental support for the sector.

RBS issued a statement refuting claims that it, along with others, had requested a £15bn cash injection from the Government but could do little to prevent a share fall of 39 per cent from 150p to 90p by close of trade on Tuesday.

The bank denied reports today that chief executive Sir Fred Goodwin and chairman Sir Tom McKillop are to step down in the wake of the Government’s bail-out package with replacements already waiting in the wings.

Confirmation of a £50bn government rescue package and up to 250 billion pounds in loan guarantees finalised late last night failed to reassure rattled investors as fresh recession fears took hold today triggering falls in energy stocks after the market opened.

Whether this afternoon’s move by the Bank of England to cut interest rates will be enough to calm the waters remains to be seen but if nothing else it seems to have drawn a line under Darling and Brown’s dithering and highlighted that party politics cannot be allowed to get in the way of what is fundamentally a financial problem.

According to Premier Wealth Management managing director Adrian Shandley it’s a case of too little too late: “If they had come out last Friday and said they would guarantee the banks and building society accounts we would not be in as much of a mess as we are.”

Guilty though they may be of taking a reactive rather than proactive approach to dealing with the financial crisis, Schroders chief economist Keith Wade says today’s intervention is a step in the right direction. He says: “There’s a bit of a slog to go as it takes a lot of time for confidence to come back. The banks will start lending to one another, credit will free up and we will get the normal mechanisms working again. Yes it’s good news and it’s a step in the right direction but there’s still quite a long way to go for the economy to recover.”

In other news, AWD Chase de Vere has written to structured product providers stipulating that a counterparty credit rating of AA or above is now required for inclusion on its investment panel. AWD Chase de Vere senior manager Jason Walker says: “When we do our due diligence, one of the criteria we look at is financial strength. The financial strength is based on the counterparty and it would need to be AA rated. If the product does not meet the criteria, we will not put it on the panel for use.”

Truestone client director Simon Bullock says: “Morgan Stanley may have difficulty on A+ paper now, and further down the curve you’ve got Investec on BBB paper. They’ve been trying to convince the market that their BBB rating with minimal US mortgage exposure deserves a subjective view but I don’t think the marketplace will allow room for subjective views now, so they may struggle.”

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