The London stock market suffered a bloodbath today with more than £35bn wiped from shares as traders reacted to a massive accounting scandal from US giant WorldCom.
The market, already racked with post-Enron nerves, slumped after the telecoms giant reported that it disguised $3.8bn (£2.5bn) in expenses in what appears to be one of the largest cases of accounting fraud ever.
The firm is the latest in a line of companies to be struck by accounting scandals that have shaken public faith in corporate America.
Stock markets around the world plummeted in the wake of the disclosure, which will hit millions of individuals with money invested in equities through pensions, endowment policies and individual savings accounts.
At its lowest point so far today, the Footsie was down 188.1 points at 4442.9, a fall of 4% and its lowest since September 21.
However by midday it had pulled back slightly, down 150.6 points at 4480.4.
The fall means £35.7bn was wiped from the value of the Footsie each point equates to around £238m.
Although dramatic, the falls are less than the slump on September 11, when the Footsie fell 5.72% – which was the last time the index fell by more than 4% in one day.
The most the Footsie has ever fallen in one session was on October 20 1987, during the storms, when it was down 12.22%.
Tom Hougaard, trader at financial bookies City Index, said a “whole panic wave is in motion”.
“The losses amongst pension funds and portfolio managers will be huge and the whole Enronitis wound has been ripped right open once again.”
David Buik at financial bookies Cantor Index said: “The bears are back in town.”
He pointed to other bad news yesterday, in addition to Worldcom’s announcement.
“On top of that piece of unwelcome news, Micron Technology dealt a severe blow for the semiconductor sector when it was announced that its earnings fell way short of expectation,” he said.
Mr Buik added: “There was carnage in Tokyo and Hong Kong as well. Tech stocks such as Fujitsu, Toshiba, Advantest and Tokyo Electron all fell like proverbial stones.”
But Hank Potts, equity strategist at Barclays Private Clients, said despite today’s falls the Footsie had managed to hold above a key level of 4,400.
He said if it went through that level, it could slide to the 4,219 mid session lows touched following September 11.
“But it seems to be holding pretty steady,” he said.
“We have seen financial scandals before, but the big question is – is this endemic or a one-off. The market is nervous that there is a lot more out there.”
In London today, just one Footsie share managed to rise, and among the sea of red, banks, telecoms and tech stocks were hard hit.
Vodafone, Cable & Wireless, mmO2 and BT all fell between 3% and 6%, while software group Sage, the only remaining tech stock in the Footsie, fell 6%.
Among the banks, Royal Bank of Scotland, Abbey National, Lloyds TSB, HSBC and Standard Chartered all slid, while insurers such as Prudential and CGNU were hit badly.
Prudential said it had a $150m dollar exposure to WorldCom, while Lloyds said it had a small exposure.
All eyes this afternoon will be on how Wall Street reacts to the scandal.
Last night the Dow Jones industrial average closed down 155 points at 9126.82, while the Nasdaq slumped 36.35 points to 1423.99.
Traders are expecting the Dow to fall another 200 points and the Nasdaq another 45 when they open this afternoon.
Currency markets also reacted to the shock.
The dollar weakened against all major currencies in the wake of the WorldCom scandal.
Yesterday afternoon, the dollar stood at 97 US cents against the euro, but fell to a low not seen since February 2000 of 99.41 cents in early dealing this morning.
By mid-morning it had bounced back slightly to 99 cents.
Sterling rose from $1.4999 to the pound yesterday afternoon, to a high of 1.5270, but edged back in trading this morning to 1.5245.
EGi News 26/06/02
