Bank shares hit due to economy concerns

Shares have plummeted in many of the UK’s largest banks as fears about the UK economy grow.

Yesterday, shares in HBOS the UK’s biggest mortgage lender, fell 11% while Alliance & Leicester and RBS fell 8% and 9% respectively.

The HBOS sell-off meant its share price fell to 258 pence, less than the 275p price at which investors have been offered shares in a £4 billion rights issue.

As a result of the fall in its share price, HBOS issued a statement maintaining that its planned rights issue, designed to shore up its balance sheet, was fully under-written by investment banks and proceeding well.

A decision by investors is required by 18th July as to whether to buy the new shares offered by HBOS.

The banking sector was not the only one to suffer. Shares in the housebuilding sector also suffered.

Barratt Developments, the UK’s second biggest housebuilder by volume, saw its shares dive 40% yesterday.

Merrill Lynch yesterday warned that the housing market could face a repeat of the 1990s crash. Merrill said there is growing evidence of consumers behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase.

Shares in Persimmon yesterday were also down 9% in early trading to 353p - their lowest level for 5 years. Persimmon has now been relegated from the FTSE.

Bellway’s shares are down 66% this year alone. The company is now valued at £580 million, compared with £1.58 billion a year ago.

Berkeley Group shares also fell 9% after Goldman Sachs reduced its recommendation on the UK housebuilder to ‘sell‘ from ‘neutral and significantly cut its target price from 819.9p to 582.3p.

Merrill Lynch downgraded six housebuilders in the sector: cutting Barratt Developments, Bellway, Berkeley, Galliford Try and Redrow from ‘neutral‘ to ‘underperform, while Persimmon was moved to ‘neutral‘ from ‘buy, according to traders.

There are concerns throughout the housebuilding industry that many will be forced to make significant write-downs.

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