FTSE loses another 2 on banking crisis fears

The FTSE 100 lost another 2% on Tuesday, with the index falling back below the 5000 level as banks and insurers weighed on continued concerns that the ongoing Greek debt problem could trigger a new banking crisis.

Investors are facing the real possibility that bank exposures to sovereign debt and an increasing shut down in interbank lending markets could trigger a new banking crisis.

Bank shares have seen high volatility, which in itself is exacerbating investor fears and uncertainty over the crisis. With some individual bank shares swinging up to 10% on the day, such as Dexia in Belgium whose shares have lost over 20% today, they are selling a lot of their holdings in banks in a protective move.

With eurozone finance ministers confirming that they were reviewing the size of the private sector’s involvement in the second Greek bailout, it is becoming more and more likely that banks may have to take a larger haircut to their Greek debt holdings, particularly with Greece unable to meet fiscal deficit reduction targets laid out by the Troika.

Dexia shares, the Franco-Belgian bank with high exposures to Greek debt, have been hit hard this week from investors fearing that the bank may have to be bailed out again by France and/or Belgium, a fear that deepened when Moody’s warned about the banks liquidity. Dexia shares have lost another 22% today, adding to yesterday’s already sharp percentage losses.

Credit Suisse cuts miners
A raft of guidance cuts on a number of key UK listed mining firms from Credit Suisse also locked in more woes for the resource sector. The broker cut its price target on miners Rio Tinto, Xstrata, Lonmin and Anglo American, amongst others, which weighed down on their respective share prices by some 4% in trading. However, the broker did upgrade its view on BHP Billiton to outperform, from neutral, but this was not enough to curb the shares, towing the same theme of negative sentiment within the sector today, with shares losing 3%.

Economic data is rather thin on the ground today with the only headline being US factory Orders, which is due out at 3pm UK time. As such, traders will have little to blindside them away from continued news and rumours emanating out of European banks and officials, where traders continue to second guess which way the debt crisis could turn next.