FTSE 100 Drops Below 5,000 for First Time Since 2005; RBS Falls

By Adam Haigh

Sept. 16 (Bloomberg) -- U.K. stocks slumped, sending the benchmark FTSE 100 Index below 5,000 for the first time since June 2005, as concern grew there may be further capital raisings at financial companies and commodity stocks fell with metals prices.

Royal Bank of Scotland Group Plc dropped 16 percent and HBOS Plc tumbled 40 percent after American International Group Inc.'s credit ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. BHP Billiton Ltd. slid 6.4 percent and Rio Tinto Group lost 8 percent as copper retreated in London.

``A sustained run below this point would open up the scope for bigger losses to be exposed on the downside,'' London-based James Hughes, a market analyst at CMC Markets wrote in an email.

The benchmark FTSE 100 Index fell 220.6, or 4.2 percent, to 4,983.6 at 2:25 p.m. in London, extending its loss this year to 23 percent. The FTSE All-Share Index dropped 4.2 percent and Ireland's ISEQ Index retreated 5.3 percent, the lowest since 2003.

Stocks extended the slide after the British Bankers' Association said the cost of borrowing in dollars overnight more than doubled to 6.44 percent, a record jump.

About $1.1 trillion has been wiped off the value of U.K. shares this year as banks including Barclays Plc and Royal Bank have been forced to raise capital as losses at financial companies topped $229.5 billion across Europe, eroding profits.

`Risk is Just too High'

``There is a lot of uncertainty out there as to how this will unwind and how it will affect the financial system,'' said Jane Coffey, head of equities at Royal London Asset Management, which oversees about $63 billion in a Bloomberg Television interview. ``It seems that nobody is prepared to do any transactions with anyone else again because the counterparty risk is just too high.''

Royal Bank of Scotland, the U.K.'s second largest bank, slid 16 percent to 177.6 pence. HBOS, Britain's biggest mortgage lender, plummeted 40 percent to 139.4 pence.

AIG had its ratings cut after two people familiar with the situation said the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans to replenish capital.

``The financial sector is again under the spotlight and AIG is the cumulus nimbus cloud,'' said David Buik, a London-based market analyst at BGC Partners.

Barclays slid 11 percent to 282.75. The U.K.'s third largest bank is close to a deal to buy assets of Lehman Brothers Holdings Inc. for $2 billion, according to the Wall Street Journal. The bank said today it's in talks to buy assets from bankrupt Lehman Brothers Holdings Inc. two days after abandoning plans to acquire the entire securities firm.

BHP, the world's largest mining company, slipped 6.4 percent to 1,348 pence. Rio Tinto, the third biggest, dropped 8 percent to 3,859 pence.

Copper for delivery in three months slumped 2.3 percent in London. Platinum, gold, nickel, lead, zinc and aluminum prices also fell.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net