U.K. Stocks Slump Most in 8 Months; Barclays, HBOS, RBS Plunge

By Adam Haigh

Sept. 15 (Bloomberg) -- U.K. stocks tumbled the most in eight months, led by financial companies, after Lehman Brothers Holdings Inc. filed for bankruptcy.

Barclays Plc, which pulled out of talks to buy Lehman yesterday, slid 13 percent, the steepest retreat since at least 1988. HBOS Plc, the biggest mortgage lender in Britain, slumped a record 27 percent and Royal Bank of Scotland Group Plc dropped 13 percent.

``The problem when you have a crisis is the notion of fear and that is what you have,'' Piers Hillier, the London-based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion, said in a Bloomberg Television interview. ``The fact that Lehman has gone to the wall does raises a lot of questions. The concern is that we haven't been able to address the problem,'' he added.

The FTSE 100 index tumbled 245.6, or 4.5 percent, to 5,171.1 at 1:57 p.m. in London, the steepest slump since January, for a decline of 20 percent so far this year. The FTSE All-Share Index lost 4.4 percent today, and Ireland's ISEQ Index slid 5.4 percent.

The cost to protect corporate bonds from default surged as Lehman's bankruptcy, the biggest in U.S. history, and the emergency sale of Merrill Lynch & Co. to Bank of America Corp. heightened concern the subprime crisis will cause more bank failures and add to $514 billion of credit losses and asset writedowns worldwide.

Barclays lost 13 percent to 303.75 pence. HBOS dropped 27 percent to 207 pence and Royal Bank, the second-largest U.K. bank, slid 13 percent to 203.75 pence.

``It seems like everyone is trying to get out of their positions on this news,'' said Joshua Raymond, market strategist at City Index Ltd. in London. ``It's taken a turn for the worst and we are continuing now on a downward trend.''

BHP Billiton Ltd., the world's largest mining company, slid 5.3 percent to 1,429 pence and Anglo American Plc, the world's fourth biggest diversified mining company, dropped 5.9 percent to 2,355 pence. Copper for three-month delivery sank 3.1 percent on the London Metal Exchange.

The following stocks also rose or fell in the U.K. markets. Stock symbols are in parentheses.

Heritage Oil Ltd. (HOIL LN), a U.K.-based explorer with interests in Africa, rose 13.5 pence, or 6.5 percent, to 222.75 after winning government approval to take a working interest in Dominion Petroleum Ltd. licenses in Tanzania.

J Sainsbury Plc (SBRY LN), the third-largest U.K. supermarket chain, fell 14 pence, or 3.8 percent, to 351 pence after Chief Executive Officer Justin King told the Financial Times that consumer sentiment is ``worse than it has ever been.''

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