U.K. Stocks Retreat, Led by HSBC; Banks Tumble Most Since 1985

By Sarah Jones

March 2 (Bloomberg) -- U.K. stocks dropped for a second day, as bank shares tumbled by the most in more than two decades after HSBC Holdings Group Plc announced plans to raise 12.5 billion pounds ($17.7 billion) in a share sale.

HSBC plunged 20 percent after Europe’s largest bank also reported earnings that missed analysts’ estimates as sub prime losses cut profit. BHP Billiton Ltd. and BP Plc led a sell off in commodity producers as Warren Buffett said the U.S., the world’s largest economy, is in a “shambles.”

The FTSE 100 Index dropped 157.34, or 4.1 percent, to 3,672.75 at 12:12 p.m. in London, poised for its lowest close since March 2003. The FTSE All-Share Index lost 3.9 percent, while Ireland’s ISEQ Index retreated 2.9 percent.

“The double whammy of the rights issue, coupled with results at the lower end of expectations, have conspired to drive both HSBC and the banking sector lower,” said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers in London.

European shares extended declines after American International Group Inc. reported a record fourth-quarter loss and the U.S. government said the insurer deemed too important to fail will get as much as $30 billion in a revised bailout.

HSBC tumbled 20 percent to 393.50 pence, sending a measure of bank shares down 17 percent, the biggest one-day decline on a closing basis since at least 1985.

The lender today said it plans to raise capital as it cuts 6,100 jobs and closes its HFC and Beneficial consumer lending units in the U.S. HSBC reported a 70 percent drop in full-year net profit to $5.73 billion, missing analysts’ estimate of $13.6 billion, and cut its full-dividend by 29 percent.

Royal Bank Retreats

Royal Bank of Scotland Group Plc, the largest bank controlled by the government, slipped 5.2 percent to 22 pence. Standard Chartered Plc, which makes the majority of its earnings in Asia, declined 9.5 percent to 601 pence.

BHP, the world’s largest mining company, lost 5.6 percent to 1,044 pence. Rio Tinto Group, the third-biggest, declined 5.8 percent to 1,696 pence. BP, Europe’s second-largest oil company, fell 4.3 percent to 429 pence.

Copper fell in Asia and London, leading a decline in most industrial metals, while crude oil also retreated as a contraction in China’s manufacturing and a drop in South Korean exports renewed concern the global recession is deepening.

Buffett, chairman of Berkshire Hathaway Inc., said in his annual letter to shareholders Feb. 28 that the U.S. economy will be a “shambles” this year and perhaps longer, before recovering from the reckless lending that caused the worst “freefall” he ever saw in the financial system.

The following stocks also gained or fell in the U.K. market. Stock symbols are in parentheses.

Amlin Plc (AML LN) gained 11 pence, or 3.2 percent, to 354 after the largest Lloyd’s of London insurer by market value said it plans to raise its dividend 13 percent and predicted higher premium rates this year and next.

Candover Investments Plc (CDI LN) dropped 31.25 pence, or 13 percent, to 218.5. The British investor in leveraged takeovers since 1984 canceled a commitment to invest 1 billion euros ($1.26 billion) in its latest buyout fund and will cut jobs after posting a loss for 2008 of 212.6 million pounds.

Premier Foods Plc (PFD LN) lost 1 pence, or 3.3 percent, to 29. The second-largest U.K. bread baker will seek to raise 400 million pounds in a rights offer to reduce debt, the Sunday Times said, without saying where it got the information.

Whitbread Plc (WTB LN) dropped 31.5 pence, or 4.2 percent, to 715. The owner of the Premier Inn budget hotels said sales growth slowed as fewer people stayed at its hotels. Revenue rose 4.9 percent at outlets open at least a year in the 50 weeks ended Feb. 12. That was less than the already-reported 6.7 percent gain for the first 39 weeks.

Irish companies:

Allied Irish Banks Plc (ALBK ID) gained 3.5 cents, or 9.1 percent, to 42 after Ireland’s biggest lender by market value reported 2008 earnings per share excluding one-items of 66.5 cents, in line with the median estimate of analysts.

Kingspan Group Plc (KSP ID) dropped 7.2 cents, or 3.3 percent, to 2.14 euros. Europe’s largest maker of flooring and insulation panels said it won’t pay a final dividend and may close more plants after full-year profit fell 77 percent.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.