FTSE 100 Index Slides After S&P Downgrades U.K. Credit Outlook

By Alexis Xydias

May 21 (Bloomberg) -- U.K. stocks fell for a second day after Standard & Poor’s Ratings Services downgraded Britain’s credit outlook to “negative” and Alan Greenspan signaled the financial crisis is not over.

HSBC Holdings Plc and Royal Bank of Scotland Group Plc fell more than 2 percent after S&P said Britain’s top-level AAA debt rating is more likely to be cut as the government’s finances deteriorate. Cable & Wireless Plc, the country’s second-biggest fixed-line phone company, dropped the most since October after full-year earnings missed some analysts’ estimates.

The FTSE 100 Index dropped 86.64, or 2 percent, to 4,381.77 at 12:00 p.m. in London, as all but 9 of 102 companies on the gauge declined. The FTSE All-Share Index fell 1.9 percent and Ireland’s ISEQ Index lost 0.4 percent.

The downgrade “is just exactly what U.K. Plc really did not need,” said Manus Cranny, senior market analyst at MF Global Spreads in London. “The market is distraught as this opens the door to unpick the three-month run up of positive sentiment.”

The FTSE 100 has rebounded 25 percent since the low this year on March 3, led by banks and companies most exposed to economic growth, on expectations the worst of the global slowdown is over. The U.K.’s credit outlook was lowered from “stable” because of the nation’s increasing “debt burden,” S&P said in a statement today.

The government today sold all 5 billion-pounds ($1.6 billion) of five-year bonds it offered at an auction even after the credit downgrade.

‘Significant Downside Risks’

HSBC, Europe’s biggest bank, declined 3.9 percent to 539.75 pence. RBS, which is controlled by the British government, lost 2.8 percent to 41.2 pence.

Financials also fell after former Federal Reserve Chairman Greenspan warned U.S. lenders will need to raise “large” amounts of money and the Fed said the U.S. economy faces “significant downside risks.”

Cable & Wireless dropped 8.7 percent to 143.3 pence, poised for the biggest decline Oct. 15.

“Full-year results are lacklustre, with almost all reported geographies coming in below forecast,” for revenue and for earnings before interest, tax, depreciation and amortization, Jonathan Groocock, an analyst at Investec, said in a note to clients today. “This underperformance is continued in the outlook,” he said.

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

U.K. Companies:

British Land Co. (BLND LN) slid 27 pence, or 6.5 percent, to 387. The largest office developer in London reported a record annual loss as its properties slumped in value. The net loss of 3.88 billion pounds for the 12 months ended March 31 was bigger than the 2.96 billion-pound estimate from analysts surveyed by Bloomberg.

ICAP Plc (IAP LN), the world’s largest broker of transactions between banks, lost 27.5 pence, or 6.8 percent, to 376.5. Chief Executive Officer Michael Spencer sold 15 million of the company’s shares.

To contact the reporter on this story: Alexis Xydias in London at axydias@bloomberg.net.