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Troubled stock markets continue slide on Euro bank fears

• Fresh warning on bank exposure to Greek debt
• FTSE 100 loses 73 points, on top of Thursday’s 247-point fall
• G20 ministers vow to take ‘all steps necessary’
• George Osborne tries to calm nerves in Washington

An attempt by world leaders to stem the fall in global stock markets appeared to have failed on Friday as shares in London and the rest of Europe resumed their slide on fears of further problems for European banks.

Finance ministers and central bankers from the group of 20 major economies meeting in Washington DC vowed on Thursday night, after a torrid day on stock markets, to take “all steps necessary” to calm the global financial system and said central banks stood ready to supply liquidity.

The British chancellor, George Osborne, was also preparing to brief reporters in Washington this lunchtime as politicians from the major countries sought to calm the markets.

But although shares rallied this morning, the relief was short-lived. By early afternoon, the FTSE 100 index in London was down nearly 73 points, a 1.5% fall that took it through the 5000-mark to 4968, after opening 50 points higher. Germany’s Dax lost 2.4% while France’s Cac dropped 2.3%.

Shares turned negative again after Deutsche Bank warned that European banks could take bigger writedowns than expected on Greek debt. Private sector creditors agreed in July to take a 21% loss on Greek bonds maturing before 2020, but the loss is more likely to be 25% or more, said Charlotte Jones, in charge of group controlling at Germany’s biggest lender.

The July agreement was based on a Greek government bond yield of 9%, but the yield has risen much further since then. “Today, there are no Greek government bonds trading below yields of 13.75%,” Jones told Reuters.

“In the event the private sector involvement is executed with market rates remaining above 9%, then for every additional percentage point in market rate, the net present value haircut for investors will increase by a little over four percentage points.”

Markets were also plagued by recession fears after a fall in French consumer and business confidence in September, shrugging off a pledge from leaders of the G20 countries to step in to help financial markets. Manoj Ladwa, a senior trader at ETX Capital, also pointed to Germany’s renewed rejection of euro bonds. “That could have propped up the market. It’s a no no for the time being.”

His colleague, Mark Priest, added: “I do not see how everything has changed overnight. Kickstarting the economy is easier said than done and it will take a lot more than what has been put on the table.”

G20 leaders had overnight indicated that the eurozone was working on bolstering the €440bn (£385bn) financial rescue fund. The communique from Washington said the bloc would implement “actions to increase the flexibility of the EFSF and to maximise its impact” by the eurozone’s next ministerial meeting in October.

The comments helped the euro edge higher to .3534 after hitting an eight-month low against the dollar on Thursday.

Meanwhile, David Cameron warned the global economy was close to “staring down the barrel” and told eurozone leaders to stop “kicking the can down the road”. Gloomy economic assessments from the International Monetary Fund coupled with poor figures from the eurozone this week have stoked fears of a double-dip recession.

Stock markets suffered heavy losses on Thursday, when global stocks entered bear market territory, and £64bn was wiped off the value of blue-chip stocks in London. The FTSE 100 closed down 247 points, or 4.7%, at 5041, its biggest points fall since November 2008.

In Asia, shares continued their slide on Friday. Hong Kong’s Hang Seng was down 1.4% while the south Korean stock market lost 5.7% and shares in Taiwan fell 3.6%. Only the Indonesian market, which posted a near 9% drop on Thursday, the worst since 2008, bounced back by 1.7%.

Jane Foley, senior currency strategist at Rabobank, said: “The statement from the G20 may have taken the edge off the current bitter market sentiment but the reassurances from the finance ministers lack substance. Until politicians back their words with actions in respect to moving closer to a solution to the eurozone debt crisis, markets will continue to worry about a messy and painful outcome from the eurozone debt crisis and flight to quality is set to remain the order of the day.”

Two Greek newspapers reported that the Greek finance minister, Evangelos Venizelos, had told lawmakers he saw three scenarios to resolve the debt crisis, including one where the country obtains an orderly default with a 50% haircut for bondholders. The other scenarios would be an disorderly default or the implementation of a second €109bn (£95bn) bailout plan agreed between Greece and its lenders in July.

In a statement issued by the Greek finance ministry, Venizelos said: “Greece has taken the final decision to do everything in its power in order for all the European Council decisions of 21 July, vital both for the euro area and for Greece itself, to be implemented fully and on time.

“All other discussions, rumours, comments and scenarios that distract attention from this central goal and political obligation of Greece and of all the other euro area member states and European institutions, do not offer good service towards our common European case.”

Echoing Cameron’s comments, former chancellor Norman Lamont said the world was “teetering on the brink”. While the global growth problems cannot be solved easily, “the problem of Greece could be solved either by having a controlled default or bailing it out,” he argued on the BBC’s Today programme. “The logic of currency unions is that the stronger countries help the weaker countries.” But he was sceptical that this would happen soon. “The crisis will just drag on and on, sapping confidence.”

Commodities continued their sell-off, with the London copper price hitting its lowest level in more than a year. It is on course for its steepest weekly loss since October 2008. Crude oil and gold edged higher but remain on track for their biggest weekly losses in more than a month. Gold appears to have lost some of its safe-haven appeal and is headed for the third week of decline.

Michael Hewson, market analyst at CMC Markets, said: “The outlook for the European banking system remains highly uncertain with downgrades for seven Italian banks, uncertainty over the next tranche of the Greek bailout, and an IMF report suggesting that the recent crisis in Europe suggests that the banks could be undercapitalised to the tune of €300bn and that politicians need to act now to avert a crisis.” © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds