WorldCom bombshell batters Footsie
IT could and probably should have been a lot worse. WorldCom's admission that it had found not so much a black hole, but a crater, in its accounts, reverberated around global equity markets.
With confidence already shattered by the Enron and Tyco scandals, the telecom giant's £2.7bn fraud prompted a savage markdown of blue-chips in London. Neurotic dealers were taking no chances after the Nikkei's 4% sell off overnight in Tokyo.
The battered FTSE 100 soon found itself 188 points off with overweight bears talking it down to the October low of 4220. As selling gathered pace, investors awaited Wall Street's opening with fingers crossed. The Dow Jones fell 187, but before dealers could don their tin hats, it rallied sharply. London heaved a sigh of relief and the Footsie closed 100 lower at 4531.
Dealers fear plenty more grief to come. The balance sheet of every acquisitive company in America will now be called into question. So far, though skeletons have tumbled out of cupboards over there, a UK casualty has not yet emerged. Bears roar: 'Watch this space.'
Bulls hope the new US accounting disaster will delay any rises in American interest rates. As expected, the Fed last night left rates on hold at 1.75%.
The pound surged to a two-year high against the dollar to $1.5292 at one point. The euro touched 64.8p before closing at 64.6p. It surged to 99.38 US cents, then fell to 98.5.
Financials bore the brunt of London's selling. Banks were battered by fears of exposure to WorldCom and by Chancellor Gordon Brown giving his blessing to an early rise in UK interest rates.
Abbey National, after its recent profits warning, fell 33p to 737p. Royal Bank of Scotland lost 60p to 1808p. Allied Irish, whose AllFirst US subsidiary suffered a huge foreign exchange fraud and has some WorldCom exposure, cheapened 35p to 854p.
Fund managers reflected the current market malaise. Amvescap, which earns over 75% of its revenues in North America, fell 31p to 502p. Edinburgh Fund Managers, heavily sold of late on talk that its biggest client is about to say cheerio, dropped 14p more to a low of 271p.
Insurances were friendless on worries that they may reduce their equity portfolios to meet stringent UK solvency requirements. CGNU declined 17p to 483p and Royal & SunAlliance 14 1/2p to 233p. Fears of a dividend cut left Britannic 27 1/2p lower at 447 1/2p. Old Mutual Securities slid 6p to 84p.
Alarm bells rang loudly among telecoms following WorldCom's revelation and Alcatel's profit warning. Sellers invaded Vodafone and it dropped to 83 1/4p before closing 4 1/4p down at 86 1/2p on turnover of 862m. Cable & Wireless was sold down to a 13-year low of 155p before ending 2 1/2p easier at 168p.
Recently rumoured to be about to slip on an accounting banana skin, Invensys eased 1 1/2p to 89 1/2p and Rolls-Royce 8 1/4p to 165p. Scottish Power, which last week had to deny accounting problems at its US unit, lost 11 1/4p to 349p.
Of the few bright spots, Bunzl rustled up a gain of 6 1/2p at 486 1/2p. It has sold its paper distribution business for £138.8m and said current year's results would meet expectations despite the uncertain economic outlook. Buyers continued to nibble away at medical devices company Smith & Nephew following Monday's upbeat trading update and the close was 8 1/4p up at 361 1/4p.
Dark clouds hovered above package tour operators following Preussag's profits warning and news that summer bookings were down 7.2% year-on-year. MyTravel, the former Airtours, lost 19p to 151p, First Choice dipped 4 1/2p to 105p.
Oil services concern Hunting crashed 36 1/2p to 136 1/2 on a warning that full-year profits will be ' significantly' below market expectations. Aim newcomer PRI, an insurance underwriter, closed at 115p, a premium of 8p on the placing price.
