Market Report: Banks suffer from market jitters

BANKING SHARES crashed by more than 3 per cent at one time as the stock market agonised about possible wayward loans, rescues and further provisions.

The near collapse of the Long- Term Capital Management hedge fund is weighing heavily on the sector. Rumours of other funds in difficulties continue to swirl around.

A brief suspension of trading in Paris of the Paribas banking group on hedge fund rumours added to the anxiety. Although the Paribas stories appeared to be misplaced there was widespread nervousness about European and US banks. More downgrading of profit estimates following last week's swinging cuts by BT Alex.Brown was another influence.

Many fear, despite reassuring noises, that the bankers are set to suffer further grief unless there is a remarkable stabilisation of the world's finances. Barclays, which has suffered a pounds 250m Russian provision as well as being involved in the LTCM rescue, led the retreat. The shares, riding at 1.949p in July, slumped a further 62p (after 72p) to 961p, the lowest close for more than a year. National Westminster Bank gave up 37p to 790p and Lloyds TSB 21p to 659p. Bank of Scotland, which accompanied a 14 per cent profits advance with cautious noises about prospects, lost 18p to 561.5p; Royal Bank of Scotland gave up 13p at 670p. HSBC surrendered 45p to 1,102p. The mortgage banks, presumably not involved in any need to make overseas provisions, were more resilient.

The bankers' retreat has gathered pace as the market has braced itself for grim tidings. So far only Barclays has said it has been caught up in any financial miscalculations.

Amvescap, the big US fund manager, has suffered in the LTCM fall-out although it has denied any damage; the shares fell 28.75p to 337.5p.

On the supermarket pitch Safeway, following Charterhouse Tilney's sell advice, had a cut price session, falling 16.5p to 275.75p, its lowest for more than two years. Warburg Dillon Read reduced its profits forecast to pounds 342m from pounds 362m. J Sainsbury and Somerfield gave ground and Tesco, at one time up 12p, had to settle for a 2p gain to 167p.

Transport shares suffered sharp reverses after John Prescott, the Deputy Prime Minister, threatened sweeping changes on under-performing rail companies.

FirstGroup slipped 15.5p to 423p; Go-Ahead 13.5p to 668.5p and Stagecoach 52p to 1,138p. But Railtrack got up even more speed, hitting a new 1,695p peak with a 60p advance, largely on the development of the high speed London link to the Channel Tunnel.

Footsie started with a modest 5.9 points gain reflecting the modest US interest rate reduction. But from then on it was all downhill. At one time the index was off more than 100 points; it closed 44.3 off at 5,064.4.

Supporting shares were also on a ski slope with the mid cap index down 17.8 to 4.544.2 and the small cap 9.3 to 1,986.6. Government stocks, traditional havens at times of stress and strain, were firm.

Cable & Wireless lost most of Tuesday's exuberance, down 23p to 561p, as it disclosed plans to float its Australian associate, Optus.

British Airways was lowered 12p to 360p after CSFB and ABN Amro cut profit estimates. ABN went from pounds 660m to pounds 610m.

Pilkington, the glass maker, was another under the downgrading whip. The shares cracked 0.5p to 57.5p as Dresdner Kleinwort Benson and Schroders reduced their estimates.

Express Dairies, helped along by take over gossip, rose 4p to 138.5p with Charterhouse forecasting sharp profit increases and saying buy. The investment house expects profits to rise from pounds 42.4m to pounds 61m.

Allied Carpets firmed 6p to 73.5p on talk that entrepreneur Luke Johnson was leading the bidding race; the carpet chain admitted it has received approaches. Alchemy Partners, the venture capital fund, is thought to be interested.

Dagenham Motors accelerated 14.5p to 135p as the Ford motor giant and Jardine Matheson said they were considering a bid. They plan to set up a joint car retailing venture in Britain and Dagenham may be part of the set up. Airtours' Irish and US buys lifted the shares 28.5p to 352.5p and Booker, the struggling cash-and- carry chain, continued to strengthen, up 7.5p to 120p, on the new management team.

Blakes Clothing had the distinction of producing a profits warning that pushed its shares higher. They rose 5p to 11.5p after it said profits would be lower than the pounds 700,000 the market had pencilled in. Around pounds 500,000 seems possible, rather better than many of the estimates that had been bandied around.

JKX Oil & Gas, hit by Ukrainian currency restrictions, at one time halved to 5.5p; the shares ended unchanged at 11p. Emerald Energy rose 0.5p to 9.25p with Seaq putting volume at 15.2 million shares. The company is due to provide details of its Colombian drill next week. They are expected to be positive.

SEAQ VOLUME: 962.4m

SEAQ TRADES: 59,124

GILT INDEX: Torday & Carlisle, the engineer, is keeping up the pressure on Meristem, the speciality chemical group. Last month a surprised Meristem disclosed that T&C had emerged as a significant shareholder. There had, it said, been no contact between the two compa nies. T&C has lifted its shareholding to just over 25 per cent of the capital by taking an option on 4 million shares held by a Channel Islands company. A bid looks likely.

EXPECT sweet noises soon from Ritz Music. It is thought to be planning a move from the fringe Ofex share market to a full listing and is contemplating the takeover of a radio station that it will use as a country and western music outlet. Nick Hartley, f ormerly of PolyGram, has become finance director and earlier this year Durlacher became the company's stockbroker. The shares held at 65.5p.