RBS slides 10% as banks drag FTSE below 5,200

Shares in the Royal Bank of Scotland (RBS) have continued to shed their value as the UK banking sector feels the strain of an attack from US lawmakers over toxic loans and as the Independent Commission on Banking's (ICB) ring-fencing report looms.

While US traders were enjoying their Labor Day break, banking stocks in the UK continued to top the FTSE's biggest fallers list as the afternoon session began.  At 13.5pm, RBS shares had lost 10.31% of their value after losing around 8% at the FTSE's opening bell.  This afternoon's losses take RBS' shares down to £22.29.  Shares in Lloyds Banking Group and Barclays also endured losses, and dropped 5.94% and 5.44%, respectively.

RBS and Barclays are among the 13 banks caught up in the fraudulent loans scandal being investigated in the US, while part-nationalised Lloyds is coming under after ratings agency Moody's said its stance on banks, including Lloyds, is unchanged after it announced a review of a clutch of lenders back in May this year.

The entire sector is also awaiting the ICB's report on ring-fencing, due out on 12 September.  It is thought that if the ICB rules banks should separate out their retail and investment arms, shareholder returns could be cut by as much as 47%.

Services slump to 10-year low drags FTSE 100 down

Continuing earlier losses, at shortly before 2pm the FTSE 100 stood at 5,172 points, 114 basis points, or 2%, down.  Aside from the assault on banks, UK stocks more generally have had to grapple with another round of bleak economic data and warnings from economists that the chance of a double dip recession in the UK are now 'high and rising'.

The CIPS/Markit report, a gauge of Britain's main business activity, prompted economists' warning, with the report for August revealing a services activity slumps from 55.4 to 51.1. 

Although above the all-important 50 mark that separates expansion from contraction, the decline during August is far larger than the drops witnessed during the peak of the financial crisis.

Moreover, Capital Economics believes that going by previous indicators, today's data is consistent with quarterly services growth of around -0.20%, and a weighted average of the CIPS surveys shows services activity growth is now at its weakest in over two years.

'With growth in all sectors of the economy now very weak, the chances of a double-dip in overall GDP are high and rising,' the consultancy's Samuel Tombs said.

Following the news, Britain's FTSE 100 extended this morning's falls and dropped to 5,187, a decline of 1.98%, at 10.10am.