Sub-prime worries spark FTSE 100 dive
Last night, US stocks dropped to a nine-month low partly brought on by weak retail sales and the news of Citigroup's $9.83 billion loss in the fourth quarter of 2007.
This saw the FTSE 100 falling to 5,964.40 points in the early hours of trading, from a close of 6025.80 on 15 January. Yesterday's close was at its lowest level since the credit crunch hit the stock market in mid-August.
Some of the biggest falls were from London Stock Exchange Group and Cable & Wireless.
Northern Rock shares also took a dive following the lender’s meeting and vote with shareholders yesterday and Gordon Brown’s admission that nationalisation is an option if a private sale cannot be agreed.
The FTSE 250 also dived this morning from a close of 10,031.60 points on 15 January to 6,672.70 the next morning.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.