Bank shares slump after US federal law suit

Markets fall; Hong Kong shares; stockmarket

UK and European markets react negatively after key banking institutions are named in US suit

LAST UPDATED AT 16:55 ON Mon 5 Sep 2011

UK and European bank shares slumped heavily today after markets reacted to Friday's lawsuit accusing several institutions of selling risky home loans to US housing agencies Fannie Mae and Freddie Mac. 

17 banks – including Royal Bank of Scotland, Barclays, HSBC and Credit Suisse – had been named in the Federal Housing Finance Agency's suit. By this afternoon shares in RBS had fallen by more than 10 per cent, Barclays dropped 6 per cent and HSBC stocks lost 2.7 per cent. 

In Europe markets also reacted negatively to the news: Credit Suisse shares fell 7.2 per cent, Deutsche Bank was down 7.7 per cent and Societe Generale dropped 7.8 per cent. 

According to analysts Macquarie, the future outlook isn't bright: "The European bank sector continues to be rocked by one storm after another. We see every reason to remain cautious."

Read a full report in the Wall Street Journal. · 

For further concise, balanced comment and analysis on the week's news, try The Week magazine. Subscribe today and get 6 issues completely free.