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Summary
- The FTSE 100 index lost nearly 3.38 per cent of its value in trading on 21 September 2020, wiping off nearly £51 billion of investors wealth, its worst performance in three months.
- The reason for this market reaction was the briefing given by Prof Chris Whitty the chief medical adviser and Sir Patrick Vallance the chief scientific adviser to the government on the deteriorating conditions on the pandemic in the country.
- On the other hand, the FinCEN leaks continued to lay heavy on major banking stocks, amidst fears that a new investigation might be initiated by the authorities on the major banks named in the papers.
There was pandemonium on the London Stock exchange on 21 September 2020. The Headline index of the exchange; the FTSE 100 index tanked by about 3.38 per cent through the day's trade, its worst performance in the past three months wiping out nearly £51 billion of investors wealth. While the index was already on a weaker streak over the past one week but the reasons for this day’s fall were two-pronged. The first one is the spike in the infection rates across Europe and in the United Kingdom fueling fears that a second lockdown may need to be imposed. The second one is the FinCEN leaks controversy that has put the banking system in the country under pressure over threats of a possible investigation on two of the country’s largest banks. The disruption in the third phase clinical trials of the AstraZeneca coronavirus vaccine also has a role to play in the weakening the sentiments of the market. The vaccine which was previously purported to be rolled out by September 2020 this year is now expected to be available by the first half of the year 2021.
Some of the prominent fallers on the LSE were IAG which lost around 12 per cent, Rolls- Royce plc which fell by nearly 10 per cent, Melrose plc which plummeted by 8.8 per cent, Persimmon plc that dropped 7 per cent, and Berkeley group that slipped by 6.6 per cent of their values.
Impact of worsening pandemic situation in Europe
The coronavirus pandemic has been spreading through Europe unabated despite the best efforts to cap it. After the initial burst in the spread of infections in March 2020, most of the European countries were put under lockdown, to bring down the Covid-19 infection rates. In subsequent months when authorities were able to exert some control on the infection, lockdowns were relaxed, and businesses were allowed to reopen.
Based on the experience gained with the previous strains of the coronavirus during the SARS and the MERS pandemics, it had been anticipated that the pandemic might make a resurgence in the winter months. At the same time, with the massive mobilization of resources done to find a vaccine, most countries were expecting to contain the virus and stop such a resurgence from taking place. This presumption now seems to be falling apart. On 21 September 2020, the total number of fresh cases reported in the UK rose to 4,368. It was the highest number reported in a single day since May 2020. A similar spike in the number of infections is also being reported from other countries in Europe fueling fears that a resurgence might have already started there too.
Though it is still early to say if these initial spikes will actually lead to a resurgence, most countries are already contemplating measures which include re-imposing a lockdown and stricter regulations to avoid any such eventuality.
FinCEN files: regulatory action on StanChart and HSBC
The leaked SAR (suspicious activity reports) files submitted to FinCEN ( U.S. Department of Treasury’s Financial Crimes Enforcement Network) that were published by International Consortium of Investigative Journalists (ICIJ) on 19 September 2020 had indicted two of the largest British bank responsible for lapses that allowed suspicious money laundering transaction through its systems. Both these banks now face a possible investigation and fine from US as well as the British authorities. Should such an eventuality arise, it will have significant ensuing consequences for the entire industry.
Stock Performance of Standard Chartered plc
Source – Thomson Reuters
Over the past week, the shares of Standard Chartered plc (LON:STAN) have been on a downward spiral on the London Stock Exchange. On 18 September 2020, the second day before the news broke on the FinCEN files the shares of the bank closed at GBX 362.30. On 21 September after the market opened the share prices fell sharply and closed on the day at GBX 339.10. On 22 September, the shares have opened at a minor gain and at 11.06 AM (GMT+1) they are trading at GBX 341.40 gaining 0.8 per cent over previous days close.
Stock Performance of HSBC
Source – Thomson Reuters
The shares of HSBC Holdings plc (LON:HSBA) have also been performing weakly on the London Stock Exchange over the past few days. On Friday 18 September 2020, the shares of the company closed on the exchange at GBX 306.00, after which the FinCEN story on the banks alleged dealings in money laundering transactions came to light on 19 September 2020. On 21 September at market open, the shares were already down starting the day's trade at GBX 296.50 and closed the down at GBX 288.20. On 22 September also the shares of the bank have opened weak and at 11.20 AM (GMT+1) they are trading at GBX 287.00 down 0.35 per cent against previous days close.
The performance of the FTSE100 index over the past week
Source – Thomson Reuters
The FTSE 100 index had mildly recovered very moderately today after the 21 September bloodbath and was trading at 5,823.01 points on 22 September 2020 at 11.33 AM GMT+1 at a gain of 0.36 per cent over the previous days close.
The index though, had been in the negative territory over the past few days. On Friday 18 September 2020, the index closed at 6,007.05 points. On 21 September, the index fell sharply through the day after the news on the resurgence of the pandemic and the FinCEN story started having its effect on the psyche of the traders. The index closed at 5,804.29 points for that day.
