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Rock poised to drop from FTSE 100 Northern Rock drops from FTSE 100
(about 16 hours later)
Northern Rock's battered shares will face a further sell-off later if, as expected, it is dropped from the FTSE 100 index of leading London shares. Northern Rock has been dropped from the FTSE 100 index of leading UK blue chips, in the biggest shake-up of the index since the dotcom crash in 2001.
Investment funds that track the index will be forced to sell shares in the stricken bank if it is demoted. Trading at above £12 before the summer, the stricken lender's shares now trade below 100p after the credit crunch flattened its business model.
The latest quarterly reshuffle of the index will be based on what the market value of firms was at the end of UK trading on Tuesday. The demotion was confirmed by the FTSE Committee in its latest quarterly reshuffle of the benchmark index.
The changes may be the biggest since the technology share crash in 2001. Seven firms in total were booted from the FTSE 100 index.
Analysts expect seven firms in total to tumble from the FTSE 100 index, reflecting the magnitude of the credit crisis on London shares. The reshuffle reflects the magnitude of the credit crisis on London shares.
FTSE 100 losers Northern RockDaily Mail & General Trust DSG InternationalTate & LylePunch TavernsBarrattMitchells & Butlers Source: Based on market value at end of Tuesday
Shares in Europe, the US and Asia have been pummelled by investors since the summer when record mortgage defaults in the US sparked a global credit crisis, which has instilled deep fears over the health of the worldwide economy.Shares in Europe, the US and Asia have been pummelled by investors since the summer when record mortgage defaults in the US sparked a global credit crisis, which has instilled deep fears over the health of the worldwide economy.
The promotions and demotions were based on what the market value of the firms were at the end of UK trading on Tuesday.
FTSE 100 losers Northern RockDaily Mail & General Trust DSG InternationalTate & LylePunch TavernsBarrattMitchells & Butlers Source: Based on market value at end of Tuesday
Worst hit
Of the biggest UK shares, Northern Rock has been worst affected by the problems in the financial system.Of the biggest UK shares, Northern Rock has been worst affected by the problems in the financial system.
It was forced to go to the Bank of England for emergency funding after its traditional model of accessing funds from the money markets broke down over the summer.It was forced to go to the Bank of England for emergency funding after its traditional model of accessing funds from the money markets broke down over the summer.
It is now saddled with a £25bn loan from the Bank of England, underpinned by the taxpayer, and continues to struggle while the government and its directors battle over the best course of action for the stricken bank.It is now saddled with a £25bn loan from the Bank of England, underpinned by the taxpayer, and continues to struggle while the government and its directors battle over the best course of action for the stricken bank.
It is likely to sit at the bottom of the FTSE 250 index of medium-sized firms, narrowly avoiding the embarrassment of sinking into the index that tracks small companies. It will sit at the bottom of the FTSE 250 index of medium-sized firms, narrowly avoiding the embarrassment of sinking into the index that tracks small companies.
Changing timesChanging times
Other firms facing relegation include newspaper group Daily Mail & General Trust and owner of the Currys chain DSG International, which recently reported a 25% drop in half-year profits. Other firms that tumbled from the FTSE 100 index include newspaper group Daily Mail & General Trust and owner of the Currys chain DSG International, which recently reported a 25% drop in half-year profits.
They are likely to be joined by All Bar One owner Mitchells & Butlers and sugar firm Tate & Lyle. They are joined by All Bar One owner Mitchells & Butlers and sugar firm Tate & Lyle.
Companies tipped to be catapulted from the FTSE 250 into the top 100 include Thomson holiday operator TUI and Cairn Energy. Companies that catapulted from the FTSE 250 into the top 100 include Thomson holiday operator TUI and Cairn Energy.
Car insurance group Admiral, security firm G4S and fashion house Burberry are also set to make the grade. Car insurance group Admiral and security firm G4S also make the grade.
Analysts observe that the last shake-up of the index of this magnitude occurred in September 2001 when eight companies, all technology or telecom firms, were knocked out of the key index after their values shrunk in the technology sell-off.Analysts observe that the last shake-up of the index of this magnitude occurred in September 2001 when eight companies, all technology or telecom firms, were knocked out of the key index after their values shrunk in the technology sell-off.