UK's FTSE 100 drops after FX probe

London - A fall in the shares of banks HSBC and Barclays weighed on Britain's top equity index on Wednesday, after regulators imposed fines to settle allegations of foreign exchange malpractice.

The blue-chip FTSE 100 index, which had risen for the last five sessions in a row, declined by 0.5% to 6 596.09 points in early session trading.

A 0.9% fall at HSBC and a 1.9%% decline at Barclays combined to take the most points off the FTSE 100.

Global regulators imposed penalties totalling $3.4bn on five major banks, including UBS, HSBC and Citigroup on Wednesday in a landmark settlement over allegations of price fixing in the foreign exchange market.

Royal Bank of Scotland and JP Morgan were also fined for attempting to manipulate foreign exchange benchmarks.

A year-long probe has put the largely unregulated $5trn-a-day market on a tighter leash, with dozens of dealers suspended or fired.

Barclays, a major player in the foreign exchange market, had been expected to be part of the settlement but the FCA regulatory body said its investigation into the British bank was continuing. Barclay’s shares fell.

"The settlement had been in the pipeline, but the fact that Barclays is not part of it is a negative surprise, which is why the shares are being impacted," said Securequity sales trader Jawaid Afsar.

Capita slides

Outsourcing company Capita slid 5.7%, with traders citing concerns about a possible slowdown in its order pipeline even though Capita said it was on track for at least 8% organic growth for the full year.

Retailer J Sainsbury also declined 3.5% after it threw down the gauntlet to larger rival Tesco, taking a hit on profits and the dividend to fund lower prices in the latest escalation of the British supermarket battle.

"Sainsbury's results set the expectation for a continuing trend of negative sales across the sector in the next few years," said Darren Hepworth, director of global trading at TD Direct Investing.

Security group G4S outperformed the broader market downturn, rising 2.5% after it agreed to sell its US government solutions business and posted a rise in underlying revenues.