London shares were on the slide again today, led by financial stocks as Citigroup downgraded Barclays and Royal Bank of Scotland, saying that both would need massive rights issues if they were to bring down their debts to the average for European banks.

Tom Rayner, the Citigroup banking analyst, said that recession risks had risen and gave warning that RBS and Barclays appeared more vulnerable to a recession than in the last one in 1989, owing to their higher level of borrowing.

He said: "The key difference is the increased leverage, which arguably leaves balance sheets less able to withstand a sharp increase in impairment charges. Dividends also appear less secure, with free cash flow under pressure and payouts representing a significant part of each bank’s capital base."

Mr Rayner said that moving to a European average Equity Tier 1 ratio of 6.5 per cent would require £6 billion of equity issuance for Barclays and £12.5 billion for RBS.

He cut his target price from 450p to 400p for Barclays and from 400p to 350p for RBS, and kept "sell" ratings on both banks.

RBS was down 2 per cent at 391p and Barclays lost 5.5p to 485.5p.

The FTSE 100 was down 52.4 points at 5,832.8 by 9.50am, having fallen 66 points.

Insurance stocks were also hit. Friends Provident was down 4 per cent at 155.7p, as the hiring of Trevor Matthews from Standard Life as its new chief executive was taken as a signal that Friends would not succumb to a bid — JC Flowers has already approached the insurer — but will pursue an independent course. Mr Matthews is thought to be on six months gardening leave, adding fuel to this speculation.

Standard Life lost 3.5 per cent to 220.5p after a lacklustre trading statement that gave warning of a difficult year ahead.

There are fears that the "A day" bubble, caused by new regulations allowing a greater range of products to be sold from more outlets, had burst.

Shire continued its falls on mounting worries over sales of its Vyvanse hyperactivity drug in the US, losing another 2.7 per cent to 910.5p. Goldman Sachs downgraded to neutral from buy after its own survey of hyperactivity treating physicians which seemed to show that growth in prescriptions would not accelerate. It said 52 per cent of high prescribers saw no difference between Vyvanse and its older drug Adderall XR whose patent is due to expire next year. Vyvanse had been forecast to provide two thirds of Shire's earnings growth in the next four years.

Rio Tinto was a strong gainer, up 2 per cent at £47.63 after a note yesterday from MF Global which said that BHP Billiton would have to raise its bid offer because Rio stood to benefit from its relative immunity to the South African power crisis.

Its South African aluminium operations are fuelled by hydroelectric power.

However, Anglo American also climbed, up 1 per cent at £26.31 after it said that all its South African operations now had 80 per cent of their electrical power restored and that power would be increased to 90 per cent by the end of the week.

Kazakhmys gained 5p to £11.98 after saying that its copper production had grown in line with expectations in the last quarter after flooding hit production the previous quarter.

Next was up 5p at £13.79, benefiting from an upgrade from Citigroup that raised its target price to £17 from £15.50 and from "hold" to "buy".

The London Stock Exchange lost 19p to £17.30 after Credit Suisse reiterated its "underperform" advice with a £15 target, saying that its previous high growth of volume was mainly through a shift from over-the-counter markets that has now played out.

Weaker equity markets could reduce data fees, new listings and annual company fees as well, it said.

In the FTSE 250, Autonomy continued to benefit from broker upgrades, after a strong trading statement yesterday. Merrill Lynch has an £11.70 target.

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