Another day, another mess at Old Mutual. The company, once a mutually owned South African life assurance society but now a sprawling financial conglomerate after a series of acquisitions in the US, the UK and Scandinavia, lost another 15 per cent, or 12.7p, to a record low of 69p after it revealed that it had $237 million (£130 million) exposed to AIG.

Jim Sutcliffe, the chief executive, was ousted last week and replaced by Julian Roberts, the finance director, after the company revealed that it would need a cash injection of another $250 million to prop up its US life business, where last year it sold thousands of “minimum return guaranteed” pensions invested in volatile Asian stocks without realising that it had not covered the risks properly. It also wrote off $135 million of exposure to Fannie Mae and Freddie Mac mortgages. James Pearce, of Cazenove, had foresight on Monday when he downgraded the insurer from “in line” to “underperform” and said: “We believe that further negative surprises will follow.”

He said that Mr Roberts, who had served alongside Mr Sutcliffe for more than seven years, was unlikely to change the “strategy which has generated an apparently unmanageable group”. Mr Pearce predicted that Mr Roberts would sell or shut the US life arm by the year end, at a likely cost of $500 million. There would be value in a break-up, he said, but South African national pride made a takeover unlikely.

The FTSE 100 lost 32.40 points to 4,880.00, making a 10 per cent fall this week, as the rescue of HBOS, up 25½p to 172.6p, failed to reassure and worries about Morgan Stanley on Wall Street continued to spark short-selling.

Lloyds TSB, HBOS’s supposed saviour, was down 42¼p at 237½p – not a great vote of confidence in Gordon Brown’s rescue. Meanwhile, there were whispers that many of the day’s strong performers, such as pub groups, were those in which short positions held by Lehman Brothers, either for itself or clients, needed unwinding by yesterday’s close. Enterprise Inns was up 11p at 213¼p, helped by a Goldman Sachs upgrade. Goldman said that a trading statement next Friday would not contain bad news. At one stage Punch Taverns gained 31¼p, although it ended down 1½p at 206¼p. Paul Hickman, of KBC Peel Hunt, said that even if Punch shares were zero, the company would still be expensive because its debt of £4. 6 billion was seven times its annual cashflow. Punch saved only £30 million by scrapping its dividend recently. “A wider solution to the debt problem is required,” Mr Hickman surmised.

The London Stock Exchange rose 57½p to 790p, helped by talk that the demise of investment banks would stifle upstart rivals, such as Turquoise, at birth. However, many observers suspect that the huge volume of trades – 1.5 million – through the LSE yesterday represented the death throes of overborrowed hedge funds closing positions to meet margin calls.

Pearson lost 30½p to 594p after the rival McGraw-Hill said that it would miss targets for sales of schoolbooks.

— New York: Shares on Wall Street rallied in reaction to a report that the US Government may create an entity that would assume banks’ bad debts. The Dow Jones industrial average closed up 410.00 points at 11,019.70.

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