FTSE: 5,919.98 (–64.69) Mid-250: 11,845.72 (–63.36) Small-Cap: 3,270.65 (–21.11)FINANCIAL STOCKS fell in London yesterday, after news of a £3.2 billion (€3.6 billion) provision at Lloyds Banking to cover payment protection insurance liabilities.

The extent of the part-nationalised bank’s potential exposure to the mis-selling of the product-to-loan and credit card customers came after banks lost a court case last month, leaving the sector exposed to potential payouts.

But the extent of the sum set aside by Lloyds surprised analysts, and implies that the industry-wide exposure could be greater than previous estimates.

Its shares fell 8 per cent to 53.4p. It was joined by its peers, as traders assessed the wider implications of the numbers.

Royal Bank of Scotland, 81 per cent owned by the government, fell 2.9 per cent to 40.5p, Barclays lost 2.6 per cent to 276.3p and HSBC slipped 0.9 per cent to 646.4p.

The FTSE 100 slipped a further 64 points to 5,919.98, a loss of 1.1 per cent.

Smith Nephew, a medical devices maker, was in demand after well-received first-quarter earnings. The stock added 3 per cent to 680.3p. Arm Holdings, a chip designer, added 1.6 per cent to 567.3p.

Ben Potter, market strategist at IG Markets, said: “There are still plenty of headwinds for the market to remain concerned about. So far, the old adage of ‘sell in May and go away’ looks to be playing out; we think it is going to be a relatively tough few months for equities.”

Mid-cap property company Capital Counties declined 1.9 per cent to 168p after announcing plans for a placing of 62.1 million new ordinary shares to fund acquisitions and what it referred to as “ongoing repositioning of assets” at its Covent Garden site in central London.

The Bank of England kept its main interest rate at a historic low of 0.5 per cent at the conclusion of the May meeting of its monetary policy committee.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The monetary policy committee’s concern over the underlying strength of the UK economy and its ability to withstand the fiscal squeeze that is increasingly kicking in from the start of April has likely been heightened by the muted rebound in growth in the first quarter of 2011. – (Copyright The Financial Times Limited 2011)