Date: Friday 22 Jun 2012
- Banks rise in spite of Moody's downgrade
- Spanish banks need up to 62bn euros, says private audit
- German business confidence falls to two-year low
Banks were making gains by midday as they shrugged off a sector-wide downgrade my Moody's, but the Footsie still remained in the red with oil and mining stocks providing a drag.
Credit ratings agency Moody's has downgraded 15 major banks and financial instiutions, including the major lenders on Britain's High Street. Royal Bank of Scotland (RBS), Barclays, Lloyds and HSBC all got the downgrade treatment as the agency completed its review of the global banking sector. Barclays' rating was downgraded by two notches while the ratings of the others were ratcheted down by one level.
Spanish banks will need €51-62bn euros in additional capital in a worst case scenario, according to the independent consultants Oliver Wyman and Roland Berger hired by the government to perform a new round of stress tests on its financial sector. Spain is expected to make a formal request for assistance from the EU some time over the next few days.
However, analysts at Barclays Capital said that the situation in Spain will remain "unsettled" for the near future. "Some reactivation of secondary market purchases, coupled with further ECB actions (a rate cut of 50 basis points on July 5th and collateral easing), along with fundamental progress at the June 28-29th meeting, is essential for the unstable equilibrium not to deteriorate further or for some long-lasting improvement in Spanish bonds, in our view," they said.
In other news, Germany's business confidence indicator compiled by the IFO Institute fell from 106.9 to 105.3 in June, a two-year low. The market was expecting a reading of 105.9.
After slight fall early on, banking stocks Barclays, HSBC and RBS were making gains by lunchtime despite the Moody's downgrades. Nevertheless, RBS said it disagreed with the ratings change as it is "backward-looking and does not give adequate credit for the substantial improvements the group has made to its balance sheet, funding and risk profile."
Lloyds, which was downgraded in a separate report to the others, was a high riser after saying Moody's has recognised "the substantial momentum we have made in de-risking our balance sheet and delivering on our strategy."
It has been reported this morning that the Bank of England's financial policy committee (FPC) will announce a reduction of between 20-30% in banks' liquidity buffers to support lending.
Despite the strength in the banking sector, heavyweight oil and mining stocks were registering steep losses with Petrofac, Vedanta, Amec and Tullow Oil among the worst performers.
BHP Billiton was out of favour after giving the go-ahead to a massive investment on its coal operations in New South Wales, Australia. The group is spending US$845m to sustain operations at Illawarra Coal by establishing a replacement mining area at the Appin Mine.
Credit Suisse has downgraded its recommendation for recruitment firm Michael Page International from 'neutral' to 'underperform', saying that on a risk-reward basis, the stock is the "most vulnerable of the employment agencies given weakening economic conditions". Shares were nearly 6% down.
Heading the other way was price comparison website Moneysupermarket.com after Citi upgraded the stock to 'buy', while Domino's Pizza delivered gains after Canaccord Genuity raises its recommendation to 'buy'.
FTSE 100 - Risers
Lloyds Banking Group (LLOY) 31.73p +1.70%
BT Group (BT.A) 203.60p +1.04%
Royal Bank of Scotland Group (RBS) 244.90p +0.66%
HSBC Holdings (HSBA) 562.60p +0.61%
Barclays (BARC) 203.30p +0.49%
Associated British Foods (ABF) 1,238.00p +0.41%
Unilever (ULVR) 2,088.00p +0.38%
Shire Plc (SHP) 1,951.00p +0.36%
GlaxoSmithKline (GSK) 1,475.00p +0.17%
Tesco (TSCO) 310.85p +0.11%
FTSE 100 - Fallers
Petrofac Ltd. (PFC) 1,357.00p -5.63%
Fresnillo (FRES) 1,440.00p -3.49%
Amec (AMEC) 962.00p -3.41%
Tullow Oil (TLW) 1,432.00p -3.31%
Vedanta Resources (VED) 899.50p -3.28%
Johnson Matthey (JMAT) 2,216.00p -3.02%
Wolseley (WOS) 2,264.00p -2.92%
Marks & Spencer Group (MKS) 328.00p -2.76%
Eurasian Natural Resources Corp. (ENRC) 416.80p -2.75%
Kazakhmys (KAZ) 704.50p -2.69%
FTSE 250 - Risers
Moneysupermarket.com Group (MONY) 123.70p +2.91%
TalkTalk Telecom Group (TALK) 177.10p +1.78%
3i Group (III) 182.90p +1.55%
Domino's Pizza Group (DOM) 506.00p +1.40%
Telecom Plus (TEP) 835.50p +1.27%
Micro Focus International (MCRO) 482.00p +0.90%
Inmarsat (ISAT) 477.20p +0.89%
Dechra Pharmaceuticals (DPH) 488.50p +0.89%
Redrow (RDW) 118.30p +0.85%
Talvivaara Mining Company (TALV) 173.90p +0.81%
FTSE 250 - Fallers
Michael Page International (MPI) 359.20p -5.99%
Wood Group (John) (WG.) 670.00p -5.30%
Aquarius Platinum Ltd. (AQP) 50.45p -5.17%
Ruspetro (RPO) 130.00p -4.97%
Bumi (BUMI) 326.10p -4.34%
Imagination Technologies Group (IMG) 482.20p -4.04%
Barratt Developments (BDEV) 134.10p -3.32%
Hays (HAS) 74.95p -3.29%
Bodycote (BOY) 338.40p -3.29%
Spectris (SXS) 1,526.00p -3.17%
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