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By John Harrington

Date: Monday 13 Oct 2008

LONDON (ShareCast) - Leading shares are consolidating the morning’s gains, but the three UK banks that have said they will take advantage of the government’s offer of capital injections continue to feel the effect of their loss of status as income stocks.

The government has said it will buy preference shares issued by Royal Bank of Scotland, HBOS and Lloyds Bank on condition that the issuing banks do not pay any dividends on ordinary shares until the preference shares have been bought back. All three stocks, especially Lloyds Bank, have long been favoured by income funds for their dividend yields which were approaching 10% or even exceeding it before it became clear many British banks would need to conserve cash by either cutting dividends or paying them in scrip form.

Robbed of their income stock status, RBS, Lloyds TSB and HBOS must, necessarily, now be rated as “growth” stocks and, notwithstanding the fact that US broker Merrill Lynch has raised its rating on RBS to “buy”, there are few investors rating any stock in the banking sector as growth prospects at present.

HBOS, RBS and Lloyds TSB are joined in the laggards list by property stocks Hammerson, Land Securities, Liberty International and British Land.

Asia-focused bank Standard Chartered climbs higher after it said it meets the capital requirements under the UK government’s banking sector scheme and will ensure it continues to do so. "As previously stated, we do not intend to raise capital under the UK's recapitalisation scheme," it added.

Defensive favourite British American Tobacco moves higher after Citicorp observing that the company’s 6%+ dividend yield compares favourable with the 4.3% yield on a 10-year gilt.

Still on the subject of dividends, UBS is predicting a dividend cut at bookmaker’s William Hill as the bookie has a £1.2bn debt facility which runs out on 1 March 2009. UBS has cut its price target for William Hill to 187p from 250p.

Airline British Airways gets a lift from Dresdner Kleinwort raising its recommendation from “hold” to “buy” on the grounds that the company’s problems are now reflected in the share price.

Outsource giant Capita Group has paid £13.6m, net of cash acquired, for IP based business networking solutions firm ABS Network Solutions. “The acquisition will add valuable new expertise and capacity to Capita IT Services' existing networks business,” said the UK blue chip.

Defence and security firm QinetiQ is to acquire tender assessment and management software group Commerce Decisions for a total of £9.85m. The acquisitions of the Oxford-based company will strengthen Qinetiq’s consultancy business, QinetiQ said.

Unexpected costs related to investment in its businesses caused a fall in pre-tax profits at YouGov and prompted the pollster and market research firm to implement cost control measures.

Shares in Clinton Cards are sharply lower after the card retailer plunged into a full year loss as a result of an impairment charge of £30m related to its Birthdays business.

On the other side of the Atlantic, the bond market is closed for Columbus Day, but equity traders will be open for business as usual. The Dow Jones is expected to open around 350 points higher.

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