Stock market report: Friday close

By This Is Money
Updated:

 

Banking bosses may be telling the markets that business isn't too bad, but brokers do not believe the bounceback will last.

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Morgan Stanley reckons the latest allegations about Barclays' extensive tax-avoidance schemes could be the least of the banking giant's worries.

The big-gun broker today slashed its target price for Barclays from 145p to 90p, warning it may need to raise cash again soon.

Analysts say a triple whammy of rising bad debts, further credit writedowns and a fall in banking revenues will eat into Barclays' capital buffer.

They also predict the bank will lose a further £7bn on its structured credit portfolios.

Although trade has picked up at its investment banking arm as companies seek cash call advice, analysts think this is unsustainable.

Morgan Stanley has kept its equalweight rating on the shares, however, which have rallied by over 60% in the past fortnight but today retreated 8½p to 104p.

Barclays was not the only bank out of favour. A trader said the past fortnight's rally in the sector's stocks 'looked like overkill' and the majority were being sold off.

The bearish Barclays note came as trading began in HSBC's nil paid shares. Its £12.9bn rights issue won the backing of 92.9% of investors yesterday. This will allow the bank to create five billion new shares, which will start trading on 8 April.

But short-sellers of HSBC were raking it in. In line with the wider banking-sector sell-off, the shares sank 31.24p to 362p, a long way below their theoretical ex-rights price of around 393.2p. Meanwhile, its nil-paid shares, expected to start trading at about 139p, were changing hands for 111½p.

The banking sell-off was offset by further gains in the insurers, leaving Harry Hedge Fund and his mates hurting. Lansdowne Partners today said it was betting against Prudential, whose shares topped the winner's board with a 43¾p jump to 329¼p.

Millennium Management meanwhile revealed a short position in Legal & General, which put on 4.7p to 42.8p. Overall, the start of spring seemed eventually to inspire some optimism in the City. The FTSE 100 index yo-yoed between the red and the black, before settling up 25.9 points at 3842.8. In New York, the Dow defied early predictions of another big sell-off to trade almost flat, 1.11 points higher at 7401.91. Trading was light as investors waited to hear what US Federal Reserve chairman Ben Bernanke had to say this evening.

Drugs titan GlaxoSmithKline rose 11½p to 1014½p after selling part of its stake in Quest Diagnostics. It pocketed $256m (£178m) from the move, part of plans to cut its holding in the US diagnostics group. GSK is rumoured to be looking at independent skincare specialist Stiefel Laboratories. Johnson & Johnson and Novartis are also thought to be interested.

Keep an eye on Petroceltic, whose shares have more than doubled in the past month and today rose 0.52p to 7.1p. The gas explorer is about to start drilling in its Algerian fields, with results expected in May. Spanish energy giant Iberdrola already owns around a fifth of its shares, which it bought last year at 13p a pop.

A thumping profits warning did for Lamprell. The oil services group warned that while last year's results would be in line with market forecasts, business has slowed sharply. The shares plunged 15¼p to 70¼p.

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Monday's agenda

The FTSE 100 index will take on a new look when quarterly review changes become effective. New entrants are to include silver producer Fresnillo and platinum manufacturer Lonmin. Demonstrating the volatility between promotion and relegation, the miners only left the index at the last quarterly review, which took place in December. Other new entrants include oil services company Petrofac, and Foreign & Colonial Investment Trust, which is set to join the top 100 for a third time - it was also a member of the top 100 during 2003 and 2006. Sugar manufacturer Tate & Lyle, private-equity group 3i and transport firm FirstGroup are among the companies dropping into the FTSE 250 index.

In the US, Tiffany, one of the world's biggest jewellers when measured by sales, reports its full-year results for 2008. They are not expected to be pretty. The company has already reported that trade fell sharply during the crucial November-December holiday period. Last week, rival luxury jeweller Bulgari reported an 89% decline in its fourth-quarter net profit and cut its dividend by 69%.

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