Market report: Wednesday close
Deutsche Bank today warned that UK banks are 'not out of the woods yet' as it poured cold water on the notion the credit crunch is drawing to a close.
Banking stocks soared in London yesterday and in New York and Asia overnight on a wave of optimism that the worst of the crisis is over.
However, euphoria gave way to a rather more sober assessment of the situation today, with Deutsche warning of further downgrades in the sector.
Deutsche analyst Jason Napier said that although 'the UK is unlikely to be the site of another Northern Rock or Bear Stearns', profits will be hit by higher lending costs between banks and rising levels of bad debts among borrowers. City traders also warned that any nasty surprises could result in more heavy selling across the board.
Deutsche's top picks are Lloyds TSB, up 3p to 483¼p, and Barclays, up 24p at 504p. Royal Bank of Scotland rose 20½p to 381½p but sentiment once again turned against HBOS, down 11½p to 593p.
As if proof were needed that the credit crunch still rages, shares in Imperial Energy crashed 22% after it was forced to abandon plans to raise funds in the debt markets and instead said it will raise $600m through a rights issue.
The second-tier oil and gas explorer, which focuses on Siberia, struck a standby deal with Hoare Govett and Merrill Lynch to underwrite the share placing after other funding streams dried up. Shares fell 300p to 900p.
The FTSE 100 index failed to significantly add to yesterday's 150-point rally and New York slid as it opened for trade. The Dow Jones fell 26.9 to 12,627.4 in early dealing. The UK blue-chip index was up 63.3 to 5915.9 while the FTSE 250 rose 35.8 to 10372.4.
Credit Suisse sounded a note of caution on UK builders as the housing market continued to falter and mortgages grew harder to come by.
Housebuilding stocks have tumbled in the past 12 months, and Credit Suisse said it awaits 'evidence of stability in the underlying housing market before we would consider turning positive'.
It is concerned prices will fall this year while buyers are finding it increasingly difficult to get a mortgage. First Direct, a banking offshoot of HSBC, today closed its doors to new business while other lenders have jacked up their prices.
Credit Suisse kept Persimmon, down 15½p to 778p, at underperform and lowered its target price to 615p from 630p. It has Barratt Developments, down ½p to 442½p, at outperform, but cut its target price to 485p from 530p. It maintained its neutral stance on Taylor Wimpey, down 1p to 195¼p, but downgraded it to 200p from 220p.
Citigroup upgraded AstraZeneca, up 35p to 2049p, to buy from hold, arguing that the 9% rise in the past two days could be a turning-point for the stock after prolonged weakness. Traders reckon that sales of its drug Crestor will benefit from criticism of rival cholesterol treatments.
Shares in navigation firm Raymarine sailed 47¾p higher to 293¾p, valuing it at about £250m, after it put out a statement saying it has received a takeover approach.
ABN Amro retained its hold stance on Bloomsbury Publishing a day after the firm behind Harry Potter trebled profits. Bloomsbury, up ¾p to 165p, is confident it has a pipeline of new bestsellers for the post-Harry Potter era, although ABN reduced its target price to 165p from 181p.
Rank Group, the owner of Mecca bingo and Grosvenor Casino, rose a further 2¾p to 99¾p, as speculation continued that it was being lined up as a takeover target.
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TOMORROW'S AGENDA
• As the chaos at Terminal 5 drags on, British Airways releases March traffic figures. Analysts believe long-haul premium passenger numbers are holding up strongly but short-haul premium and long-haul economy traffic is weakening. Its load factor should stay level at about 68.5%.
• Service-sector growth is expected to have taken a hit in March as market turmoil continues to affect the financial services industry. The Chartered Institute for Purchasing and Supply's index is forecast to fall from 54.1 last month to 53.0.
• Pimewood Shepperton, the film and TV studio operator chaired by Michael Grade, delivers full-year results. The company admitted in November that it will lose £3m after the cancellation of a major production as a result of the Hollywood writers' strike. Analysts cut pre-tax profits forecasts for 2007 to £6.5m on the news.
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