FTSE in-depth: Dealers braced for bank results
Already bored senseless by the ongoing furore over City bonuses and underwhelming details this week of Project Merlin, City dealers are braced for yet more bank battering.
Banks: The four largest UK banks are set to report combined annual profits of more than £25bn
All hell is bound to break out over the next few weeks as the four largest UK banks report combined annual profits of more than £25bn, up 15%, on the £21.5bn posted last year.
Barclays kicks off the results season on Tuesday and its shareholders will be hoping that new boss Bob Diamond can weave some magic when reporting pre-tax profits of £6.5bn, up from £4.585bn in 2009.
Broker Evolution Securities is not so sure he will and has advised clients to sell ahead of the figures. Some obviously did and the shares dropped to 305p before closing 2.15p cheaper at 311.10p.
Analyst Arturo De Frias Marques expects Diamond to outline the future strategy of the bank, and his solutions to three main interrelated problems for Barclays.
How to improve the low profitability of the bank, how to re-balance the business mix, and how to reach – and keep – a 10pc Core Tier 1 (CT1) ratio under Basel III.
Marques estimates that Barclays needs £7bn of fresh capital if it wants to reach 10pc CT1 by 2012. A £5bn rights issue could be the answer, or Diamond could decide to sell assets and cut risk weighted assets.
Part-nationalised Royal Bank of Scotland, which will be the next to report on 24th February, eased 0.31p to 43.99p, which compares with the 52 week high of 58.95p.
There have been vague suggestions of late that RBS may be in a position to repay all or part of its £40bn debt back to the taxpayer much sooner rather than later.
Lloyds Banking Group, 42pc owned by the UK taxpayer, firmed 1.04p to 66.84p. It steps up to the plate a day later than RBS.
Confirmation in the late afternoon that Egyptian President Hosni Mubarak had stepped down prompted a Footsie rally. It recouped a 47-point deficit to close 42.89 points higher at 6,062.9.
Wall Street quickly turned a 34-point loss into a 25 point gain on the Mubarak news. It had dipped initially on hearing that the US trade gap widened in December, with the full-year gap registering its biggest percentage rise in 10 years. It rose 5.9pc to $40.6bn.
Insurer Legal & General added 3.9p at 122.7p after Nomura lifted its target price to 171p from 150p. The broker believes the market is underestimating the growth potential of L&G's asset management operations.
British Gas parent Centrica rose 10.8p to 344.6p as takeover rumours continued to do the rounds. BG, also no stranger to bid talk, jumped 51.50p to a year's peak of 1524p.
As the price of US cotton hit a 150-year high and industry experts said that continued tight supplies would see it breach the $2 a pound level by next week, fashion retailers looked ragged on fears that costs will continue to rise.
Next, which was the first to warn about rising costs last August, fell 63p to 2,000p.
Broker Liberum Capital fears that even if Next succeeds in implementing 8pc average price rises (including VAT), it forecasts a 150 basis point decline in gross margins, with risks on the downside. As a result, it has cut its 2011/12 pre-tax profit estimate by 6.3pc to £544m.
On the other side of the High Street, Marks & Spencer declined 3.6p to 368p and Burberry 11p to 1176p.
The dog of the day was biotech firm Renovo. Angry dealers were last night calling for a 'stewards inquiry' after the shares crashed 51.50p, or 75pc, to a 52-week low of 17p.
Sellers sprinted for the exit after the company's shock revelation that its key anti-scarring product, Juvista, had failed in a final stage clinical study.
At the annual meeting on Tuesday, the board's mood had been apparently upbeat and shareholders told everything was ship-shape and Bristol fashion.
Chief executive Mark Ferguson's accompanying statement that the board will now consider every option, including winding up the company, must have disappointed biotech giant Shire (24p up at 1695p) too.
It had partnered with Renovo to develop Juvista and exploit its commercial potential. Shire has pumped £78m into Renovo on the strength of Juvista. It now has a number of months to consider its options.
Revived buying interest lifted Polo Resources 0.25p higher to 5.45p. Investors have given the thumbs up to its recent 30pc investment in unquoted Brazilian iron ore company, Mincel.
They also hope it makes a nice turn out of its 29.9pc stake in takeover target Caledon Resources, 50p dearer at 101.50p.
Angel Biotech edged up 0.06p to 0.50p after signing a five-year pricing agreement worth £4.5m with Russian pharma Materia Medica.
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