Credit Suisse’s bear gives the banks another heavy beating

Jonathan Pierce, Credit Suisse's banking guru, believes market expectations may still be too high, even for his top pick Barclays, and that capital pressures could remain for the banks.

His bearish comments and a weak performance from US banks last night left financial stocks nursing heavy losses in London today.

Royal Bank of Scotland won the wooden spoon among top stocks, falling 6¼p to 32p, while Lloyds Banking Group lost 4¼p to 52p and Barclays dropped 2½p to 288½p.

Meanwhile, other analysts were warning that they believe November had been a slower month for BarCap, with investment banking volumes worse than expected.

But Pierce's counterpart at BNP Paribas, Ian Gordon, is still impressed by Barclays. He describes the sale of Barclays Global Investors to Blackrock, which was completed last night, as the "deal of the decade" and reckons Barclays is the "best in its class" — the most strongly capitalised UK bank. Gordon reckons the shares look cheap and has set a 410p target price.

The poor showing from financial stocks offset gains from the miners, pushing shares in London back into the red. The FTSE 100 index slipped 13.9 points to 5298.27.

But the City's boffins were predicting better times ahead for the benchmark. UBS forecast that London's top stocks will gain over 17% by the end of next year, setting a target for the FTSE 100 of 6250 points.

However, the broker believes easy winnings are behind the market and investors must be more picky to benefit from the recovery. Analysts at the Swiss bank believe investors should opt for the highest-quality stocks because the dash for trash has seen the lowest-quality stocks rally the most.

Their top pick is the traditionally defensive pharmaceuticals sector, especially AstraZeneca, 6p stronger at 2759p, and GlaxoSmithKline, 1p higher at 1281½p, as the sector now looks cheap relative to the rest of the market.

Indian-focused miner Vedanta Resources was shining particularly brightly after finding a fan in Goldman Sachs. The City big gun advised clients to buy the shares, 39p stronger at 2425p, and jacked up its price target from 2600p to 3528p. Analysts believe that Vedanta's revenues will surge by 174% in the next five years, against an industry average increase of just 14%, as the aluminium and zinc producer opens a string of new facilities.

But Goldman's pointy-heads are less keen on Anglo American, up 12p to 2724p, downgrading the shares to hold in response to the recent rally. Their top pick remains Kazakhmys, 26p dearer at 1306p, thanks to its focus on copper production.

The City was initially unimpressed with Sage's full-year results, but then had a change of heart to leave the software group as the best performer on the top flight. Deutsche Bank described the results as "extremely solid", and repeated its buy rating for the shares, which rose 5¼p to 220p.