Institutions shed bank shares as takeover looms

The need for more cash by the lenders grows stronger by the day as they struggle to deal with piles of toxic debt. Conversely, their scope to raise more funds diminishes by the day.

Institutional investors, who look after our pension funds and precious life-assurance policies, are continuing to shed their holdings while they perceive that there is a scintilla of value still to be had.

As for cash-strapped private investors, they must look out for themselves. Advice from the so-called experts is often contradictory.
Take, for instance, Lloyds Banking Group, which now takes in HBOS. It was the biggest casualty today, dropping more than 40%, at one stage, before reducing the deficit to 20p at 45p. UBS has raised its rating on Lloyds from neutral to buy because it reckons the shares look cheap.

That was the good news.

The bad news was that the broker has slashed its target price from 300p to 140p, telling its clients that they should expect yet further fundraising and should not rule out the possibility of the bank being fully nationalised. "If all stakeholders can hold their nerve through the downturn, the eventual reward should be very significant," it adds. However, UBS has reduced its earnings per share estimate for 2008 from 40.5p to 34.7p, and for the current year from 42.5p to 9.3p.

By contrast, Keefe Bruyette Woods (KBW) has an underperform rating and has slashed its target from 140p to 95p, while Bernstein has a market perform rating, but has dropped its target from 200p to 110p.

There is also some confusion over the outlook for Royal Bank of Scotland, up 0.8p at 12.4p in the wake of yesterday's bailout which saw the Treasury increase its holding to 70%.

Panmure Gordon has a sell rating and slashed its target from 40p to just 5p. Bernstein says outperform, but has dropped its target from 80p to 30p, while KBW has repeated its perform rating while lowering its horizon on the price from 77p to 20p.

Merrill Lynch has downgraded from buy to neutral with a target of 14p.

Barclays lost a further 181/2p at 691/2p, despite its insistence that it remains in good financial shape. UBS has a neutral rating but has cut from 170p to 90p, along with Merrill Lynch which has moved from 174p to 110p.

KBW has mustered a market perform while at the same time lowering its sights from 230p to 150p.

An early rally by the likes of HSBC on the back of short covering by the bears soon ran out of steam. Its price dropped a further 17½p at 483½ despite the Government's latest move to get lending by the banks flowing again.

About 1.23 billion bank shares changed hands yesterday out of total stock-market turnover of 1.87 billion. Turnover in RBS topped 340 million shares today, while Lloyds saw 115 million change hands, with a further 130 million traded in Barclays and 105 million in HSBC.

Shares generally were a touch firmer for choice, with the FTSE 100 index rising 9.8 points to 4118.3.

There was no lead from Wall Street, which was closed yesterday for Martin Luther King Day, and today's contribution was likely to be curtailed by the inauguration of Barack Obama as US President.

The big insurance companies were dull markets — reflecting the problems of the banks — with Prudential down 23½p at 293p, and Aviva falling by 21¼p to 297½p.

Citigroup has raised it target for bookmaker William Hill, 2½p better at 234½p, from 175p to 250p after last week's trading update. However, it has dropped its pre-tax profit forecast for 2009 by 21% to £181 million, blaming the deteriorating economic outlook and the impact of dearer money following £1.2 billion worth of refinancing.