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Wednesday 3 September - 4pm update
The banking sector was suffering from a bad case of hypocrisy today. Royal Bank of Scotland has cut its rating on Barclays from hold to sell and slashed its target from 475p to 300p.
It claims Barclays needs to raise a further cash sum of between £4.9 billion and £7.5 billion because its credit quality and coverage ratios are weakening at a time when its core deposit momentum is proving disappointing.
This comes from a bank which had recently to go cap in hand to shareholders with a record-breaking £12 billion rights issue because it paid over the odds for its stake in Dutch bank ABN Amro and because of write-offs running into hundreds of millions of pounds relating to the credit crunch. And which bank did RBS fight off to secure ABN? Barclays, of course. Clearly there is little love lost between the two sides.
But the comments from RBS are likely to strike a sour note with householders struggling to meet their monthly mortgage repayments, or those first-time buyers unable to afford to put a deposit down on a new home.
Even so, the words from RBS sent Barclays sliding 11p to 352¾p, while Lloyds TSB shed 11½p to 299½p. There were also losses for Alliance & Leicester, 22½p at 317½p, Bradford & Bingley 1½p at 43½p, HBOS, 7½p to 302½p, HSBC 8p at 879p, and last, but not least, RBS, down 4¾p at 236¾p.
The growing prospect of recession in the UK undermined confidence among stock market investors. Sentiment was also hit by reports that hedge funds are suffering their worst returns in 18 years because of the credit crunch and the worldwide economic downturn. The US commodity hedge fund Ospraie, part owned by Lehman Brothers, is being shut down after suffering heavy losses of almost 40% of its worth this year, following a sell-off in the fund's energy, mining and resource equity holdings.
Against such a backdrop, and gloomy trading news from Punch Taverns and retailer DSG International, the FTSE 100 traded above its worst levels but was still 89.6 down at 5531.1.
Wall Street extended yesterday's losses this afternoon with the Dow losing 30 at 11,487.0.
Lower crude prices may be good news for most us, but they are bad news for the oil producers. But Goldman Sachs has added BP's shares, ¾p firmer at 512¼p, to its European buy list and raised its target from 690p to 720p because it reckons they are looking cheap. Goldman says since the price of Brent crude reached a peak of almost $147 a barrel in July, it has fallen by 25%. That has led the oil sector to underperform the European market by 9%. “We maintain a bullish view on the oil price , which gives us 36% scope for improvement in the sector,” says Goldman.
The move coincides with a warning from Credit Suisse that the sharp decline in the oil price during the past two months will come to an end soon, with Opec cutting production once prices dip below $100 a barrel. Production curbs should keep prices between $100 and $110 for the rest of this year.
Meanwhile, JPMorgan has trimmed its target for BG Group, down 54p at 1065p, from 1500p to 1480p, but remains overweight in the shares.
Wolseley slumped 12p to 473½p, making it one of the biggest Footsie 100 fallers, after Deutsche Bank downgraded the shares from buy to hold. The shares have rallied from their low of 272¼p in July.
Kaupthing describes the recent rally in the retail sector as without foundation and untimely. It warns the expected rise in unemployment and the weakness of the dollar do not bode well.
Only a few names offer value and are protected from top-line and gross-margin risk. Further cuts in forecasts and falls in share prices are forecast by the broker. The few on its shopping list include HMV, 2¼p off at 133½p, Debenhams, unchanged on 48¼p, Asos, 2¾p easier at 394p, Mothercare, 3½p dearer at 413p and Ted Baker, down 4¼p at 346½p.
