Morning:
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Tuesday 23 September - afternoon update
Bank shares took another bashing today and this time there wasn't a short-seller in sight. The City watchdog banned the practice of selling short last week in order to protect the banks from their own folly. It doesn't appear to be working.
So much for Friday's relief rally. It was inspired by the US Treasury's plan to buy in all the toxic debt produced by the banks at a cost to the American taxpayer of $700 billion. But now there are those in Congress who don't think the plan will work anyway. Dealers ask, what is the alternative?
That provided the signal for another sell-off on Wall Street overnight, which spilled over into Asia this morning and then London. The FTSE 100 index slumped 71.6 to 5164.6, despite the Bank of England pumping a further £22 billion into the overnight money market to improve liquidity. The broader FTSE 250 lost 227.5 at 8525.5.
This afternoon on Wall Street investors managed to regain their composure despite further weakness in shares of Morgan Stanley. The Dow rose 105.5 to 11,121.2.
Back in London, some of the biggest losses were seen among the cash-strapped banks which are on a list of 29 companies protected by the Financial Services Authority from short-selling. Hedge funds, and others, who want to short-sell more than 0.25% of the shares in any one company, must now declare it.
Leading the way down was HBOS, already the subject of a shotgun £12.2 billion merger with Lloyds TSB. Its shares fell 23.3p to 185.7p and trade well below this summer's £4 billion rights issue, priced at 275p. Lloyds TSB was down 8¾p at 266¼p. There were also losses for Royal Bank of Scotland, down 12p at 204p, and Barclays, 16p at 357p.
Financials came under the hammer with hedge fund operator Man Group down 45½p at 388p, and interdealer broker Icap off 25¾p at 402p. Neither are on the FSA “at risk” list and will suffer from the ban on short-selling.
Oil and gas explorer BG Group replaced an early lead with a fall of 20p at 1155p. A little bird tells me the company paid a visit last night to the offices of Credit Suisse, where it made a favourable impression. Could it have something to do with the huge reserves expected to accrue from the group's stake in the Santos Basin project of Brazil?
Deutsche Bank has downgraded Marks & Spencer, 3½p cheaper at 234p, from buy to hold and has slashed its target from 380p to 260p. It says it cannot see any initiatives being introduced to get the retailer back on track. Rising costs are likely to offset any improvement in margins.
Punch Taverns fell 24p to 188¾p with the other pub chains on the back of a gloomy view of prospects from rival Mitchells & Butlers, down 21½p at 251p. Goldman Sachs says it now owns 18.9 million shares, or 7.11% of Punch Taverns, worth £34.3 million. Unfortunately, it does not say how much it paid for them.
The economic downturn and recent turbulence on financial markets will only add to the difficulties facing newspaper publishers, already hit by a slump in advertising revenue, says JPMorgan. It expects regional advertising revenue to decline by at least 10% this year, extending to 14% next year, while national advertising revenue will decline 6% this year and 10% in 2009.
One of the most vulnerable publishers in the downturn is Trinity Mirror, down 7½p at 106p, where JPMorgan has slashed its target from 125p to 120p. It continues to rate the publisher of the Daily Mirror at underweight.
Not all areas are feeling the economic slowdown. Luxury goods group Burberry, off 24½p at 409¼p, is seen by Morgan Stanley as well placed to outperform most of its rivals. The broker has begun coverage of the shares with an overweight rating and 530p target.
