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Afternoon update
Lloyds TSB may be picking up HBOS, the UK's biggest mortgage provider, for a song but not everyone in the City believes its shares are a worthwhile investment.
Fresh weakness in Lloyds shares today left it one of the biggest blue-chip fallers, down 4p at 263p. That compares with last week's placing of 284 million shares at 270p to raise £767 million. Deutsche Bank has downgraded the shares from hold to sell and has slashed its target from 250p to 200p. It says the acquisition of HBOS would make funding more difficult and increase its exposure to property lending.
“We believe Lloyds TSB is a stock to avoid. The group would benefit from raising at least £4 billion in new capital,” says Deutsche.
Instead, it prefers Barclays, up 15p at 360½p, pointing out the £701 million raised last week and the acquisition of Lehman Brothers' US business below book value has propelled the core tier one ratio to 7%.
Deutsche says: “With liquidity conditions still troubled, banks generally as levered as before, and customers showing less willingness to repay debt, we expect property prices to fall further, arrears to rise, bank losses on default to rise and consensus earnings expectations to fall further. Given the environment, we believe that Lloyds TSB/HBOS, in particular, should take steps to bolster its regulatory capital base.”
Fund operator Man Group again ran into selling, dropping 21¼p to 386¾p. It has asked the FSA to put it on the banned list for short-sellers.
Shares generally suffered a wobble in the wake of a profit warning from America's mighty General Electric. The FTSE 100 index managed to rally from opening falls, bringing to an end three consecutive days of losses.
It rose 88.3 points to 5183.9. Even so, that takes its loss on the month to almost 10% and is on target to achieve its worst monthly performance in six years.
Dealers say that until the outcome of the $700 billion game of political brinkmanship in Congress over US Treasury Secretary Hank Paulson's bailout scheme for the banks is known, investors have put everything on hold.
Nevertheless, the Dow this afternoon rose 202 points to 11,027.2. Jobless claims and durable goods orders fell sharply, leading to calls for a cut in US interest rates.
Marks & Spencer lost 4½p at 226¾p. Morgan Stanley has cut its target on the shares from 315p to 230p after expressing concerns about the group's food business. Food accounts for more than 50% of UK sales but has weak momentum, the broker complains. It says the problems can be fixed, but considerable investment in gross margins will be needed.
ITV was one of the few bright spots among second-liners, the shares adding 2p to 44¼p after watchdog Ofcom indicated its may reduce some of the broadcaster's public service obligations. ITV wants to save money by cutting back on its regional news output.
Gossips reckon French oil giant Total and Europe's finest, Royal Dutch Shell, 14p ahead at 1667p, have been eyeing up Repsol for some time and are ready to move.
Oil shares generally came under selling pressure, reflecting a further slide in the crude price. Cairn Energy, with massive reserves in India, fell 7p to 2312p, while among the oil services support companies John Wood gave up 3¼p to 378p and Petrofac lost 4p to 595p.
Package holidays operator Thomas Cook shed 9¼p to 214¼p after a double whammy. Investec has downgraded the shares, saying it prefers rival TUI Travel, up 13½p at 219½p. There has also been talk that Thomas Cook's biggest shareholder Arcandor may be looking to sell its 56% stake. Blue Oar Securities says such a sale might lead to a stock overhang and depress the price.
