Morning:
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Afternoon update
Bradford & Bingley slumped to yet another record low today, losing a further 3p to 18¼p after briefly touching 16½p. The shares have fallen from a peak of 310p since the start of the year and are now being treated as merely options money by traders.
They warn that further weakness in the price is likely unless the regulator can find a rescue buyer for the buy-to-let lender. But, at present, there appears to be few banks willing to step up and offer to make a bid.
Only yesterday, B&B laid off 370 workers in its mortgage processing division and wrote off £134 million of junk loans as it braced itself for tough times and an higher mortgage arrears.
Numis Securities has cut its target for B&B from 41p to 18p following the bank's plan to “streamline” its operations, but believes the move may be too late. Even if a bidder did come forward, any subsequent deal might be completed at nil-premium.
Meanwhile, it looks as if Credit Suisse is taking a bearish view of prospects for HBOS, down 13.1p at 170.9p, and Lloyds TSB, 20¾p lower at 252½p, even if the proposed £12.2 billion rescue bid goes ahead. It continues to rate both banks at underperform and reckons the new combined group might face a cash shortfall of about £10 billion in time. The broker has slashed its 12-month target price for HBOS from 330p to 165p and Lloyds from 220p to 195p. It says: “The question is whether the disproportionate transfer of HBOS equity to its shareholders, combined with the synergies, offsets the risks it is taking on.”
Other banks to be called lower included Royal Bank of Scotland, down 17p at 203p, and Barclays, off 15¼p at 354¾p.
Hedge fund operator Man Group lost 10p at 372¾p. Earlier this week, it asked to be added to the list of financial companies being offered protection from short-selling — by hedge funds. Keefe Bruyette & Woods has downgraded its earnings forecast for Man for next year and 2010 because of weakening investment performance, which will drive down performance fees. But it reckons the shares have been oversold and has repeated its outperformance rating.
Insurer Old Mutual lost 6p at 81.8p after some bearish comments from Merrill Lynch.
Market-makers went on the defensive after the breakdown of talks between Democrats and Republicans over the US Treasury's $700 billion rescue package for the banks. This afternoon's attempt at reassurance by President Bush failed to convince the financial markets that a deal was imminent. The FTSE 100 index lost 96.95 to 5100.07 while in New York this afternoon, the Dow traded above its worst levels, reducing the deficit to 60.8 at 10,961.3. Dealers say investor confidence has been shredded.
Just half-a-dozen blue-chip companies had managed to post a rise by late afternoon. They included, J Sainsbury, up 6¾p at 358½p and International Power, 5½p better at 355p.
Another blue-chip to go better was Centrica, 3¾p firmer at 325p, as investors continued to reflect on its proposed participation in the UK's nuclear generator construction programme along with EDF of France.
EDF this week agreed to buy British Energy for £11.4 billion, or 774p a share. Société Générale argues that once the cash deal has been concluded, EDF is likely to sell Centrica a 25% stake in British Energy.
This week's downgrades of Marks & Spencer, 7p adrift at 221p, on the back of declining food sales have prompted Dresdner Kleinwort to cut Northern Foods, 5¼p cheaper at 62¾p, from hold to sell while repeating its 60p target. Northern is M&S's biggest supplier of prepared foods, and next week's second-quarter results from the retailer are expected to show a “sharp deterioration” in like-for-like sales as consumers trade down. Investec has cut M&S's target from 250p to 205p.
