Afternoon:
10°c
Lloyds Banking Group continued to be rocked by last week's warning of losses totalling £11 billion at its recently acquired HBOS subsidiary.
The bank has been forced to deny claims that the Government will eventually control a majority stake and yesterday it was stripped of its Aaa status by Moody's, the credit ratings agency.
Now Citigroup has cut its rating on the shares from buy to hold to reflect those record losses at HBOS. It also slashed its target for the High Street bank from 120p to 65p.
The broker says: "Although the Government's asset protection scheme could provide relief, the scale of potential capital issuance means the balance of risk has adversely shifted."
It has increased its loss per share for the current year from 1.2p to 49.5p and for 2010 from a loss of 8.3p to 24.9p. The shares shaded a further 0.5p to 56p today and have now fallen more than 80% since the Government pushed through the idea of a merger between Lloyds and HBOS back in the autumn.
Royal Bank of Scotland, the other bank contained within the Government's golden circle, firmed 0.9p to 21.3p while Barclays added 4.9p at 102p following recent weakness. But HSBC shed 10p to 520½p.
Life assurer Legal & General led blue-chips higher with a rise of 4.7p at 49p after moving to reassure the City by doubling its credit default reserves on government bonds to £1.2 billion.
There has been intense speculation that L&G would be forced to tap shareholders for at least £750 million, or cut the dividend in order to maintain its solvency ratios. Its shares fell 11% yesterday, despite denials from the company that it was under pressure to raise more funds. Some brokers say the company can avoid a dividend cut, although growth rates may slow. Not everyone was impressed with L&G's response: Bernstein has responded by cutting its target price from 165p to 85p. Rival Aviva rose 3p to 320¼p in sympathy.
Leading shares dropped back below the 4100 support level as they extended yesterday's losses. Investors chose to keep their powder dry without any lead from Wall Street, which was closed yesterday for Presidents' Day. The FTSE 100 index fell 36.69 to 4098.06.
Property shares acted as a drag on the market with Land Securities dropping 33p to 588½p, Hammerson 16¼p to 371p and British Land 10¼p at 440p. Both British Land and Hammerson have taken the plunge in recent weeks and raised fresh funds from shareholders in order to reduce their growing debts. Land Securities conceded yesterday that it too was looking to tap shareholders.
Big losses were the order for the day among share prices in the Far East this morning as investors continued to baulk at news that Japan was suffering the biggest shrinking of its economy for 35 years. Shares in Tokyo slumped to their lowest in almost four months, as financial shares such as banks and property firms slid on continued credit worries.
Trading was also cautious ahead of restructuring plans that carmakers General Motors and Chrysler are required to submit by today showing how they can be made viable after receiving $13.4 billion in emergency aid. The Nikkei 225 ended 104.66 down at 7,645.51, its lowest finish since 28 October.
In Hong Kong, leading shares also tumbled, with China stocks leading decliners after the Shanghai bourse broke its long-running rally, but shares in Bank of East Asia rose ahead of its earnings report.
The Hang Seng index ended down 510.48 at 12,945.40.
