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Investors on the London stock market were staging a damage limitation exercise today in the wake of another big sell-off overnight on Wall Street, where shares slumped to their lowest since 1997.
It is feared the worsening banking crisis could lead to a complete nationalisation of the industry on both sides of the Atlantic, destroying shareholder value. City traders today restricted the damage to a fall of 35.16 points at 3815.57 after the Dow Jones slumped more than 250 points.
Justin Urquhart Stewart, joint founder of Seven Investment Management, warned that a drop below 3800 could spark another series of job losses in the Square Mile.
"Investors are achieving smaller returns on equities, and those sitting mostly on cash hardly any returns at all. That leaves just bonds," he said. "As a result, firms will soon be starting to cut costs again, leading to job losses".
Royal Bank of Scotland posted a rise of 0.5p to 21.7p, spurred on by persistent talk that the bank may be split into two. It could also accrue $500 million (£345 million) from the sale of its operations in Taiwan. But other financials came under the hammer. Lloyds Banking Group retreated 3.3p to 53.5p ahead of full-year results on Friday. Legal & General lost 2.6p to 34p and Friends Provident fell 3.7p to 71.5p as worries about possible dividend cuts persist.
Invensys dropped 8.6p to 144.8p after Morgan Stanley cut its rating from overweight to underweight. Dana Petroleum rose 10½p to 944½p after striking it rich at a third well in the Rinnes field in the North Sea. Shares of the oil and gas explorer have been upgraded by Morgan Stanley from equal weight to overweight. It repeated its 1140p target. Jefferies International has begun coverage of Dana with a hold rating and 1000p target.
Morgan Stanley has repeated its overweight rating on rival Tullow Oil, up 10½p at 696½p, with a 900p target and says both companies offer the best exposure to short-term news flow. It adds that Dana is targeting additional volumes on the Rinnes structure.
But it cut Cairn Energy, down 30p at 1867p, which has been a strong performer of late, from overweight to equalweight with a 2250p target. The broker says the pricing of Rajasthan crude could just be a short-term headwind, and investors should be cautious about UK exploration and production.
Cazenove warned that the UK market is continuing to lose dividend flow as companies cut payouts to conserve cash and reduce external financing requirements. It adds: "We continue to believe that the dividends from the two large oil names - BP and Royal Dutch Shell - are undervalued by the market."
Cazenove maintained that BP's dividend is safe - partly because the oil price is now finding a floor at around $40 a barrel and will recover closer to the global marginal cost of extraction of nearer $80 a barrel by 2011.
"We also believe that BP, 2½p firmer at 456p, can borrow to pay its dividend, as can Shell, up 3p at 1561p, for two years before capital expenditure and cost reductions become more of a necessity," the broker said. It has repeated its outperform rating on BP and overweight in Shell.
Bernstein says BT Group, 2½p cheaper at 87½p, is unlikely ever to achieve the margins to which it aspires in its Global Services division. It has cut its target from 90p to 78p, and repeated its underweight rating.
Deutsche Bank has raised its target price for Pearson, up 9p at 636p, from 510p to 545p. But it continues to rate the publisher of Penguin books and the Financial Times as a sell.
GW Pharma rose 6p to 43¾p after a trial of its cannabis-based medicine Sativex showed evidence of effectiveness in treating patients with spasticity resulting from multiple sclerosis.
A further softening of metal prices on fears of falling demand took a toll on the miners. Rio Tinto retreated 54p to 1769p, BHP Billiton lost 26p to 1124p, and Anglo American dropped 14p to 1016p.
