Morning:
6°c
Lloyds Banking Group saw its shares touch a low for the day of 92.2p amid signs that shareholders are getting cold feet over its proposed £15 billion rights issue.
The bank wants to raise £25 billion by issuing new shares and making disposals to lessen its reliance on the taxpayer when it joins the Government's asset protection scheme.
The Financial Services Authority is believed to have already given the go-ahead for Lloyds to proceed with its fundraising.
It needs the money to pay the premium demanded by the Government to ring-fence £260 billion of toxic loans which will be taken on by the asset protection scheme. If it does not raise the extra cash, the state's holding in the bank will rise from 43% to 60%, a move the bank wants to resist.
But it is only four months since Lloyds raised £4 billion by way of a heavily discounted rights issue at 38p, and some shareholders are clearly concerned about the likelihood of throwing good money after bad. The shares later pared back their deficit to 0.3p at 94p.
Rival Royal Bank of Scotland is believed to be looking to raise £4 billion from shareholders in order to join the APS. The Government already owns 70% of its shares, which shaded 0.6p to 48.3p. Barclays also softened a tad at 375.8p as the banks came under pressure from the Government about their lending policies to small and medium-sized businesses. There have been complaints from business that the loans are unaffordable.
Top fund manager Neil Woodford, who manages about £20 billion of assets for Invesco Perpetual, remains bearish of the banking sector and claims it remains "broken". He warns there is still a 30% chance that Lloyds and RBS will be brought under full control of the Government to speed up their repair. The whole banking sector was still in need of "gigantic amounts" of further capital in order to resume lending.
Woodford recently turned seller of BP, down 1½p at 544p, and Royal Dutch Shell, up 29p at 1747p, in the belief that both companies will be forced to cut their payouts to shareholders next year. He is now urging clients to move into the big drugs companies.
Leading shares generally traded within a narrow range with investors reluctant to open fresh positions ahead of the weekend. Wall Street will be closed on Monday for Columbus Day. The FTSE 100 index rose 1.60 points to 5156.24 while in New York the Dow Jones was up 23.65 to 9810.52.
Mining shares came in for profit-taking after gold fell back from yesterday's record high and the price of other raw materials softened. Antofagasta lost 12p to 822½p and Vedanta Resources 48p to 2144p.
Durex condoms provider and Scholl sandals maker SSL has been a strong market of late, which may be why Nomura has chosen to raise its 12-month target on the shares from 580p to 690p and repeat its buy rating.
The shares have climbed from 533p since the start of August, driven in part by speculative buying and talk of a bid from drugs giant GlaxoSmithKline. According to Nomura, any would-be bidder would have to pay at least 900p a share. They rose 8p to 639p.
Citigroup has begun coverage of the bombed-out pubs sector. It has buy ratings on Greene King, 1p better at 417¾p, Mitchells & Butlers, up 2½p at 253¾p, and Enterprise Inns, 4p cheaper at 125p, but can only muster hold ratings for Marston's, 1¼p easier at 93½p, and Punch Taverns, 1½p better at 122p. It describes Wetherspoon and M&B as "well-managed" companies with scope for re-rating as debt concerns ease.
More than 30 pubs a week have been closing across the UK with the industry being hit by the smoking ban, a decline in beer sales and increased competition from the supermarkets.
Crumbling share prices have ratcheted up gearing levels of those heavily leveraged pub operators which borrowed a great deal to expand in better times.
Vodafone continued to reel from the mobile phone price war in India, one of its biggest markets. The shares fell 1.7p to 132.9p.
Songbird Estates lost 0.46p, or 16%, to 1.43p after JPMorgan Cazenove and Morgan Stanley placed the rump of 7.65 million shares (40.4%) in the group's recent rights issue at 1.32p.
Songbird, which owns almost 70% of Canary Wharf, has raised £190 million, but existing shareholders took up less than 60%.
