LONDON (Thomson Financial) - UK blue chips remained lower midmorning with
banks weak again following news Bradford & Bingley will increase its rights
issue after U.S. private equity firm TPG Capital pulled out of plans to buy a 23
percent stake in the group.
At 9:52 a.m., the FTSE 100 index was 51.3 points weaker at 5,425.3, while
the FTSE 250 index was 115.2 points lower at 8,541.2.
Looking at blue chips, shares in Bradford & Bingley plummeted, shedding
5-3/4 pence to 55-1/4 after the mid cap mortgage bank said it will increase the
size of its rights issue.
Other blue chip banking issues were also weak in sympathy, with HBOS shares
down 3-1/2 pence to 275-3/4, RBS off 2-3/4 pence to 210-1/4, and Barclays down
7-1/4 pence to 284-3/4.
B&B, the UK's biggest provider of buy-to-let mortgages, said it will
increase its rights issue to 400 million pounds from 258 million pounds after
TPG's stake purchase pull-out.
The bank said that TPG decided to withdraw its 179-million-pound investment
offer after Moody's Investors Service downgraded certain of the bank's debt
ratings.
Merrill Lynch repeated its 'underperform' rating on B&B shares, noting that
the debt rating downgrade is a negative for the stock as ordinary shareholders
will now have to pick up more of a stock for which it thinks demand will be
weak.
One bank, however, managed to buck the negative sector trend, with Lloyds
TSB shares topping the FTSE 100 leaders board, up 4 pence at 310 as Cazenove
said it see a near-term opportunity for the firm's recent share price
underperformance to reverse in anticipation of strong interim results on July
30.
Cazenove pointed out that Lloyds TSB had one of the worst performing share
prices in the U.K. banks sector in June and said the the stock has thus lost its
premium rating relative to its peers based on Cazenove's estimates.
Away from banks, Marks & Spencer was again the major blue chip casualty,
shedding another 13 pence at 223 as further negative broker comment rolled in
following Wednesday's dire trading update from the retailer.
Today Citigroup downgraded its rating for M&S to 'sell' from 'buy' with a
target price cut to 205 pence from 450.
Citigroup said that it has cut its March 2009 pretax profit forecast for M&S
by 17 percent to 730 million pounds in the wake of the weak first quarter
trading statement and the view that UK consumer demand will be weaker in 2009.
The broker has also cut Marks & Spencer's 2010 pretax profit by 29 percent
to 570 million pounds.
Also not helping M&S was news from John Lewis Partnership, the
employee-owned retailer seen as a barometer of High Street trading, that sales
have been down for the seventh time in eight weeks.
John Lewis said that week to June 28 sales at its 26 UK department stores
fell 8.3 percent year-on-year to 53.0 million pounds -- the seventh time in
eight weeks sales have declined.
But clothing retail peer Next bucked the dull market trend, rallying 6-1/2
pence higher to 860 having been knocked back in sympathy with M&S earlier in the
week, with Sanford Bernstein today saying it preferred Next to M&S on a short
term view.
Miners were also under pressure as metal prices retreated. Anglo American
was off 102 at 3,168, Vedanta Resources was down 55 at 1,967, Antofagasta fell
back 14 at 590-1/2.
There were just a handful of other blue chip risers, with G4S gaining 0.3 at
197.3 after Cazenove upgraded the group to 'outperform' from 'in-line'.
On the second-line, aside from B&B's drop, BSS Group shares were weaker,
down 21 pence to 257-1/2 after the stock was downgraded by Citigroup to 'sell'
from 'hold'.
The broker also cut its estimates and lowered its target price for BSS to
280 pence from 420, pointing out that the company's relative valuation and 100
percent UK exposure will likely see the business suffer from the sharp
construction slowdown.
Housebuilders remained under pressure again, with Taylor Wimpey again
suffering after Wednesday's news it had failed to agree terms for a 500 million
pound refinancing package to shore up its battered balance sheet and warning the
continuing tough trading conditions in the UK homes market would lead to a
"sharp deterioration" in net reservations and completions in 2008.
Taylor Wimpey was off 1-3/4 at 33-1/4, peer Persimmon shed 9-3/4 pence at
219-1/4, while Bellway lost 17 pence at 393-3/4.
And among the media stocks, Johnston Press shares continued to suffer after
bad news in the sector from Trinity Mirror earlier this week, losing another
2-1/2 pence at 33.
But Trinity Mirror shares themselves rallied 0-1/2 pence higher to 94-1/2,
and fellow mid cap newspaper group Daily Mail & General recovered 4-1/4 pence at
278-1/2.
joanne.frearson@thomsonreuters.com
jf/rfw
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