Market Report: JP Morgan move fuels Lloyds bid speculation

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The Independent Online

Takeover speculation has often surrounded Lloyds TSB, the UK's fifth-largest bank and a long-term sector underperformer. That speculation turned into a frenzy yesterday and the stock rose amid rumours that the Spanish banking giant BBVA was poised to launch an offer.

Not only did a bid fail to materialise but it turned out that traders were fooled into thinking that a bid was coming after the US investment bank JP Morgan Chase announced it had suspended coverage of Lloyds. Thinking that the suspension was because JP Morgan was preparing to advise a rival on an offer for the bank, traders piled into the stock, sending it to a mid-session high of 556.5p, up more than 9.25 per cent.

These things are rarely as straightforward as they seem, and it turned out that JP Morgan had in fact suspended coverage of all UK retail banks because of what it called "internal technical reasons". A source close to JP Morgan confirmed that it had temporarily suspended coverage of UK retail banks but coverage would resume within the next couple of weeks.

Lloyds TSB and BBVA denied talks had taken place, but traders are often reluctant to let reality get in the way of a good story and the stock remained well bid for the rest of the day. The bank's shares closed at 535p, up 25.5p.

Analysts, at least those not working at JP Morgan, were quick to point out that bid speculation had done the rounds plenty of times in the past, and there was no reason why yesterday's should be any more factual.

Despite the takeover denials from Lloyds TSB, it was a good day for banks, as Northern Rock rallied 41p to 1,082p, Barclays rose 13.5p to 614.5p, and Standard Chartered added 28p to 1,423p.

Shares in Unilever, the Anglo-Dutch household goods and food producer, were well bid, up 8p at 599p. Traders speculatedthat the private-equity industry might be sizing up an audacious bid for the company that could value it at about £30bn. Private-equity sources declined to comment on the speculation, but sources indicated that Unilever's size did not necessarily mean that a deal could not be done.

The retailing giant Tesco was also at the centre of private-equity rumours, but as a buyer of the Dutch food retail giant Ahold with the US buyout house Kohlberg Kravis Roberts. Tesco shares dipped 3p to 315p after private-equity bankers were sceptical about the prospects of a deal being struck. One said: "It would be odd for Tesco to team up with an outfit like KKR who are looking for returns of 20 per cent a year when it can borrow money itself at 6 per cent."

There was no respite for shareholders of Cable & Wireless - its shares were again sold heavily. A rash of heavyweight brokers, including Deutsche Bank, Morgan Stanley, UBS and Credit Suisse, cut their forecasts for the beleaguered telecoms group. C&W fell 4.5p to 97.75p.

The UK steel maker Corus was again in the spotlight, two days after registering its largest single-day gain in five years on Monday. The rumour is that the group's German rival ThyssenKrupp is considering a bid, sending Corus shares up 1.75p to 71.5p. That story has done the rounds before but is carrying more weight since Mittal Steel launched its €18.6bn (£12.6bn) hostile bid for the French steel group Arcelor.

Filtronic shares were hammered on Monday as the chief executive John Roulston resigned and the company unveiled a bigger-than-expected loss. Its stock, which has found some institutional support, rallied 8p, or 5.1 per cent, to 165p. The German broker Dresdner Kleinwort Wasserstein reiterated its "buy" stance on the stock, saying Monday's fall represents a buying opportunity.

GCap Media was the worst performer in the FTSE 250, as Morgan Stanley downgraded forecasts for the owner of Capital Radio and XFM, and cut its price target for the shares from 400p to 300p. The US broker sees no near-term improvement for the company which faces advertising woes, a 50 per cent cut in the dividend and increased competition. GCap shares closed at 249p, down 6.5p.

The London market is nothing if not multicultural these days, a fact epitomised by Centamin Egypt, a gold-mining company run by an Australian of Egyptian extraction. The company has been doing roadshows for brokers and is upbeat about its prospects. It has 4.4 million ounces of gold reserves, and with gold trading at a long-term average of $300 an ounce, many feel that Centamin's market capitalisation will not stay at £120m for long. Its shares rose 1.5p at 27.75p.

Two stocks debuted on AIM yesterday and both enjoyed excellent starts. The Swedish X-ray developer XCounter closed at 195p after having been placed at 155p, while the biotech minnow Intercytex was placed at 108p and closed at 115p.