Market Report: RBS climbs as talk of Citigroup bid gets louder

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The Independent Online

Among the more outlandish rumours of recent weeks has been talk of a move by the US banking giant Citigroup for Royal Bank of Scotland, deemed by some analysts to be too rich even for the deep pockets of Citigroup. However, the story is gaining increasing support among traders, with talk doing the rounds yesterday that a bid from Citigroup would value RBS at between 2,400p and 2,600p per share, the equivalent of £76bn to £82bn.

Citigroup is possibly the only financial group capable of mounting such an audacious takeover, with RBS's main UK rival, HSBC, unlikely to mount any counter offer because of regulatory issues. However, HSBC is unlikely to take kindly to such a move by Citigroup, so traders expect a tough battle for the deal to gain regulatory approval. RBS was among the best performers in the FTSE 100 yesterday, closing 12p better at 1,852p.

After two poor trading sessions there was a small bounce in equity prices, with strength in the oil price helping BP, 5.5p better at 668.5p, Shell, up 19p at 1,863p, and Cairn Energy, 25p better at 2,160p.

The strength in oil stocks filtered through to the main market, where BP and Shell make up almost a quarter of the value of the FTSE 100 on their own. The index rebounded 23.5 to close at 5959.2.

Elsewhere in the main index InterContinental Hotels benefited from strong analyst support at UBS, as the Swiss broker upgraded the hotel group to "buy" from "hold" and increased its target price to 1,130p from 930p, with a potential takeover value of 1,400p per share. Shares in InterContinental added 27.5p to close at 928p.

Traders are becoming increasingly sceptical about the possibility of a knockout bid for BAA, despite Grupo Ferrovial adding Macquarie to its team. Ferrovial has already offered 810p per share but with Macquarie now on its side the chances of a bidding war look slimmer. Initial hopes of something approaching 925p per share look unlikely, even as the shares firmed 11.5p to close at 838.5p, a premium to the rebuffed offer but still some way short of what some bulls had hoped for.

Ex-dividend dates affected three stocks in the FTSE 100, preventing the market from going even better. Scottish & Newcastle went "ex" yesterday, with the loss of a 14.1p dividend, sending the stock down 17p to 528p. Amvescap closed 5.5p worse at 545p as buyers no longer qualified for the 5.5p dividend. BSkyB also lost a 5.5p dividend, although the stock closed only 2.5p worse at 540.5p.

Strong trading in recent months at J Sainsbury sent the food retailer up 5.25p to 332.25p. Like-for-like sales in the fourth quarter are up 5.3 per cent on the same period last year, confirming the turnaround at the UK's No 3 supermarket group is on course to hit targets. Some traders said the company might follow Tesco's example and look at listing its property portfolio separately through a Real Estate Investment Trust.

The belief that Standard Chartered is no longer in the takeover ballpark continued to weigh on the shares, down another 25p to close at 1,457p.

Burren Energy was among the worst performers in the FTSE 350, dropping 75p to close at 953p. The spread-betting firm Worldspreads reported several large short positions before today's results, with some traders anticipating "shocking" numbers despite the strong run the stock has been on. One trader said: "There is also an element of profit-taking in this move; the end of the tax year is very close and traders would rather sell now, bank their profit and not take a chance on the numbers being bad."

ISoft led the FTSE 350 fallers as traders deserted the stock after Accenture, one of its partners in the NHS Care Records Service project to computerise patient records, took a $450m provision for late delivery and completion. Shares in iSoft, which trades above 450p in August, took another beating to close 27.75p lower at 148.5p.

The long-term struggler Invensys enjoyed another good day as it added 1.25p to 22.25p, after announcing a plan to put in place a definitive funding plan for its pension fund. It is among the first UK corporations to put a plan into place to tackle a pensions shortfall.

Traders will be looking out for Morson today as the company makes its market debut on AIM, having raised £35m through an institutional placing run by the broker Brewin Dolphin. The company provides technical recruitment services to the rail, aerospace, nuclear and power generation sectors. Trading is expected to start at 160p.

Northbridge Industrial Services was 2.5p better at 111p, as traders speculated it is about to make an acquisition in the industrial equipment hire sector. The broker Charles Stanley placed the shares in the market only on Tuesday at 100p.

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