Standard Chartered has long been a favourite of banking sector investors, with its historically strong position in south-east Asia and niche market position.
However, rumours that the company is poised to launch a $5.8bn (£3.1bn) rights issue to pay for the acquisition of LG Cards, South Korea's largest credit card company, knocked the shares back yesterday as investors took fright at the prospect of being asked to hand over cash in such volatile markets.
Whether or not Standard Chartered is forced into raising more money depends on whether or not the group wins control of LG, although market sources say it is looking more likely that it will. The Dutch broker ABN Amro believes that winning the LG auction will put increasing short-term pressure on the Standard Chartered share price, and reiterated its "sell" advice on the shares yesterday with a 1,160p price target.
Banks were out of favour across the board, with Standard Chartered leading the way with a 37p decline to 1,249p. Royal Bank of Scotland down 24p to 1,703p, and Barclays 13p lower at 592p.
London shares followed global markets by falling sharply, with the FTSE 100 closing 95.6 worse at 5,765.0, after a 121-point decline in the Dow on Wednesday. Increasing global geopolitical tension and the approaching hurricane season saw Brent Crude futures hit an all-time high of $76.18 a barrel, fuelling fears over energy costs and economic growth. Perhaps not surprisingly, BP was one of only a handful of winners, adding 1p to 641p.
An upgrade to a "buy" recommendation from Altium Securities was not enough to prevent another day of heavy selling for the sub-prime lender Kensington Group, as investors continued to desert the shares on the back of Wednesday's profits warning. The broker pointed out that arrears percentages have in fact been rising since 2003 and investors "taking fright" now that the company had established itself as the market leader in its sector was the wrong response. Even so, the shares crashed 92p to 793p.
Investors continue to fret over the development costs of free broadband atCarphone Warehouse. The service was launched a couple of months ago but anecdotal evidence suggests the company initially struggled to cope with demand and the rumour is that take-up of the offer has not beaten expectations. With major telecoms groups such as Orange, O2 and BSkyB all chasing the same market, Carphone Warehouse may find its first-mover advantage does not last long. The shares fell 15.5p to 286.5p.
Meanwhile, Goldman Sachs downgraded BT Group to "sell", citing the company's recent 11.5 per cent outperformance of the sector and a series of one-off financial gains. Goldman has a new target price for BT of 222p, and the shares fell 2p to 234.5p.
Despite rumours that the company has received a handful of offers for the Hard Rock Cafe chain from private-equity buyers, Rank Group was unable to buck the market trend and closed 4p cheaper at 198p. Traders said in current market conditions, initial bids are unlikely to be in excess of the £500m the company is thought to be looking for. However, a competitive auction process is still the most likely outcome and most observers believe Rank will achieve a satisfactory outcome.
Rumours over poor trading continue to encourage sellers of Erinacious Group, the residential property services group, down 18p to 269p. The shares have collapsed from a high of 405p four moths ago, and traders believe there more bad news is coming. The group was forced to issue a denial concerning profits warning rumours in March and some investors are braced for more of the same.
Biofuels Corporation, one of a growing number of alternative fuel groups trading on AIM, fell 12.5p to 127.5p as a rumour spread that the company may need to seek new finance to continue working on all its current projects. The word among traders is that a rights issue would not need to be deeply discounted as the stock has had good support from investors, but any increase in equity will dilute current shareholders.
Despite a disappointing trading statement, Independent Media Support was 0.5p better at 12.5p on rumours that management is about to firm up an offer for the company that first aired in late May. The group has had a miserable time as a publicly traded company, making its debut at 60p in mid-2004 and doing little other than slide since then. Traders said the word is that an offer of about 16p per share looks likely.
Finally, today will be a first for AIM - Secure Design becomes the first Japanese company to list on London's secondary market. The broker Charles Stanley has placed 31.4 million new shares in the fingerprint technology and biometrics group at 47p and trade is expected to be brisk.Reuse content