Bulls still banking on financials as Abbey and Lloyds report

STOCK MARKET WEEK

The banks, which have played such a big part in Footsie's charge to within a whisker of 5,000 points, are on the profits treadmill this week, with the start of their results season. Abbey National, the first of the building societies to convert into a bank, produces interim figures tomorrow; on Friday, Lloyds TSB, so far the only traditional high street clearer to take over a building society, offers its half-time results.

Although financial shares, which now account for around 26 per cent of Footsie, have lost a little of their exuberance in the past few weeks, there has been no sign they are coming under any serious pressure. There is a widely held view that the stock market's long bull run will continue until the financials start to crack.

The Abbey and Lloyds figures should not endanger the prevailing blue- chip confidence; indeed, there is a vague hope that at least one of the two may give the sector an additional boost by indulging in some corporate activity. Rumours of financial bids and deals have swirled around for much of this year, helping drive bank shares higher. But except for some minor excursions, such as Abbey swooping on Cater Allen and Bank of Scotland descending on EFT, an asset management business, the blood and thunder of corporate activity has been conspicuous by its absence.

Abbey and the Prudential Corporation, it transpires, have had talks with out-of-form National Westminster Bank and it would be astonishing if HSBC, the old Hong Kong & Shanghai Banking Corporation which owns the Midland Bank, has not at least put out feelers in the direction of the Standard Chartered banking group. There has also been speculation about Barclays' investment arm being sold or floated, while the two Scottish clearers have frequently been grist to the rumour mill.

Insurances, too, have felt the weight of corporate expectancy, although much of the activity has been directed at mutuals. A few modest company captures have been made.

The first half of this year has been exceedingly favourable for the banking fraternity and Abbey and Lloyds, which acquired the Cheltenham & Gloucester Building Society, will have encouraging profit tales to tell. Abbey should produce a pounds 100m-plus advance to around pounds 670m and Lloyds should be set for pounds 1.58bn, up from pounds 1.14bn.

Insurances are also represented this week. BAT Industries, which could be the vehicle to cause much of the expected industry upheaval, and Guardian Royal Exchange (GRE) are scheduled to produce interim results.

It has become increasingly clear that BAT is edging towards demerging its financial and tobacco sides as standalone companies. The Allied Dunbar financial services arm and Eagle Star insurance group are more than capable of operating as a single quoted company. Indeed, before BAT arrived, they both graced the market as independent companies. But there is a widespread feeling that BAT would like its financial venture to have much more muscle and may decide to package its operations with a quoted insurer. It could either take over a group, then merge it with Allied and Eagle Star and return the enlarged operation to market, or pump its two businesses into a quoted insurer.

The possible manoeuvring reflects the market view that BATs wants to retain a stake, if a minority one, in its financial side. It is unlikely that any of its demerger intentions will surface with Wednesday's interim figures. They are expected to be a casualty of the rampant pound, coming in at pounds 1.28bn against pounds 1.33bn.

GRE's operating profit, also on Wednesday, is likely to be near pounds 115m, down from pounds 137m.

From money to drugs - and Glaxo Wellcome, the pharmaceutical giant, is another calendar year group which has drawn up its interim results within a month of its half-year end. Its figures on Thursday will also reflect the strong pound and are likely to be down from pounds 1.55bn to pounds 1.46bn.

Lasmo, the oil group which has been on a heady run this year, checks in with interim figures on Thursday. Net income is likely to emerge at around pounds 25m, compared with pounds 24m before. The group has attracted a resounding fan club, with many members convinced the shares should be above 300p. They closed at a little below their peak on Friday at 272p.

Interim figures are also due from engineer TI Group. Around pounds 108.5m against pounds 103.7m is expected. The group was for long caught up in the market's anxiety over exporters and the impact of sterling. After tumbling from 593.5p early this year to a 456.5p 12-month low this month, the group decided to stress that only some 10 per cent of its production was in the shape of direct exports and therefore subject to sterling's full impact. Since then the shares have rallied and closed at 513.5p on Friday.

Quarterly reports are due from BT (Thursday) and Unilever (Friday). The telephone giant is under intense pressure over what has become a wounding involvement with MCI, the US group. The two were moving serenely towards marriage before MCI shocked its partner - and the financial community - by producing a fearful profits warning recently.

Since then BT has felt the weight of City displeasure; its shares have crashed, with arbitrageurs desperately trying to close their positions, and there has been a mounting chorus that BT should either renegotiate the MCI deal or, if it can, walk away.

Its first quarter figures will be lower at, say, pounds 860m against pounds 917m previously.

Unilever, the Anglo Dutch detergents to food giant, will be in a more upbeat mood. Its second quarter results could be pounds 780m, up from pounds 609m.

Alan Erskine at NatWest Securities believes Unilever, at 1,734.5p, offers "significant value". He suggests further disposals and a planned investment seminar later this year should reawaken interest in the transformation which is under way and "prompt further outperformance".