Market Update: Banks lead way in early trading

The FTSE 100 was down 24.78 points at 4423.76 while the FTSE advanced to 6695.73, up 41.85 points, at 12:11 pm.

The banking sector led the way in early trading, with Lloyds TSB swinging to 140.3p, up 6.69 per cent or 8.8p, and HBOS firming up by 5.01 per cent or 4p to 83.8p, after it emerged that British taxpayer will own around 43 per cent of combined Lloyds Banking Group.

Existing shareholders turned down a chance to subscribe to the new stock offered as part of the two banks’ capital raisings. HBOS, which is set to de-list later this week, had sought £11.5bn while Lloyds was seeking to secure £5.5bn by issuing new equity to existing investors.

One trader said that, given the gap between the price of the new stock and the price at which the two lenders were trading, there was little surprise at the absence of shareholder support and the need for government aid. He added that the rally was down to increasing hopes of a new government loan guarantee scheme for the sector.

The last point was picked up Cazenove, which issued a new briefing note on British banks this morning, saying:

“Hopes for a [loan guarantee] deal appear to be supporting share prices in the UK as in contrast US bank share prices have been weak recently on fears that the fourth quarter results will come in below expectations after a particularly difficult December.”

Moving up?

Taylor Wimpey surged to 27p, up 27.06 per cent or 5.75p, following recent reports that its bid to renegotiate the terms governing its debt pile were proceeding well.

More news is expected when the housebuilder issues a trading statement tomorrow.

“We believe that the key focus of the statement will be on its refinancing progress and, whilst we do not expect a new package to be announced before March, news that it is nearing conclusion would be welcome,” Panmure Gordon said in a note to clients this morning,

“That said, in our view, there is a high possibility that refinancing could be dependent on a debt-for-equity swap or a fundraising, both of which could be significantly dilutive.”

Moving Down?

Man Group was amongst the weakest on the FTSE 100, easing to 230.5p, down 5.44 per cent or 13.25p, after Citigroup issued a “sell” note on the stock.

Bad broker sentiment also bore on 3i, the private equity group that fell to 331p, down 4.95 per cent or 17.25p after Morgan Stanley switched its stance on the stock to “equal-weight” from “overweight”.

“The capital and funding position and ability to invest to take advantage of opportunities lack clarity in an era of lower leverage, at a time when the fixed-income markets are facing cyclical and paradigm shift changes,” the broker said,

“After a 45 per cent bounce off lows, we view the risk-reward as more balanced and would look for greater clarity on asset sales to lower gearing and capital pressures before becoming positive.”