Market Update: RBS responds to positive comments

The FTSE 100 was up 58.97 points at 4124.46 while the FTSE 250 advanced to 5862.9, up 32.51 points, at 11:53 am.

The Royal Bank of Scotland was amongst the strongest on the benchmark index, up 6.57 per cent or 3.6p at 58.4p after Merrill Lynch weighed in with some positive comment this morning. "The RBS head office in Gogarburn will start 2009 in with new a chief executive officer, a new majority shareholder and a new strategy," the broker said,

"We see at least five options for this strategy: sell the Bank of China stake; sell Insurance; create a 'bad bank' SPV [special purpose vehicle] for structured credit assets; sell Citizens [in the US] and use the proceeds to buy back the government preference shares; and run down the GBM [the investment banking arm] balance sheet. Combined, we think these measures could boost the tangible equity/ asset ratio to over 4 per cent whilst keeping the NAV [net asset value per share] over 100p. There is also, therefore, a new investment case for RBS: a stock trading at a deep discount to NAV which has the time and capacity to deliver change."

Moving up...

Tesco gained more than 10 per cent or 29.8p to 317.8p after posting a better than feared third quarter update. The supermarket group said like for sales at its UK operation grew by 2 per cent, excluding fuel, below than the industry average but ahead of some analyst predictions. Societe Generale, for example, was anticipating the slowdown to depress growth to 1.3 per cent.

In a note to clients this morning, analysts at Nomura said that the update presented a "robust, positive and clear" about the company.

"Tesco's third quarter update has dispelled many of the market concerns which have gathered pace in recent weeks," the broker said,

"Tesco's UK like-for-like performance was at the top end of consensus and most importantly, the majority of this growth was pure volume. This bodes well within a marketplace infatuated with a slowdown in inflation in 2009. The non food offer and the discount brands are working well, and most importantly helping to attract 300, 000 new like-for-like customers week-on-week. This business is financially secure - as we expected - with no material debt maturities in 2009/10 whilst it has significant under drawn facilities in place."

"This stock was priced for a profit warning and as we thought it has not materialised."

Moving down...

Parts of the mining and the oil & gas sectors remained under pressure as the price of oil sank to its lowest level in over three years. Amongst the miners, Xstrata was the weakest, losing over 4 per cent or 33.5 to 780.5p, as credit derivative spreads on 35 per cent shareholder Glencore widened to a new record. Rio Tinto was also weak, losing over 3 per cent or 53p to 1372p.

In the oil & gas sector, BG was unsettled, losing 2.5p to 849p.