Market Report: Banks dominate despite looming spectre of PPI

The banks were the standout stocks on the top tier yesterday, in spite of a warning that the sector may face compensation claims of more than £5bn over allegations they mis-sold payment protection insurance (PPI).

The note, which was published by US banking group Morgan Stanley, explored the potential cost to the UK's five largest UK banks and comes a week after Bank of America set aside $592m (£376m) to cover potential PPI payments. Lloyds Banking Group was named as the "most exposed", with it facing an estimated cost of between £770m and £1.5bn, yet the bank still put on 1.13p to climb to 69.12p. Royal Bank of Scotland, which Morgan Stanley named as a preferred pick to Lloyds, could be facing a sum of £400m, and it also finished the day up, rising 0.18p to 44.96p. Morgan Stanley did move to quell fears on the issue, saying that the risk was "manageable," costing on average 1 per cent of the first-half book value at the banks.

The best performer of the sector, and the blue-chip index, was Barclays, rising 4.95p to 282.3p, as investors digested third-quarter results from Deutsche Bank that saw it declare an 11 per cent rise in pre-tax profits from its corporate and investment unit as well as a €1bn overall pre-tax loss. HSBC – which was also named in Morgan Stanley's note – fell 3.1p to 656.9p.

As reports filtered through that stimulus measures expected from the US Federal Reserve would not be as large as previously thought, the miners endured another day of falling prices. The worst-hit was Kazakhmys which dropped 70p to 1,321p, whilst Xstrata finished on 1,264p, a fall of 50.5p, and overall the FTSE 100 ended 61.28 points down on 5,646.02 last night.

Another faller was the home improvement giant Kingfisher, the company behind B&Q, which closed 8.4p lower on 237.1p. It suffered on the read-across from Carpetright, which itself dived 53p to 677p, after the chain revealed a drop of more than 7 per cent in like-for-like sales in the last three months.

Traders were also reacting to comments from Kingfisher's chief executive, Ian Cheshire, speaking at the World Retail Congress yesterday, who said that the "first six months of next year will be very difficult" in the UK. However, he was not all doom and gloom, talking up his optimism for the second half as well as into 2012.

Drugs company GlaxoSmithKline saw its price fall 20.5p to 1244.5p after the announcement late on Tuesday night that it had agreed to a $750m fine over a whistleblower lawsuit in the States. It was also the subject of gossip around the market that it was looking at making a bid, together with a private equity firm, for German rival Bayer.

There were some bigger gains on the FTSE 250, especially from Telecity Group as the data centres company rose 19.5p to 501.5p. Driving it was the release of third-quarter results from rival Equinix, which has reportedly been targeting Telecity in the past. Bank of America Merrill Lynch said the results were "a positive for Telecity" ahead of the company's numbers next week.

Another group enjoying gains was Heritage Oil, as traders responded positively to news from Uganda regarding a tax dispute. The Ugandan government had demanded $400m in capital gains tax from the company after it sold half of its stake in two blocks in the country to Tullow Oil, but it refused. However, an agreement looks set to be reached after Simon D'Ujanga, the minister of energy for state, said that Tullow would be footing the bill, and Heritage rose 4p to 350p. Tullow closed down 7p to 1,203p

Rumours refused to disappear around a possible takeover of Catlin, with traders talking about a price of 480p. The Lloyd's of London insurer closed 349.9p, up 1.9p.

CSR struggled yesterday as the chip manufacturer posted a disappointing outlook for the final quarter that chief executive Joep van Beurden blamed on being "underexposed in smartphones and the smartphone market is growing very rapidly". With Seymour Pierce downgrading it to "hold" from "buy", its price fell 35.7p to 309.6p.

However, it was beaten to the bottom of the mid-tier index by Soco International, which dropped 34.8p to close on 292p. It announced further bad news from its explorations in the Democratic Republic of Congo, revealing that it had plugged and abandoned a second well in the country.

Amongst the small-caps, good news for drivers was not so well received by Helphire. The firm – which provides drivers with a replacement vehicle following a prang – said a drop in crashes on the roads meant its results would be below expectations, and its price slid 8.5p, finishing last night on 21.5p.

On the AIM, Desire Petroleum raced ahead of the rest. The rapid rise came in response to speculation that not only is the explorer about to announce it has found oil in a well off the Falklands Islands, but that it could also be the subject of a takeover attempt. All that gossip sent the stock soaring 50.75p higher to close at 117.5p.

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