Market Report: Barclays haunted by IMF's tax proposals

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The Independent Online

Barclays failed to make any headway last night, closing lower amid worries about the impact of prospective taxes and the ongoing austerity drive in the UK and across parts of Europe.

Evolution Securities warned that the bank could be at risk from government moves to implement levies along the lines of the IMF's proposed Financial Stability Contribution (FSC) and Financial Activities Tax (FAT). "In the UK, this seems a particularly important point in the new Government programme, and we would not be surprised if the new taxes were already announced and implemented during 2010," the broker said, suggesting that the FSC and FAT proposals could hit Barclays, which lost 2.7p to 285.9p, to the tune of nearly £2bn per year.

Bearing that in mind, Evolution lowered its 2011 earnings estimates for the group by a whopping 44 per cent, adding that, beyond tax moves, Barclays could also face "somewhat weaker lending growth and slightly higher impairments" as governments in the UK, Spain and Italy move to slash deficits. The broker went on to lower the stock to "sell", expressing a preference for Lloyds and Standard Chartered, both of which fell back, shedding 1.48p to 53.96p and 10.5p to 1,611p, amid continued nervousness about Hungary's public finances.

overall, the FTSE 100 lost 56.94 points to 5,069.1, while the FTSE 250 ended 122.15 points behind at 9,477.7. Concerns about Hungary's sovereign debt woes continued to dominate the agenda, with ratings agencies voicing worries about the country's high public and external debts. The losses were capped by new data on German industrial orders, which, it emerged, had jumped by more than forecast in April. The news suggested that, despite the continent's troubles, Europe's largest economy remained on the path to recovery, helping steady nerves across the capital markets.

The mining sector was hit as US copper prices, unsettled by the problems in Hungary, touched an eight-month low. Profit taking swiftly took root, depressing the likes of Kazakhmys, down 45p at 1,074p, Vedanta Resources, down 69p at 2,106p, and Lonmin, down 51p at 1,543p. As often happens in times of nervousness, precious metals miner Randgold Resources firmed up by 55p to 5,955p as investors sought to up their exposure to gold, the traditional hedge against the threat of inflation and economic stress.

BP was 3.05p down at 430.3p despite reporting some success in efforts to contain the Gulf of Mexico spill. Though Friday's call with investors and analysts was said to have helped sentiment, the stock was weighed down by weaker oil prices and by a warning from Goldman Sachs, whose analysts said that, after incorporating potential costs, the shares no longer offered much in the way of upside when considered in the context of BP's peers. "We revise our estimates, assuming BP suspends its dividend for two quarters, and that $4bn of damages is paid in both 2010 and 2011," the broker added, moving the stock to "neutral" from "buy".

Elsewhere, RSA Insurance overcame the downdraft, rising by 0.7p to 118.7p after Goldman moved the stock to "buy", labelling it a "long-term winner". The broker said that despite outperforming its peers since the beginning of the year, the shares continued to trade on undemanding multiples, offering investors the chance to up their exposure to "RSA's strong balance sheet and its ability to sustain consistent underwriting margins".

Also on the upside, RBS analysts boosted Aggreko, the temporary power specialist which gained 24p to 1,354p after the broker, weighing in ahead of a company visit to Africa, raised its target price for the stock to 1481p from 1000p. RBS said it expected Aggreko to highlight the gulf between supply and demand across sub-Saharan Africa, and touch upon how it could help plug the gap in partnership with local authorities, pointing out that "by 2030, more sub-Saharan Africans than now will still be without access to electricity".

Further afield, Restaurant Group, the company behind the Garfunkel's chain, was supported by Evolution, firming up by 1.3p to 219.6p after the broker initiated coverage with a "buy" view. Evolution said that, under its bull or best case scenario, the group could potentially double its earnings in the next 5 years. Its central projections are also hopeful, pointing to a doubling over the next 10 years.

"If the UK enjoys further [economic] recovery, Restaurant Group is in a position to exploit the upturn," the broker said, setting a 300p target on the stock. "If the UK economy dips again, [it] has a demonstrated ability to trade through tough conditions."

hikma pharmaceuticals was broadly unchanged, easing by 1p to 689p, after Morgan Stanley, returning from a site visit in Jordan, reiterated its positive view on the branded generics manufacturer. The broker said that, with management keen on gaining a foothold in Morocco and increasing its presence in Egypt, deal activity was becoming more likely, adding: "Given recent share price strength, we believe the probability of Hikma using equity to tempt sellers to the negotiating table has increased."