Market Report: Barclays slumps as investor banks profits

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Barclays tumbled to the bottom of the benchmark index last night, after a leading shareholder moved to sell down part of its stake less than seven months after investing in the bank.

International Petroleum Investment Company (IPIC), an investment vehicle backed by the Abu Dhabi royal family, placed 1.3 billion Barclays shares, with brokers quoting a price of 265p per share, putting IPIC in line for more than £1bn of profits on a £2bn investment in convertible notes when the bank was in need of extra cash last year, helping it to avoid UK government support. IPIC also invited offers for its holding of Barclays capital notes, worth £1.5bn, with Credit Suisse handling both transactions.

The placing was wrapped up yesterday, but the overall profit is dependent on the price at which IPIC sells the capital notes. The Abu Dhabi royals will continue to maintain an interest in the bank via £1.5bn worth of warrants, which allow IPIC to acquire Barclays shares at 197.775p apiece.

The move follows a surge in the bank's share price, prompting traders to wonder whether other shareholders may follow suit. There was also some fear that the exercise may hit confidence in the wider sector, as investors begin to question if the rally in banking share prices had gone far enough. At close, Barclays was 13.5 per cent or 42.75p behind at 273.5p. In the wider sector, Lloyds fell to 69.5p, down 4.2 per cent or 3p, and Royal Bank of Scotland retreated to 38.1p, down 5.2 per cent or 2.1p.

Overall, the FTSE 100 was broadly unchanged, easing slightly to 4,477.02, down 29.17 points, while the FTSE 250 firmed up marginally, gaining 13.48 points to 7,772.06.

A number of miners supplemented Monday's gains amid growing confidence in signs of stability in the global economy, with Lonmin rising to 1,568p, up almost 3 per cent or 45p, and Xstrata advancing to 778p, up 2.9 per cent or 22p. Rio Tinto was also firm, gaining 2.4 per cent or 71p to 3,053p as rumours of a possible rights issue resurfaced.

Kingfisher was the best-performing blue chip of the day, climbing to 190.7p, up 3.8 per cent or 6.9p after posting a first-quarter profits update. In response, Nick Bubb, a retail analyst at Pali International, upped his target price for the DIY retail giant to 230p from 190p.

Elsewhere, Standard Life was flat at 202.5p after Panmure Gordon switched its stance on the life insurer's stock to "hold" from "buy", on account of what it termed the tough operating environment. "The share price has significantly outperformed the sector over the past 12 months due, we believe, to its relative financial strength, but we think such outperformance is unlikely to continue in rising investment markets," the broker said, lowering its target price for the stock to 216p from 295p, in a sector review.

Panmure was keener on Prudential, which was 11.2p ahead at 460.25p, and Aviva, which eased to 353p, down 4.25p, saying its preference was due to their diversification, relative to other more UK-focused life insurers, "from the competitive and historically problematical UK life mass market, combined with better opportunities in the US, Asia and Europe".

On the second tier, London Stock Exchange gained 2.3 per cent or 16.5p to 745p after Goldman Sachs weighed in, switching its stance to "buy", and adding the stock to its widely followed "conviction buy" list.

"We expect factors such as a re-emergence of equity as the capital of choice, maker-takes tariff structures, lower frictional clearing costs and strengthening of the economic backdrop to drive sustained volume growth," the broker said, adding that the announcement of a strategic plan by Xavier Rolet, the group's new chief executive, could provide an incremental catalyst for the exchange-operator's shares.

Benign broker comment also boosted HMV, which climbed to 128.25p, up 2.6 per cent or 3.25p, after UBS issued a series of forecast upgrades. "HMV is making good progress to diversify away from a declining physical music market and slower growth in DVD, while becoming more efficient," the broker said. "However, there now seems more margin recovery potential in the rest of the sector and we believe a 20 per cent discount to the peer group is fair."

On the downside, Candover Investments saw its share price slide to 177p, down 22.5 per cent or 51.5p, on the back of reports that it was facing key debt covenant tests at the end of this month while a potential bidder, France's Eurazeo, had backed off. The company said it was compliant with its covenants, and expected to remain in that position throughout 2009.

Further afield, Wolfson Microelectronics gained 2.5 per cent or 2.75p to 111.5p after Nokia announced that it will launch a Bluetooth stereo headset featuring Wolfson's noise-cancellation technology. In response, Cazenove, which maintains an "outperform" on the stock, said it had been "waiting for years" for the company to break into the Nokia account, adding: "We believe Wolfson could get some traction in the handset market with digital microphones and with noise cancellation."

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