Market Report: Barclays wobbles amid capital concerns

Parts of the banking sector were unsettled last night, with Barclays falling back as the bears moved in on capital concerns.

The stock slipped to 312.1p, down 1.8 per cent or 5.65p, on worries about the latest regulatory reform proposals from the Basel Committee on Banking Supervision, with Credit Suisse saying that the changes could open up a "sizeable capital deficit". On its numbers, the bank's capital base would slide from 9.6 per cent to 5 per cent under the new proposals, which may yet be altered.

An immediate move back to a core tier 1 equity ratio of 8 per cent "would require £17bn of equity on our figures", the broker said, though it noted that the bank has up to three years to fund this gap in practice. Moreover, Barclays should be able to generate enough capital – about £20bn of equity tier 1 capital over the next three years, according to Credit Suisse – to substantially offset the deficit.

"In theory, it is possible that Barclays can manage the transition to the new Basel rules without an external capital raise. But we believe this would require a substantial tightening-up of the business over the next three years, the potential disposal of BlackRock shares, and the freezing or even removal of the recently reinstated dividend," the broker said. "In practice, restraining the bank to such an extent might not – understandably – be the preferred choice of management. We don't expect any firm decision from Barclays until the Basel rules are better understood, but we think a capital raise at some point in the future cannot be ruled out."

In the wider sector, Exane BNP Paribas dampened sentiment around HSBC, which closed at 699.3p, down 0.7p, after the broker pointed to better value opportunities elsewhere. Exane said that while it regarded its underlying forecasts for the group as broadly consensual and considered the stock as a classic "defensive", it expected HSBC to underperform banks that were more leveraged to the economic recovery, and whose valuation metrics were particularly depressed and providing scope for some near-term strength.

Barclays, Lloyds, down 1.51p at 57.07p, and Royal Bank of Scotland, up 1.1p at 38.34p, for instance, continue to trade on undemanding metrics, the broker explained. Exane also highlighted Standard Chartered, down 1.5p at 1559.5p, its "preferred Asian play".

Overall, the FTSE 100 was firm, rising by 18.75 points to 5513.14, while the FTSE 250 fell by 16.66 points to 9555.41. The mood was subdued following the latest inflation figures, with traders expressing concern about the fact that consumer prices rose at their fastest annual pace in nine months in December.

"Even allowing for the unfavourable statistical distortions coming from sharply falling oil prices a year ago and the December 2008 VAT cut, the data will not go down at all well at the Bank of England," Howard Archer, chief UK and European economist at the forecasters IHS Global Insight, said, pointing out that, at 2.9 per cent, the December figure was substantially above the Bank's target level of 2 per cent.

United Utilities was 12.6p stronger at 503.5p thanks to Deutsche Bank, which said the stock was the cheapest in the UK water sector. "With one of the worst performances in the European utilities sector in 2009, UU now trades at a 9 per cent discount to regulatory asset value, offering an attractive entry point in the stock," the broker said, repeating its "buy" stance and pointing out that the shares also offered an attractive dividend yield of 6.9 per cent. "Although there is some uncertainty over the sustainability of the dividend, it is much more attractive than the average yield in the sector of just over 5 per cent."

Elsewhere, Prudential was in focus, easing by 1.5p to 613.5p, after Goldman Sachs moved the stock on to its "conviction buy" list despite expressing caution on the UK life insurance sector. The broker said that while the stock did not appear cheap on traditional valuation metrics, it was inexpensive on an enterprise multiple basis. This was despite it having "the best growth opportunities" in the sector, Goldman noted, raising its target price for the stock to 740p from 590p.

The broker was less keen on Standard Life, which fell by 1.6p to 210.1p after Goldman moved it to "neutral" from "buy". "Our latest analysis shows Standard Life to be relatively expensive on an enterprise value/Ebitda basis and that earnings growth may be somewhat constrained in spite of potentially rising equity markets," the broker said, keeping its target price for the stock unchanged at 227p.

Further afield, Morgan Stanley supported Associated British Foods, the Primark-owner that was 13.5p higher at 882.5p after the broker revised its view to "overweight" from "underweight", with a revised 980p target, compared to 730p previously.

"We expect the company to achieve double-digit [earnings] growth in 2010, with the three key businesses, Primark, Sugar and Grocery, all hitting a sweet spot," the broker said, adding that Primark in particular remained key to its investment case and that, based on its propriety survey, it expected the division to "maintain solid momentum in the coming quarters".

Suggested Topics
News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Romelu Lukaku puts pen to paper
sport
News
Robyn Lawley
people
Arts and Entertainment
Unhappy days: Resistance spy turned Nobel prize winner Samuel Beckett
books
PROMOTED VIDEO
News
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
News
i100
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
News
people
Extras
indybest
Travel
Ryan taming: the Celtic Tiger carrier has been trying to improve its image
travelRyanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
Life and Style
Slim pickings: Spanx premium denim collection
fashionBillionaire founder of Spanx launches range of jeans that offers 'thigh-trimming construction'
News
Sabina Altynbekova has said she wants to be famous for playing volleyball, not her looks
people
News
i100
Life and Style
tech'World's first man-made leaves' could use photosynthesis to help astronauts breathe
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star