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
Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
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

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific