Market Report: Capital ratios weigh on Standard Chartered

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The Independent Online

Broker downgrades and the suggestion that it may need to raise equity to boost capital ratios bore on Standard Chartered, the FTSE 100-listed bank which closed down 6.82 per cent or 109p at 1,490p.

Citigroup moved the stock to "sell" from "hold" while the Royal Bank of Scotland, which maintains a "hold" rating on Standard Chartered, reduced its target price for the bank to 1,660p from 1,700p.

"We believe that Standard Chartered needs to strengthen its Equity Tier 1 ratio from the current level of 6.1 per cent, which puts it close to the bottom versus 70 Asian banks under coverage," said Citi, reducing its target price for the stock to 1,300p from 1,525p. "The continued dominance of wholesale versus consumer banking profits is set to reduce overall returns for the group, with pressures on the group's capital likely to necessitate a sharp slowdown in asset growth or the need to raise equity at some stage."

At close, Standard Charted was lodged at second place on the FTSE 100 loser board.

In the wider banking sector, the Royal Bank of Scotland was down 3.5p at 245.5p, despite news that, with Banco Santander and Fortis, it had agreed to sell the majority of ABN Amro's private equity portfolio to a Goldman Sachs-led consortium.

Overall, the FTSE 100 was down 7.3 points at 5,534.5 and the FTSE 250 lost 92.9 points to 9,291.2. Sentiment was weak across the London market after UK consumer price inflation came in ahead of expectations at 4.4 per cent for July, well clear of the Bank of England's 2 per cent target and the Government's 3 per cent upper limit for inflation. Reacting to the news, Howard Archer, the chief UK and European economist at Global Insight, said the data "will not go down at all well at the Bank of England".

"Worryingly, core inflation spiked up to 1.9 per cent in July from 1.6 per cent in June, which raises concern that higher energy and food prices are increasingly having second round inflationary effects," he added.

On the FTSE 100, the retail sector was hit by a survey which revealed like for like retail sales fell 0.9 per cent on a year ago in July. The news, from the British Retail Consortium, took Next, the high street fashion chain, to 1,080p, down 4.59 per cent or 52p. Supermarket group J Sainsbury lost 6.25p to 367.75p and Marks & Spencer was down 8p at 296p.

Tesco fared better, up 2.7p at 396.8p, after announcing a foray into the lucrative Indian market. The supermarket giant said it will enter the country through a wholesale business and a franchise agreement with Trent, the Tata Group's retail arm.

Reacting to the news, Cazenove said: "The background is that Indian law precludes foreign direct investment in multi-brand retail although international retailers have been striking franchise and partnership agreements with local retailers and industrial conglomerates to allow entry to what is expected to be a large and fast-growing market over the coming years."

Elsewhere, oil majors advanced as the price of the commodity fluctuated after a stronger dollar and concern about Chinese consumption mitigated the impact of the Russia-Georgia conflict. BP, which said it had shut down two oil and gas pipelines running through Georgia, was up 10p at 535p. Royal Dutch Shell gained 30p, to 1,810p.

On the FTSE 250, JP Morgan weighed-in on UK newspaper publishers, citing a secular decline in the industry's fortunes. "Weakening consumer spending will likely hurt all ad categories in 2008. We think 2009 may be just as bad if not worse," said the broker, downgrading Trinity Mirror to "underweight" from "neutral", sending the stock to 116p, down 7.2 per cent or 9p. The broker kept Johnston Press, down 1.25p at 72p, at "underweight", noting that while the current trend will punish the group's local classifieds business, there was "relative upside at the other end of this tunnel with regional newspapers retaining local (higher priced) advertising".

Daily Mail & General Trust, rated "overweight" at JP Morgan for its "strong B2B (business-to-business) assets" and a "clearer online strategy than its peers", was also weak and lost 1.25p to 413p.

On the upside, Panmure Gordon helped Micro Focus International, which is due to publish an interim management statement today. "Our view is that Micro Focus is very well attuned to the current economic climate... Anticipating that the market and operational commentary should remain positive, we retain our Buy," said the broker, aiding the software group's stock to 268.5p, up 2.75p.

Among smaller companies, Psion lost 3.87 per cent, or 3.5p to 87p after the mobile computing specialist said it had engaged forensic consultants to investigate claims of unpaid purchases and a guarantee of a third party's trading obligations against Psion Japan.