Market Report: Finance shares hit by ECB growth cut

A widespread market sell-off, prompted by a growth forecast cut from the European Central Bank, left the UK's financial stocks at the bottom of the pile yesterday. But the City marked out one notable exception: scribblers at HSBC reckon Michael Spencer's interdealer broker Icap is worth a look.

Icap, alongside peer Tullett Prebon, facilitate big bank trades, but both have suffered amid fears of increased regulation, and their share prices slumped last year, with the former as low as 205p last July. But HSBC's Nitin Arora thinks there is an "improving regulatory picture" which should result in a stabilising of revenues. Mr Arora rates Icap overweight, up from neutral, with a target price of 450p, and its shares banked a 6.2p rise to 368p yesterday.

Mr Arora also rated Tullett overweight with a 365p target price, but it edged back 1.7p to 284.3p.

HSBC's financial whizz argues that the regulatory issues are now "closer to the end" as he thinks the threatened financial transaction tax will be watered down and delayed. Volumes have improved and he thinks the market is "unduly worried". Icap's cost-saving programme will make it better positioned even when rate revenue comes down.

Icap looked in good shape but punters were unsure on other financial shares with Barclays taking the wooden spoon. Investors in the bank were unsettled by news of a £260m sell-off by one of its investors. Sumitomo Mitsui Banking Corporation, which played a part in Barclays' £4.5bn fundraising in 2008, sold around half its holding – it has placed 84.5 million shares at 308.5p through Nomura. The price is 4.2 per cent better than its original purchase price five years ago when it bought 169 million shares at 296p each. Yesterday the shares declined 13p to 303.3p on the news – making it the worst performer on the blue chips.

Sumitomo, which had been Barclays' seventh-biggest shareholder, said the share sale was for the "capital efficiency" of its parent group. The Japanese bank came to Barclays' rescue at the peak of the financial crisis as part of a group of funders including investors from Qatar, Singapore and China.

Across the wider market the FTSE 100 remained unchanged until after lunch when the European Central Bank president, Mario Draghi, outlined a cut in growth forecasts. It finished 83.2 points worse off at 6,336.11.

But the main market mover will come today when the US reveals the non-farm payroll data. William Nicholls, a dealer at the spread-betting group Capital Spreads, said: "The markets are in one of those moods whereby regardless of what the non-farm payroll number is, equities might only go down. A big number might frighten the markets with regard to QE [quantitative easing], and likewise, a worse-than-expected number will just remind investors that we are still very much in the woods in terms of the recovery."

Top of the blue-chip table was the chemical specialist Johnson Matthey. The catalytic converter expert beat analysts' expectations despite reporting a 9 per cent fall in profits. The shares drove up 164p to 2,750p.

Analysts at Liberum Capital reiterated their keenness on the telecoms group BT, raising their target price to 345p, and it dialled up a 7.6p gain to 301.7p.

RSA Insurance was also boosted by an analyst note. This time Morgan Stanley upgraded the insurer to overweight with a 136p price target for shares that added 0.9p to 114.1p.

The advertising giant WPP revealed a tie- up with Twitter. The latter's data will be integrated into WPP's media and analytics products to help with its campaigns.

Back over on the mid-cap index, vague bid chatter about the home emergency repairs business HomeServe continued into a second day. Rumours that private equity may be looking at the insurer helped it up 20p to 265.6p. The group, which is still awaiting the outcome of a mis-selling inquiry, was said to be the target of a potential bid last summer.

Dubious bid rumour of the day was about the water group Pennon. The water utilities sector has been the subject of takeover speculation for months, and news last month that Severn Trent was on the receiving end of one such offer has further encouraged speculation. Pennon was static at 666p.

A profit warning from small-cap telecoms group BATM Advanced Communications was followed by a 4.12p fall to 15.88p.

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