Market Report: Investment banking hopes boost Barclays

Hopes of higher investment banking profits underpinned gains in Barclays as the FTSE 100 index turned positive last night.

The shares rallied by 8.85p to 357.45p after Morgan Stanley, raising its target for the stock to 440p, said the group's Barclays Capital arm could beat market hopes, with profits swelling on a lower than guided cost to net income ratio. The group is forecast to post £9.7bn in pre-tax profits in 2011 – and, if BarCap can meet Morgan Stanley's estimates of a ratio of 56 per cent, against guidance of between 65 to 75 per cent, it could end up generating 72 per cent, or £7bn, of the total.

Drawing on a report published with Oliver Wyman, a consultancy, the broker forecast a modest 10 to 15 per cent dip in revenues across the investment banking industry this year from extraordinary gains seen last year. Factoring that in, BarCap's top line income falls only 12 per cent year on year in 2010, and then recovers by 5 per cent in 2011, "leaving Barclays well positioned given its scale and growth ambitions", the broker explained.

In the wider sector, Royal Bank of Scotland was marked up by another 0.55p to 43.28p on the back of reports that it was working on a debt buyback programme. "Investors may see this as [a] mild positive," the Seymour Pierce banking analyst Bruce Packard said, adding: "We are sceptical about revenue expectations, particularly in investment banking, given that the banking sector is currency being subsidised by government intervention."

Further afield, Lloyds Banking Group was marginally lower at 57.5p, down 0.07p, while Standard Chartered rose by 19.5p to 1751p and HSBC managed a gain of 2.5p to 683.5p.

On a more speculative track, Arriva, up 12p at 579.5p, was the focus of bid talk, with early rumours highlighting the possibility of a 700p per share proposal for the transport group. The chatter comes after Arriva ended early stage talks with SNCF, the French state railway group, over a possible equity tie-up with its Keolis unit. Last night's rumours did not identify the suitor, though some pointed to the possibility of interest from a continental rival. Germany's Deutsche Bahn was floated as a potential bidder, but traders remained uncertain.

Overall, the FTSE 100 managed to move back above the 5600-point mark, rising by 26.58 points to 5620.43, while the FTSE 250 added 51.03 points to 9930.04 amid thin volumes. The miners, which proved a drag at the beginning of the week, drove the gains, with traders buying in on recent weakness. As a result, the Eurasian Natural Resources Corporation, which was among the hardest hit on Monday, rose by 33p to 1166p, while Antofagasta was 20p higher at 1021p. Lonmin was also firm, adding 16p to 1981p, while Xstrata rose by 8p to 1165p, Fresnillo gained 6p to 826p and Randgold Resources closed at 5000p, up 122p.

Traders, when not tuned into the Cheltenham Festival, were busy passing around the latest missive from Albert Edwards, the widely followed and famously bearish Société Générale strategist. Pointing to last week's Flow of Funds report from the US Federal Reserve, which "showed that US total credit continued to disappear down the plughole", Mr Edwards set off dealing-room debates by saying that "the current recovery, based in very large part on the end of destocking, simply cannot be sustained while credit is disappearing at this dehydrating rate".

Back with the day's movements, and the buying in the financial and mining sectors left the defensives ripe for the bears, with the likes of the pharma GlaxoSmithKline, down 9p at 1239p, the consumer goods giant Reckitt Benckiser, down 27p at 3504p, and the power generation group International Power, down 1.3p at 327.2p, falling behind. United Utilities, Severn Trent and Drax, the owner and operator of the Drax coal-fired power plant, were also under pressure last night, losing 3p to 554.5p, 4p to 1196p and 3.8p to 377.5p respectively.

Elsewhere, the aeroplane parts supplier Meggitt received a boost from UBS, gaining 8.6p to 297.6p after the broker said that on its estimates, consensus hopes for 2010 to 2012 were around 6 to 7 per cent too low. "As air traffic demand improves, we believe Meggitt will continue to re-rate to historical valuation levels, likely aided by consensus upgrades as [aviation] aftermarket growth improves," UBS said, reiterating its "buy" and revising its target price to 340p, compared to 325p previously. "Over the next five years, we expect Meggitt to grow earnings per share at an average rate of around 10 per cent per annum."

On the downside, HSBC dampened sentiment around JD Wetherspoon, the pubs group, which fell to 519p, down 6.5p, after the broker switched its stance to "underweight" from "neutral" on valuation grounds. Though pleased with the recent news on bank refinancing, which it said provides balance sheet headroom for Wetherspoon to reinstate dividends, the broker said the stock was the most expensive in the pubs sector. Seymour Pierce was also negative on valuation, repeating its "sell" view, albeit with a higher 450p target price. The broker said the "the share price appears to be up with events".

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Sport
footballHe started just four months ago
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Sink the Pink's 2013 New Year's Eve party
musicFour of Britain's top DJs give their verdict on how to party into 2015
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect