British taxpayers face further pain from their bailing-out of the banks next year, with one analyst predicting that Lloyds Banking Group will post a loss for 2012 as bad debts "head back towards peak levels" and its margins erode.
Michael Helsby of Bank of America Merrill Lynch said he was "now positioning for recession risk in the UK", adding: "Recessions don't just happen; they are created." Given the risk, and there is little room to cut costs further, "we now expect Lloyds to make an adjusted loss in 2012". The shares fell 0.36p to 32.06p.
All the blue-chip banks fell, the eurozone hovered in the background like the spectre at the feast. Badly received economic news out of China also pulled the top tier lower. Standard Chartered, the most Asian-dependent bank, ended the day as the worst performer in the sector, closing down 39p at 1,390p.
China's ravenous demand for metal underpins the performance of the FTSE 100's miners and news the economy had slowed for a third quarter in a row gave them a knock. Worst was Rio Tinto, which gave up 142.5p to close at 3,159.5p as Chinese expansion hit its weakest levels for more than two years. Incidentally, the data showed China growing at an annualised rate of "only" 9 per cent. Rio's tumble also came despite Morgan Stanley picking it as one of the 20 companies which has positioned itself to be competitive in the long term.
The group also announced it had approval to plough a further $1.3bn to accelerate the development of the Simandou iron ore project in Guinea. Xstrata's fall was exacerbated as it issued an update on copper production, which revealed it was down 4 per cent in the third quarter from a year earlier. The shares fell 12.6p to 936.4p.
The FTSE 100 fell in the morning, but strengthened in the afternoon and closed down 26.3 points to 5,410.3. At home rising inflation announced in the morning had weighed on the index, as it rose from 4.5 per cent the previous month to 5.2 per cent. Analysts at Royal Bank of Scotland warned that such levels will "weigh on the purchasing power of the UK consumer".
Top of the risers by some distance was G4S – despite a series of cuts from the broking community – as some of the losses from Monday were recovered. Exane BNP Paribas cut the stock to neutral, as did Panmure Gordon, following the news it was to buy ISS in a deal worth £5.2bn. Mike Allen of Panmure said the transaction "should" prove to enhance earnings per share, but added it brought "a lot of execution risk". He cut his share-price target from 315p to 225p. The shares had dropped more than 22 per cent on the previous session, principally due to the scale of the £2bn rights issue to fund the deal. Yesterday, it closed up 21.6p at 241.5p.
Also driven by news from the previous day, BP was up in the morning after it accepted a $4bn payment from its partner Anadarko Petroleum related to the Gulf of Mexico spill. UBS released a note yesterday saying this marked "an important step towards resolution", adding it reduced net cost and "is credible evidence that BP is not grossly negligent". The shares were weighed down slightly as TNK-BP, its joint venture in Russia, said it may join a shareholder lawsuit against BP, but the stock closed up 5.35p at 430.9p.
On the second line, the top performer in the morning was housebuilder Bellway, which posted strong full-year results. The 51 per cent increase in profits to £67.2m sent the shares 21p higher to close at 698.5p. Panmure maintained its "buy" rating on the stock, but said its conservative management meant buying the stock depended "on investors' views on the strength of the recovery in volumes and margins".
Another stock that had investors shouting "Extra, extra" was that of publisher UBM. The update, which said it would meet full-year expectations bolstered by strong growth in its events business, pushed the shares up 16.6p to close top of the index at 481.8p. Investec backed the stock, reiterating its "buy" rating with a target price of 694p.
In the wider market, drug delivery specialist SkyePharma was in need of a little pep-up after the review of one of its core products looks like it will drag on longer than anticipated. Shares in the group were 4.75p lower at 47.5p as the European Marketing Authorisation Application announced the delay for its review of Flutiform due to lack of consensus from its members. The referral process for the asthma drug means a decision will be made within 60 days of its start.
On the growth market, tiddler Sarantel Group enjoyed a boost after a "major Japanese camera manufacturer" trialled its location technology in its devices. The group makes high-performance antennas for the military as well as consumers, and said its GeoHelix GPS technology allowed reliable performance "in extreme urban conditions". It closed up 0.05p at 0.75p.Reuse content