Market Report: SocGen advises clients to sell StanChart

Standard Chartered was in focus yesterday after Société Générale advised investors to move out of the stock, arguing that a combination of falling revenues, rising bad loans and high costs weighed on the investment case.

The lender is often singled out for its strength relative to other London-listed banks. But the broker said it may face all three challenges at the same time as slowing growth in its key geographies impact trade finance, and in turn hit volumes and margins in its wholesale banking division, consumer loans turn sour, and costs in the wholesale and consumer banking divisions fail to fall quickly enough.

The last factor may prove to be the bank's Achilles heel, the broker argued, highlighting the fact that in 1999, StanChart's revenues fell by 2 per cent but costs were up 10 per cent – "a significant negative jaw".

"Summarising our investment thesis, our central case assume[s] core revenues falling by 5 per cent, flat costs, and impairments [or bad loans] rising by 93 per cent," Société Générale said, initiating coverage with a "sell" rating. The assessment took the share price to an intra-day low of 761p, down 37.5p. It recovered to 811.5p, up 13p, by the close.

Overall, the FTSE 100 was 18.2 points stronger at 3,712 while the FTSE 250 gained 35.1 points to 6,061.8. Although weak in early trading, investor sentiment improved as Wall Street opened, with both the S&P 500 and the Dow Jones Industrial Average cheered by a better-than-expected US retail sales report, holding firm as London closed.

Aviva was among the weakest of the blue chips, sliding by more than 10 per cent or 22.5p to 191p, after Citigroup reignited the capital-strength fears that first came to the fore around the stock last week. Moving its recommendation to "sell" with a 160p target from "hold" with a 450p target, the broker said it saw the company as one of the "riskier names" in the life insurance sector.

"Given the level of asset leverage, the solvency looks thin," Citi said, arguing that, if the dividend policy (the company last week decided to preserve the payout) is maintained, "the balance sheet will not regenerate from future operating earnings".

"This leaves it in the hands of markets: already equities have fallen materially and real estate values are still dropping. If markets recover, Aviva's solvency should be able to cope. But further market falls would increase the pressure," the broker added.

Traders were more impressed with Standard Life, which was 7.1 per cent or 11.5p stronger at 172.8p after posting full-year results.

Elsewhere, Antofagasta, the Chilean copper miner, fell to 511p, down 4.5 per cent or 24.5p, as copper prices eased. The stock was also hit by a Royal Bank of Scotland report, in which the broker switched its stance to "sell" from "hold".

Weaker copper prices also bore on BHP Billiton, down 1.5 per cent or 21p at 1,309p. Like Antofagasta, BHP too faced a broker downgrade – Goldman Sachs weighed in, moving the stock to "neutral" from "conviction buy".

Yell, the directories group which will move down from the FTSE 250 to the FTSE Small Cap index later this month, was the weakest of the mid-caps, losing 13 per cent or 2.25p to 15p.

Meggitt gained 7.3 per cent or 8.25p to 121.25p after Goldman moved the engineering group's stock to "buy" from "neutral". The broker said: "We believe Meggitt will not breach its covenants and that a capital increase can be avoided. Despite taking a more negative view on civil aerospace earnings, we have raised our estimates to better reflect [foreign exchange movements], new cost reduction measures, and better-than-expected performance in 2008."

In other broker-driven news, the oil services group Petrofac was up 4.2 per cent or 20.7p at 515p after Royal Bank of Scotland and UBS moved the stock to "buy".

RBS said recent contract wins "clearly [showed] projects of strategic importance to countries in North Africa and the Middle East are still going ahead, despite uncertainty in oil and gas markets, and the global economy generally". The broker added: "It also highlights Petrofac's competitive offering in an environment where operators are looking to drive down costs."

Among smaller companies, the housebuilder Taylor Wimpey lost 5.1 per cent or 1p to 18.25p after new data from the Council of Mortgage Lenders confirmed that activity in the housing market remained subdued.

The stock was also said to be subject to profit-taking, as investors cashed out following confirmation of the company's promotion from the FTSE Small Cap to the FTSE 250 index.

Start your day with The Independent, sign up for daily news emails
Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
ebooks
ebooksAn introduction to the ground rules of British democracy
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: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

Gaping hole at the heart of the European Union

Treatment of Greece has shown up a lack of genuine legitimacy
Number of young homeless in Britain 'more than three times the official figures'

'Everything changed when I went to the hostel'

Number of young homeless people in Britain is 'more than three times the official figures'
Compton Cricket Club

Compton Cricket Club

Portraits of LA cricketers from notorious suburb to be displayed in London
London now the global money-laundering centre for the drug trade, says crime expert

Wlecome to London, drug money-laundering centre for the world

'Mexico is its heart and London is its head'
The Buddhist temple minutes from Centre Court that helps a winner keep on winning

The Buddhist temple minutes from Centre Court

It helps a winner keep on winning
Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

Is this the future of flying?

Battery-powered planes made of plastic, and without flight decks
Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

Isis are barbarians

but the Caliphate is an ancient Muslim ideal
The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

Curse of Brink's Mat strikes again

Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

'The ministers talk to us about miracles'

Why Greeks are cynical ahead of the bailout referendum
Call of the wild: How science is learning to decode the way animals communicate

Call of the wild

How science is learning to decode the way animals communicate
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'