Market update - 9 March

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The Independent Online

The FTSE 100 was 1.6 per cent or 56 points behind at 3474.7 while the FTSE 250 fell to 5748.2, down 83.3 points, at around 11.59am.

Financial stocks were the worst performers this morning, with Barclays losing 12per cent or 7.8p to 57p and Royal Bank of Scotland easing by 8.5 per cent or 1.7p to 18.1p as investors digested the details of Lloyds Banking Group’s participation in the Government’s asset protection scheme (GAPS). The deal, agreed over the weekend, may see the taxpayer take a stake of up to 77 per cent in the bank, which was formed after the merger of the troubled HBOS and more conservative and robust Lloyds TSB.

Deutsche Bank, which weighed in on the announcement in a note to clients this morning, said that although the deal would materially improve the group’s capital ratios in the short term, “weak profits and [a] sliding capital base [was] likely to keep investors apathetic”.



Bernstein highlighted similar issues, saying that although the risk reduction was “fairly extensive, and makes it tough to see Lloyds requiring any further government help,” the further dilution of equity investors was a clear downside.



“The deal includes the conversion of the £4bn of government preferred debt, and the payment of a £15.6bn fee for the GAPS in ‘B’ shares, convertible into common equity at 115p. The combined impact takes the pro forma end 2008 tangible book value down from 179p to 83p, assuming ‘B’ share conversion and ignoring the value of the GAPS fee,” the broker said,

“The government ownership rises from 43 per cent to as high as 77 per cent, unless private shareholders take up the £4bn of equity.”



Moving up



Aviva, the life insurance group which endured a sharp sell off amid concerns about the strength of its capital base last week, made a partial recovery, gaining 4.3 per cent or 7.1p to 170.8p. The move up came despite news from Moody’s, the ratings agency which this morning put the company’s ratings on review for a possible downgrade.



Bovis Homes raced ahead, gaining 5 per cent or 19p to 397p after the house builder’s full year results came in line with market expectations.



Moving down



London Stock Exchange, 6.9 per cent or 28p down at 376.25p, was unsettled after Nomura switched its stance on the stock, which is expected to be demoted to the FTSE 250 in the upcoming index review, to “neutral” from “buy” , saying:



“Year to date (YTD), LSE shares have outperformed Deutsche Boerse (DB1) shares and the DJ Global Exchanges index. LSE shares are down 22 per cent YTD, compared with DB1 down 37 per cent and DJ Global Exchanges index down 25 per cent. Our relative valuation call of going long LSE and short DB1 shares has performed well. Based on our current estimates, however, DB1 now offers more upside potential than LSE (47 per cent compared to 40 per cent) and is trading only at a slight premium to LSE… which we think is too low given DB1’s more diversified business mix.”

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