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The Market Report: BarCap a worry as US rivals pave way for 'weak results'

  • @greentoby

It was transformed into one of the world's top investment banks under his control. Yet yesterday Bob Diamond was being urged to undergo a massive overhaul of Barclays Capital amid claims that such a move would be for the good of the company as a whole. With Barclays' preliminary results little more than a fortnight away, poor figures from the investment-banking arms of its American rivals have raised serious concerns over the performance of BarCap.

One of those particularly worried is Tom Rayner of Exane BNP Paribas, who believes "weak ... results" from BarCap will force Mr Diamond – who left his role as head of the unit to become chief executive of Barclays last year – to confront the issues facing the business, which include government-backed proposals for banks to ringfence their retail operations.

Earlier in the month, Royal Bank of Scotland announced a major restructuring of its investment banking operations, prompting the loss of thousands of jobs. Yet Mr Rayner warned that Barclays was unlikely to follow RBS's example, despite predicting that such a move would prompt a major rerating. Warning that the unit is suffering from "reduced cost flexibility", he calculated that an overhaul could result in his raising his present target price of 245p to as high as 330p.

Although the analyst kept his "neutral" advice, Barclays ended up sliding 4.15p to 218.5p as it – along with peers RBS (down 1.09p to 27.05p) and Lloyds (down 0.91p to 31.68p) – paused for breath after a strong recent run from the sector. Financial stocks in general suffered a pullback, as frustration in the Square Mile over the inability of Greece and its creditors to strike a deal began to build.

Among the main blue-chip losers was Hargreaves Lansdown, which was knocked back 15.3p to 431p after RBS cut the investment fund giant's rating to "sell". Warning that the sector as a whole is facing a tightening of regulation, the broker's analysts picked out Rathbones and Aberdeen Asset Management as the two most likely to escape relatively unscathed by the changes, although they still dipped respectively 23p to 1,090p and 2.8p to 238p on the mid-tier index.

With investors moving away from riskier stocks for the day, the FTSE 100 shifted back from its highest level for nearly six months to close 30.66 points worse off at 5,751.9. IG Index's Chris Beauchamp said the pullback was unlikely to be the start of a major fall. He attributed it to a "general feeling of caution, rather than the beginning of a full-blown retreat".

Still, the defensive stocks certainly benefited, with the electricity generator International Power climbing 7.7p to 328p and British Gas-owner Centrica 5.1phigher at 287.5p.

The market's prudence was also hurting the miners, including Xstrata. The Swiss digger was driven back 11p to 1,078.5p despite revived takeover talk, as HSBC said Glencore (8.75p lower at 427.1p) should not be seen as the only potential bidder.

The trading giant has often been linked in speculation with a possible move for Xstrata, but the broker's analysts suggested that a Chinese state-owned group could be attracted. They pointed out that unlike many of its peers Xstrata is not "identified as a national champion" and therefore a deal is "less likely to attract the kind of political heat" seen with previous deals.

The possibility of Invensys becoming a takeover target was yet again in focus after Siemens mentioned that it could be interested in possible bolt-on acquisitions, saying valuations of potential targets were looking more attractive.

Although the German giant has been frequently touted as a potential bidder for Invensys – which has dropped roughly45 per cent since the start of 2011 – the signalling equipment maker was still pegged back 4.7p to 196.1p on the FTSE 250. The market preferred to concentrate on Siemens' fourth-quarter figures missing forecasts, which cast a shadow across the market as a whole.

Although a bid approach usually sends a stock soaring, Colliers International slumped more than 24 per cent after announcing that it has a suitor. The property services group retreated 0.35p to 1.1p on AIM after news that Canada's FirstService Corporation had made an approach at a "discount" to its current share price.

Hopeful punters convinced Bowleven will attract a bidder were dealt a blow after Investec played down the West Africa oil group's bid potential. Cutting their rating to "hold", the broker's analysts said they would rather choose fellow explorers Cove (down 1.5p to 135.75p) or Gulf Keystone (down 2.5p to 277.5p) for exposure to the risk of possible takeover activity.

Elsewhere, RusPetro dropped 0.88p to 127.88p as it started trading. The Russian oil firm became the first float of the year this month, although its IPO was priced at the bottom end of its range.