The FTSE 100 index briefly gave up the 5,000-point mark on Tuesday under pressure from UK banks but recouped some losses to creep back above the psychological level by close of play.
UK blue-chips had shed 67.3 points by the time the market closed, down 1.3% at 5,037.2, while the FTSE 250 index dropped 161.2 points or 1.8% to 8,756.7.
The latest Nationwide house price data, which this morning revealed that property prices rose by a notably-higher-than-expected 1.2% in October, offered little respite from the market doldrums as investors focused on news that Royal Bank of Scotland will become close to being fully state-owned following a second government bail out.
Lloyds Banking Group, however, will avoid participation in the Government Asset Protection Scheme (GAPS) if moves to raise funds via money managers are approved by shareholders. As such, shares in Lloyds topped the blue-chip leaderboard with a gain of 2.7% while RBS shares plunged 7.0%.
Lloyds plans to raise £13.5 billion through a fully underwritten rights issue, which will see the government taking up shares equivalent to its current 43.5% holding. However, the reduced degree of government aid will limit the scale of any potential forced disposals required by Lloyds, commented Richard Buxton, head of UK equities at Schroders.
Buxton added that: “Clearly any judgment about the future path of bank profitability is subject to many uncertainties at present and we are cognisant that many caveats regarding the economic outlook and the regulatory environment must accompany any investment view. However, against our current reasonably cautious outlook, we do believe this is a positive move by Lloyds and represents an attractive opportunity to increase exposure to the shares.”
The UK Treasury will inject an additional £25.5 billion into RBS, bringing the total value of the government bailout to £45.5 billion. “Inevitably, given the scale of Royal Bank’s difficulties its path to recovery is harder and higher risk than Lloyds,” Buxton said earlier today, “but it is clear from both announcements that the healing process is underway, which underpins our longer-term confidence in the banks.”
Having kicked off November in fine fettle yesterday, stock markets were weak around the globe on Tuesday, with a number of financials feeling the pressure. HSBC and Barclays lost 3.3% and 2.0%, respectively, while insurers Prudential and Aviva shed 2.5%-2.7%, and interdealer broker ICAP lost 3.9%.
Index heavyweight Vodafone added to the pressure with a 1.5% slide of its own following news UK prosecutors are exploring allegations of possible fraud connected to the mobile phone giant’s acquisition of a 70% stake in Ghana Telecommunications last year.
Of the handful of UK equities that managed to make headway, retailers were a firm feature, with Next, Sainsbury, Kingfisher, Tesco, Marks & Spencer and Morrison each taking on between 0.1% and 0.7%. M&S will report its interim results tomorrow.
Among those reporting numbers today was Associated British Foods, which slipped 1.5% despite beating market expectations and offering an upbeat outlook. Read the market’s take on the food manufacturer and clothing retailer’s numbers.
Over in the US, better-than-forecast US factory orders and Warren Buffett’s “all-in wager on the economic future of the United States” failed to lift trading on Wall Street.
