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Hbos Plunges In Jittery London Market

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HBOS fell as much as 18 per cent in morning trade, dragging UK banks lower and wiping out early gains on the blue-chip index.

The dramatic fall followed a higher opening after better-than-expected results from Goldman Sachs and Lehman Brothers in the US and a 75-basis-point cut in the key Federal Reserve lending rate lifted sentiment.

But talk that HBOS had approached the Bank of England for emergency funding, sent the shares to a low of 398p, before a denial from the bank helped the shares recover some of their losses.

HBOS said the bank was able to access wholesale credit markets “whenever appropriate” and that it remained a diversified business with “an exceptionally strong balance sheet”.

A spokesman for the bank told FT.com the talk was “complete and utter nonsense” and was “totally unfounded and without a shred of substance whatsoever”.

However, shares in the UK’s biggest-listed mortgage lender continued to drag the banking sector lower, falling 8.2 per cent to 441.8p, making it the biggest faller on the FTSE 100.

Other banks were also lower. Barclays fell 1 per cent to 408.3p, RBS lost 4.5 per cent to 311½p and Alliance & Leicester lost 3.4 per cent to 498.3p.

In the broader market the FTSE 100 was 34 points lower at 5,571.5, a loss of 0.6 per cent, having opened 43½ points higher.

There were further questions raised about the outlook for UK interest rates after the release of the minutes from the Bank of England’s latest meeting. The monetary policy committee (MPC) voted 7 to 2 in favour of leaving the cost of borrowing on hold at 5.25 per cent in March, with John Gieve, the deputy govenor responsible for financial stability, joining David Blanchflower in advocating a cut.

But the rest of the committee remained concerned about stubborn inflation, leading some observers to conclude the next rate reduction will follow in May rather than April.

“We suspect that most MPC members would prefer not to cut interest rates again until at least May, given the inflation risks. Nevertheless, there is a very real possibility that the Bank of England could feel that a further 25 basis point cut to 5.00 per cent is warranted in April if liquidity remains very tight and money market rates elevated,” said Howard Archer at Global Insight.

Wednesday’s biggest riser on the index was Icap, up 5.3 per cent at 579p after it said trading in the second half was “very strong” and said full-year profit would beat forecasts. The interdealer broker’s shares were hit hard after the demise of US bank Bear Stearns during the sell off in the financial sector, and the strength of its statement helped much of the wider financial services sector recover.

Man Group, the world’s largest-listed hedge fund, rose 2.9 per cent to 545p and Investec rose 3.1 per cent to 327p. The London Stock Exchange’s shares were 1.5 per cent higher at £12.20.

Companies earning their revenue in dollars rose after the US currency inched higher overnight and the outlook for the US economy brightened with the Fed’s action, even as it fell short of the full percentage point cut some investors had predicted.

Yell Group, which publishes American telephone directories, rose 6.2 per cent to 155½p. Credit checking agency Experian was 3.8 per cent higher at 374p and brewer SABMiller rose 2.6 per cent to £10.51.

A better picture for global economic growth prospects improved the longer term outlook for metals demand, boosting the mining sector. Vedanta Resources rose 2.3 per cent to £21.89 and Xstrata was 1.8 per cent higher at £38.55.

Next, the clothing retailer, fell 1.8 per cent to £11.58 after it warned of tough trading conditions in the year ahead, even as it reported annual profits ahead of forecasts.

“Trading conditions in the year ahead will continue to be difficult as increased costs and rising taxes put pressure on our customers” said John Barton, the company’s chairman.

Lower down the market, EasyJet slumped 15 per cent to 317p after it warned high fuel costs would bring its annual profit under forecasts. Although it stood by existing guidance for the first half, the budget airline said forward prices for aviation fuel, at over $1,000 per tonne, would increase overall fuel costs by 45 per cent.

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Morgan Stanley posted a 42% decline in first-quarter net income as revenue fell 17%, and the bank said it sees challenging market conditions ahead. Full article coming shortly.

courtesty of the Wall Street Journal www.wsj.com

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  • 292 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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