Monday July 21, 09:29 AM
London shares down early on; banks weigh on HBOS stock overhang concerns UPDATE
(Updates with full report)
LONDON (Thomson Financial) - Leading shares opened in negative territory Monday, weighed down by banks on concerns over HBOS (LSE: HBOS.L - news) 's stock overhang and following on from a mixed performance on Wall Street on Friday.
At 8:59 a.m., the FTSE 100 index was 35.7 points weaker at 5,340.7, having closed up 90.1 points at 5,376.4 on Friday. The FTSE 250 index fell back 36.4 points at 8,928.3.
Wall Street ended Friday's session mixed after disappointing high-tech earnings punctured some of investors' enthusiasm over better-than-expected bank earnings reports.
The market was clearly pleased when Citigroup (ASFZ.PK - news) beat analysts' forecasts and reported a lower-than-expected second-quarter loss, but sentiment around the tech sector took a hit, following worse-than-expected results from Google (NASDAQ: GOOG - news) , Microsoft (NASDAQ: MSFT - news) and Advanced Micro Devices (NYSE: AMD - news) .
The Dow Jones Industrial Average closed up 49.9 points at 11,496.6 and the S&P 500 index added 0.36 to 1,260.68, but the Nasdaq Composite (NASDAQ: news) fell back 29.52 at 2,282.78.
In Asia, Hong Kong shares rallied at the midday close as investors snapped up local developers on reports that the city may face a shortage in flats in the next two years, boosting prices of real estate.
HSBC Holdings (LSE: HSBA.L - news) and other lenders were also among the top gainers on reports that China's sovereign fund, China Investment Corp. (CIC (Paris: FR0005025004 - news) ), may buy shares of the British lender.
Hong Kong's Hang Seng (news) ended the morning up 680.17 points at 22,554.36. The Tokyo Stock Exchange was closed Monday for a public holiday.
In London, the banking sector dragged the FTSE 100 lower, led by HBOS, down 11-1/2 pence at 270-1/2, after the mortgage bank said shareholders subscribed to buy just 8.3 percent of shares in its 4 billion pound rights issue, leaving its underwriters to try to sell almost 3.8 billion pounds of shares.
HBOS, seeking to repair its balance sheet from the capital raising, said earlier in the morning that shareholders subscribed to buy 124 million shares in the rights issue, leaving underwriters Morgan Stanley (SPU - news) and Dresdner Kleinwort with 1.375 billion shares.
Fellow banks also suffered, with Barclays (LSE: BARC.L - news) down 4-3/4 pence at 315-1/2 and Lloyds TSB 3 lower at 328.
HSBC bucked the trend, however, taking on 7 at 801, following the Sunday Telegraph's report that the bank has held talks with China Investment Corp several times over the past few months about a possible investment in the bank.
The retail sector was also under the cosh, with Next sliding 29 at 1,003, Tesco (LSE: TSCO.L - news) 8.3 lower at 367.5, Kingfisher (LSE: KGF.L - news) down 4.2 at 105.4 and mid-cap peer Debenhams (LSE: DEB.L - news) 1-1/2 weaker at 40-1/2, following a news report that high street retailers are trying to change their rental arrangements with landlords in a bid to save cash during the economic downturn.
The retailers, believed to be led by Next Chief Executive Simon Wolfson and Carpetright (LSE: CPR.L - news) 's Lord Harris, are campaigning for an end to the industry practice of paying quarterly rent in advance in favour of making monthly payments, the Daily Mail (LSE: DMGT.L - news) reported.
Meanwhile, fuel consumers British Airways (LSE: BAY.L - news) lost 5-1/4 at 236-3/4 and Carnival (NYSE: CCL - news) fell 50 to 1,695, as oil prices headed northwards again.
Index losses were minimised, however, by a strong performing mining sector, extending gains in Australian deals as base metals prices moved higher.
BHP Billiton (LSE: BLT.L - news) added 42 at 1,642, while BHP's takeover target, Rio Tinto (LSE: RIO.L - news) ticked up 96 at 5,166, and Kazakhmys (LSE: KAZ.L - news) gained 36 at 1,388.
Among broker-driven movements, Severn Trent (LSE: SVT.L - news) was 10 higher at 1,313 after Citigroup upgraded its recommendation to 'buy' from 'hold' and lifted its target price to 1,545 pence from 1,485 on valuation grounds.
BT Group (LSE: BT-A.L - news) was up 0-1/2 at 204 after RBS (LSE: RBS.L - news) upgraded the telco to 'buy' from 'hold' -- also on valuation grounds -- but cut the price target to 280 pence from 310, offering 40 percent upside potential.
On the second line, Hikma Pharmaceuticals (LSE: HIK.L - news) plummeted more than 22 percent, down 113-3/4 pence at 398-3/4 after the Jordan-based generics company said its U.S. business, already hit by margin erosion, is likely to make a first-half operating loss of $6 million.
The group blamed the loss on the economic downturn and $5 million in one-off costs related to chargebacks, returns and rebates.
Inmarsat (LSE: ISAT.L - news) was another poor performer, losing almost 9 percent, or 43-3/4 pence, at 468-3/4, as the mobile satellite communications group said talks with Harbinger Capital Partners about a possible takeover offer have ended, although it said it is open to any future proposals from the private equity group.
'Harbinger has neither made an offer for the company, nor indicated a potential offer price, and the board of Inmarsat has therefore concluded that there is no merit in continuing discussions at this time,' Inmarsat said in a statement.
Aberdeen Asset Management (LSE: ADNP.L - news) slipped 2-1/4 pence lower at 140 as investors secured profits following Friday's share price rally, which prompted Altium Securities on Monday to reduce its recommendation to 'sell' from 'hold'.
The broker noted the company's share price rose 17 percent on Friday following the interim management statement and said it believes the increase to be excessive.
Among the mid-cap risers, Detica surged 26 percent, jumping 80 pence to 383, following its confirmation after the close Friday that it has received a preliminary approach, which may or may not lead to an offer being made for the company.
News reports over the weekend speculated that BAE Systems (LSE: AP16.L - news) could be the potential bidder as the defense group is on the lookout for acquisitions.
Autonomy rose 41 to 1,049 as investors cheered record quarterly and half-year results driven by strong organic growth, significantly ahead of analyst consensus estimates.
The infrastructure software company reported second-quarter revenues up 72 percent to $126 million, while adjusted pretax profit was up more than 80 percent to $50.8 million. Autonomy said its pipeline was strong, leading it to be 'comfortable with a positive upgrade with respect to the outlook' for the second half.
Domino's Pizza was up 1-1/4 at 198, after announcing it is well-placed to exceed market expectations for the year, following a 33 percent year-on-year rise in first-half profits to 10.9 million pounds.
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