UK Home Prices Up; AIG, Prudential Deal

Arthi Gupta
30 Sep, 2010
New York City

The UK indexes traded lower after home prices rose and consumer confidence slumped in September. Ireland raised Anglo Irish bailout estimate. AIG agreed to sell Japan-based life insurance subsidiaries to Prudential Financial for $4.8 billion.

[R]4:15 PM London – The UK indexes traded lower after home prices rose and consumer confidence slumped in September. Ireland raised Anglo Irish bailout estimate. AIG agreed to sell Japan-based life insurance subsidiaries to Prudential Financial for $4.8 billion.[/R]

In London trading, FTSE 100 Index gained 51.51 or 0.92% to 5,620.71 and the pound edged lower to close at $1.5764. In September the benchmark index increased 8% and gained 3.9% for the year.

The Bank of England said in its third quarter credit conditions survey released today that British banks lending to corporate sector will remain stable at current levels in the next three months, while credit availability to small businesses is likely to increase further.

During the third quarter, credit supply to corporate sector increased slightly over the previous quarter and there was a larger increase in credit made available to small businesses during the period.

In another related news, the Bank of England policy maker Paul Fisher said in a speech in London that lending capacity of the banking system in the UK and elsewhere remained impaired and it will take some years to recover. Further, he added bank lending to businesses is likely to be more expensive than the pre-crisis period.

The Irish central bank raised its estimate of the total costs of bailing out troubled lender Anglo Irish Bank to €34 billion under a worst-case scenario. Furthermore, Allied Irish Bank will need up to €3 billion before the end of the year on top of the funding it has already received from the government, the central bank said.

The government said the total bailout bill would push up Ireland''s budget deficit to 32% of GDP this year, over ten times higher than European Union limits.

The UK home prices rose slightly in September after easing for two consecutive months. According to data released from the Nationwide Building Society today, on a monthly comparison, home prices increased 0.1% in September, following a 0.8% drop in August. Home price annual inflation in September was 3.1% compared to 3.9% in August.

Consumer sentiment in the UK weakened more than expected in September after a rebound in August, according to survey results released by GfK NOP.

The GfK NOP Consumer Confidence Index shed two points to minus 20, the market research group said. The reading is four points lower than the same month last year. In August, the index improved to minus 18 from minus 22 in July.

The index for general economic situation over the last 12 months eased to minus 46 from minus 43, while the gauge for the situation in next 12 months slipped to minus 19 from minus 14.

The GfK NOP survey was conducted amongst a sample of 2001 individuals aged 16 plus on behalf of the European Commission. The latest survey was carried out between September 3 and 12.

American International Group, Inc. announced an agreement to sell its Japan-based life insurance subsidiaries, AIG Star Life Insurance Co., Ltd. and AIG Edison Life Insurance Co. to Prudential Financial, Inc. for a total purchase price of $4.8 billion, comprising $4.2 billion in cash and $0.6 billion in the assumption of third-party debt.

AIG said it will retain and continue to grow its general insurance business in Japan. The company also said that the sale of AIG Star and AIG Edison represents another step in its program to repay U.S. taxpayers and a key milestone in achieving a complete exit of government support over time.

As a result of the sales agreement, AIG expects to take a non-cash pre-tax goodwill impairment charge of about $1.2 billion in the third quarter.

Nedbank Group Limited, the majority owned South African banking unit of Old Mutual plc, released a renewal of cautionary announcement wherein Nedbank shareholders were informed that Old Mutual plc had advised the board of Nedbank Group that it had received a proposal from HSBC Holdings plc to purchase a controlling interest. Nedbank advised its shareholders that the process leading up to a potential HSBC offer is ongoing.

DQ Entertainment PLC announced its licensing and merchandising agreements with Osem Investments Ltd, an Israeli subsidiary of Nestlé S.A., and Burger Ranch franchise introduced by D&C Israel for ''The Jungle Book'' in Israel.

The agreement with Nestle will see Jungle Book branded merchandise and packaging appear across a variety of Nestle branded products.

Gainers & Losers

Compass Group plc dropped 2.18% to 539.50 pence after the provider of contract foodservice and support services estimates double-digit growth for full-year underlying earnings per share, on a currency-neutral basis, while organic revenue growth is expected to be towards 3%.

The company said its organic revenue growth improved from 0.4% in the first-half of the year and is expected to be over 5% in the second-half.

ICAP plc fell 1.80% to 429.90 pence after the inter-dealer broker in its pre-close trading update for the first-half said its earnings growth was reduced due to higher interest costs from the refinancing of ICAP''s debt facilities. However, it expects revenue for the period to increase about 9%.

The company further stated that current analyst profit forecasts for the year to March 2011, which range from £333 million to £357 million, appear ''reasonable'' assuming steady exchange rates.

James Halstead plc surged 7.85% to 701.00 pence after the floor coverings maker and distributor said fiscal year 2010 revenue advanced 10.1% to £186.42 million from £169.26 million last year. Profit for the period increased 3.3% to £25.68 million or 49.6 pence per share from £24.85 million or 48.2 pence per share last year.

Proteome Sciences plc slumped 6.87% to 30.50 pence after the biomarker research and development said first-half revenue increased 133.3% to £0.21 million from £0.09 million last year. Loss for the period narrowed 9.6% to £2.16 million or 1.60 pence per share from £2.39 million or 1.80 pence per share last year.

Rolls-Royce Group plc gained 0.41% to 614.50 pence after the engines maker said that its Chief Executive John Rose will retire at the end of March 2011 and appointed John Rishton . Rishton is currently the Chief Executive of Dutch retail group Royal Ahold.

Scotty Group PLC fell 8.39% to 14.20 pence after the investment holding company said first-half revenue decreased 38.6% to £1.70 million from £2.77 million last year. Loss for the period was £0.55 million or 2.74 pence per share compared to profit of £0.38 million or earnings per share of 1.88 pence a year ago.

St. Modwen Properties Plc advanced 2.41% to 170.00 pence after the regeneration specialist made positive comments. However, the company said that the outlook for commercial property remains uncertain.

In the year to date, St. Modwen Properties completed more than 200 new lettings and renewals of almost a million sq ft of space. The company completed the sale of 29 acres of residential land for a total consideration of £40.5 million.

Tate & Lyle PLC declined 1.21% to 465.80 pence after the sweetener and starches maker issued a trading update for the first-half stating that the performance for the period was encouraging. In the Specialty Food Ingredients business growth in specialty sweeteners, and starches remained “steady” during the period. Sucralose volume growth was robust even though average selling prices were lower.

Within the Bulk Ingredients business, corn sweetener volumes benefited from continuing demand for HFCS (high-fructose corn syrup) in Mexico, and good demand over the summer in both the U.S. and Europe.

Tricor PLC plummeted 6.83% to 0.191 pence after the company engaged in the export and import of mobile phones said fiscal year 2010 revenues rose 19% to £848,000 from £713,000 in the previous year. Loss in the period narrowed 55% to £484,000 or 0.04 pence per share, compared to a loss of £1.08 million or 0.17 pence per share last year.

Vyke Communications plc plunged 38% to 1.39 pence after the mobile Voice-over-IP services provider reported first-half net revenue, excluding certain distributor commissions, fell 54.2% to £3.325 million from £7.271 million last year. Loss for the period narrowed 24.3% to £3.038 million or 3.2 pence per-share from £4.016 million or 6.9 pence per-share last year.