Home Builders, RBS Drag UK Stocks

123jump.com Staff
22 Apr, 2008
New York City

Royal Bank of Scotland announced a plan to raise

[R]1:00PM New York, 5:00PM London - Royal Bank of Scotland plans to raise £12 billion, sell assets and cut costs to pay for expensive acquisitions of the recent past that fail to lift earnings.[/R]

London stock indexes declined despite gains in commodity stocks after the Royal Bank of Scotland announced a £12 billion right issue that is meant to boost the lender’s balance sheet. The rights offering from Royal Bank of Scotland is the largest offering ever.

Homebuilders also slumped after Merrill Lynch downgraded the sector.

Market sentiment

In London trading FTSE 100 fell 0.3% or 18.3 at 6,034.70.

Of the 102 FTSE 100 index stocks 37 gained, 64 declined, and 1 was unchanged. Eurasian Natural led advancers in the index shares with a rise of 8.71% followed by Kazakhmys Plc increasing 3.80% after the price of crude oil rose above $119 a barrel on as dollar declined to a record low against euro.

Other commodity stocks rose as well. BHP Billiton increased 2.01% and Tullow Oil advanced 1.53%.

RBS in £12 billion rights issue

Royal Bank of Scotland announced a rights issue to increase its capital base and implement revised targets for its capital ratios.

The revised targets are for the Group to maintain a Tier 1 capital ratio of between 7.5% and 8.5% and a core Tier 1 capital ratio in excess of 6%.

The lender believes that the right issue of £12 billion, cost savings and asset disposal will help it to achieve Tier 1 capital ratio in excess of 8% and a core Tier 1 capital ratio in excess of 6% at 31 December 2008.

RBS expects more write downs in relation to credit market exposures and gains from disposals of some non-core assets, and the assumed effect on core Tier 1 capital of the estimated write-downs is £4.3 billion net of tax, while disposal gains are projected at £4 billion net of tax.

RBS chairman Tom McKillop, “Central to these has been the question of our capital ratios, which have been the focus of much attention, both internal and external, over recent months.”

£50bn UK offer for mortgage securities

The Financial Times reported today that Governor of the Bank of England Mervyn King said yesterday the housing market will not a see a return to the profligate mortgage lending practices of the past few years.

King added that the plan will “take the liquidity issue off the table in a decisive way”.

Gainers & Losers

Eurasian Natural led advancers in the FTSE 100 index shares with a rise of 8.71% followed by rises in Kazakhmys Plc of 3.80%, in Antofagasta of 3.49%, in Rio Tinto Plc of 2.37%, and Xstrata of 2.17%.

Commodity stocks gained as crude oil rose above $119 per barrel on a sliding dollar.

Persimmon led decliners in the FTSE 100 index shares with a drop of 5.29%, in Home Retail Group of 4.19%, in Carnival Plc 3.97%, in Thomas Group Plc 3.97%, and Shire Plc 3.92%.

Persimmon and other home builders fell after Merrill Lynch cut its 2008 forecast for ``private-sector volumes'''' to a 25% drop from a 15% fall it projected earlier and forecasted no volume growth in 2009 from the previous estimate of a 5% increase.

The brokerage also slashed ratings of Taylor Wimpey, Baratt Developments, Bellway Plc and Redrow.

Financial stocks declined after RBS announced plan for a £12 billion right issue and for now keep its dividend payout ratio at 45% of earnings, however dividend per share will decline dramatically. RBS plans to issue additional 11 shares for every 18 shares.

RBS stock shed 3.89%, HBOS Plc fell 3.70% and Barclays declined 3.66%.