UK Stocks Fall; Weak Bank Profits

123jump.com Staff
12 Jan, 2009
New York City

The UK stocks closed lower as prices of metals and crude oil declined. Financial companies in an industry survey reported a sharp decline in income, profitability. Businesses and consumers are still struggling to get loans from lenders. Scottish Court approved Lloyds TSB and HBOS merger.

[R]1:00PM New York, 6:00PM London - U.K. financial companies’ income and profitability fall in December quarter.[/R]

London stocks fell marginally led by energy stocks after crude oil prices slid $2.20 to $38 per barrel as global economic conditions continue to worsen.

Financial stocks pared losses as a Scottish Court approved Lloyds TSB Group’s takeover of HBOS Plc.

In London trading FTSE 100 index fell 0.5% or 22.35 to 4,426.19.

Of the FTSE 100 index stocks, 26 gained, 74 declined, and 2 were unchanged. Lloyds TSB Group led advancers in the index shares with a rise of 7% after a Scottish court gave the nod to the lender’s acquisition of HBOS Plc.

Other financial stocks increased. Barclays jumped 3.1%, HSBC increased 1.6% and Standard Chartered climbed 1.1%.

Financial Companies Income Decline in the Quarter

Confederation of British Industry said the CBI / PWC Financial Services Survey released today indicated that 59% of business respondents said business volumes declined in the three months to early December, while 17% said volumes increased.

The 42% continued a year-long sharp decline and the fall was worse than firms had expected. The 25% expect volumes to fall further over the next quarter.

According to the survey, 55% of firms reported that profitability declined. A net 19% expect profit will fall in the next three months. A net 51% of companies reported a plunge in fee, commission and premium incomes, while a balance of 48% realized falls in net interest, investment and trading incomes.

The rate of fall in business volumes among industrial and commercial companies stood at a record 36%, but it is expected to ease to a decline of 14% in the next quarter.

The CBI notes that a balance of 45% said they are less optimistic about the overall business situation in the financial services sector than they were in September.

In addition, the value of non-performing loans, or bad debt, deteriorated to a record 50%, but is expected to ease to 48% in the next quarter.

Employment in the financial services dropped 23% and 35% expects headcounts to fall in the next three months.

The CBI Deputy Director-General John Cridland said, “Flows of credit to the corporate sector remain constrained, and viable businesses are finding the availability and cost of credit very restrictive. The shortage of trade finance is hitting many industries and businesses. The Government is going to have to take further steps to tackle these critical issues.”

U.K. Stake at 43.4% in Merged Lloyds TSB and HBOS

Dow Jones reported today that U.K. Treasury will get a 43.4% stake in the merged Lloyds TSB Group and HBOS Plc after a meager 0.5% of Lloyds TSB''s open-offer shares were taken up by shareholders.

The HBOS received acceptances from paltry 0.24% of its shares.

The U.K. Treasury will take the remaining 43.4% equity in the entity- Lloyds Banking Group.

Lloyds will purchase HBOS in an all-share deal, offering 0.605 Lloyds TSB shares per HBOS share, valuing HBOS at 55.4 pence a share or a total £2.99 billion.

Gainers & Losers

Lloyds TSB Group led advancers in the FTSE 100 index shares with a rise of 7% followed by increases in HBOS Plc of 5.4%, in Standard Life of 4.6%, in Royal Bank of Scotland of 3.6%, and Aviva Plc of 3.4%.

Eurasian Natural led decliners in the FTSE 100 index shares with a drop of 8.8% followed by losses in Randgold Resources Ltd. of 8.5%, in Antofagasta Plc of 8.1%, in Man Group of 5.6%, and Schroders Plc of 5.3%.

Energy stocks dropped as crude oil prices fell $2.2 to $38 per barrel. Tullow Oil dipped 3.8% and BHP Billiton slipped 3.2%.

Europe Markets Review

In London FTSE 100 Index closed lower 22.35 or 0.50% to 4,426.19, in Paris CAC 40 Index decreased 53.38 or 1.62% to close at 3,246.12 and in Frankfurt DAX index lower 64.27 or 1.34% to close at 4,719.62. In Zurich trading SMI decreased 105.45 or 1.85% to close at 5,591.79.