Stocks in London Drop 5%, HSBC Worries

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

Stocks in London fell sharply after Morgan Stanley estimated a need of as much as $30 billion of additional capital for HSBC. Barclays suggested that it may eliminate additional 2,000 jobs. Stocks of banks and other financial institutions fell after Man Group asset under management declined.

[R]1:00PM New York, 6:00PM London - HSBC might need to raise £20 billion capital, Morgan Stanley says. Man Group funds under management fall to $53 billion in Q3

London stocks plunged markedly led by financial institutions after Morgan Stanley said HSBC may need to raise as much as £20 billion to strengthen capital base. Barclays is also likely to shed 2,000 more jobs.

In London trading FTSE 100 index dropped 5% or 218.51 to 4,180.64.

Of the FTSE 100 index stocks, 4 gained and 98 declined. Royal Bank of Scotland declined on the weakness in financial sector.


Other financial stocks dropped. Standard Chartered dropped 10.7%.

HSBC Might Have to Raise £20 billion in Capital

Reuters News reported today that a research note from Morgan Stanley said HSBC might have to raise £20 billion in capital and halve its dividend in order to hedge the company from shocks caused by the turbulent financial markets.

Morgan Stanley forecasts that the lender’s earnings will drop sharply in 2009 and may not recover till 2011.

HSBC stock was downgraded to “underweight” and its earnings estimate was cut to 90 cents a share from $1.08 per share.

The 2009 earnings estimate was lowered to 55 cents from 90 cents and its 2010 estimate was cut to 50 cents from 73 cents.

“Profits will be hit by falling and flattening yield curves, combined with the cyclical impacts of a global recession and Foreign exchange, and this should impair HSBC''s dollar cash flow,” said Morgan Stanley.

Man Group Asset Under Management Drop

Man Group reported today in its third quarter interim management statement that funds under management in the three months ended December 31 eased to $53.3 billion from $67.6 billion the previous three months on lower leverage and rebalancing of products. The fund manager also had exposure to funds controlled by Madoff.

Private investor funds under management were $32.3 billion and institutional funds under management were $21 billion.

In all, funds under management in the quarter fell by $9.7 billion.

Private investor sales in the December quarter were $2.7 billion, while private investor redemption levels soared in the period to $3.8 billion.

Man Group said the institutional sales environment was subdued, with sales of $400 million and continued redemptions in the quarter resulted in a net outflow of $2.1 billion.

Group chief executive of Man Group Peter Clarke said, “The outlook for institutional sales remains very subdued in the short term and continued institutional redemptions mean that we will see institutional net outflows until markets stabilize and confidence returns.”

Gainers & Losers

Amec led advancers in the FTSE 100 index shares with a rise of 6.4% followed by gains in Amlin Plc. of 4.3%, in Bunzl of 2.1%, and Experian Group of 0.7%.

Royal Bank of Scotland led decliners in the FTSE 100 index shares with a fall of 18.4% followed by losses in First Group Plc of 14.8%, in Barclays Plc of 13.5%, in HBOS Plc of 13.5%, and Pld Mutual of 11.9%.

Commodity stocks fell as crude oil prices dropped $2 to $36.7 per barrel and gold prices dropped $6.8 to $814.9 per ounce. Xstrata fell 11.7%, Rio Tinto plunged 11.3% and Kazakhmys tumbled 10.3%.

Barclays to 2,000 Jobs

Barclays Bank reported today that it plans to eliminate 2,000 jobs in its retail, commercial-banking and credit-card units.

The cut is in addition to the 2,100 jobs that will be cut in investment banking and 400 that will be eliminated in IT.

Europe Markets Review

In London FTSE 100 Index closed lower 218.51 or 4.97% to 4,180.64, in Paris CAC 40 Index decreased 145.89 or 4.56% to close at 3,052.00 and in Frankfurt DAX index lower 214.59 or 4.63% to close at 4,422.35. In Zurich trading SMI decreased 155.52 or 2.81% to close at 5,378.81.