Traders bank on big hitters to ease jitters

Published on Sunday 9 December 2007 01:05

COMPANIES reporting this week should be greeted by a far less jittery market following the Bank of England's decision to cut interest rates.

Two of the banking industry's biggest hitters, Lloyds TSB and HBOS, will offer further insights into how the sector has been affected by the recent turmoil in the credit markets.

But analysts expect the results to be met with far less anxiety than if interest rates had remained unchanged last week.

It is thought the two banks are the least vulnerable to sub-prime related losses in the sector, and are therefore unlikely to report unpleasant shocks.

One area in which HBOS and Lloyds TSB could feel a slight pinch is from their respective moves into commercial property, which is suffering from a significant slowdown.

Analysts say HBOS is heavily exposed to the sector, while Lloyds TSB has been expanding into commercial property over the past two and a half years.

So far HBOS and Lloyds TSB's strong capital positions have stood them in good stead compared with other UK banks but there are fears that the credit crunch will worsen, despite the interest rate reduction.

Beleaguered music chain HMV said in September it was entering the Christmas trading period in "good operational shape", having overhauled its strategy and store format.

The Waterstone's owner also revealed that, as one of the last few players in the high street music and entertainment market, it was benefiting from a distinct lack of competition.

HMV UK & Ireland saw like-for-like sales rise by an encouraging 9.6% in the 18 weeks to September 1, setting the scene for a promising interim performance. But the market will be looking for trading news on HMV's new store format when it reports on Wednesday. The first new-look store launched in early September.

Its assessment of current trading will be key as a gauge of the festive season to come. Retailers were given an early Christmas leg-up with this month's cut in interest rates, but it is yet to be seen if this is enough to halt the high street spending decline.

Panmure Gordon analysts say the structural problems in HMV's markets - namely competition from the internet and supermarkets - are too great for the firm to address with a quick fix rescue plan.

Also reporting this week is British Gas owner Centrica. Investors are keen to discover whether it intends to increase prices in the new year. Centrica cut tariffs last spring but hopes of further reductions faded when the cost of wholesale gas continued to rise. Any increase in the company's main tariffs would be controversial after British Gas posted half-year profits of 533m in the first six months of 2007.

The profits boost came after losses of 143m in 2006.

Citywatchers will also be keeping an eye on confectionery giant Cadbury Schweppes when it updates the markets on Tuesday. It recently cheered investors when it reported a "particularly strong" third quarter for sales. Analysts say Tuesday's update could show an even better performance.

But plans to close one of the company's factories in Keynsham near Bristol could take the shine off matters.

The company announced in October that it would close the factory by 2010, resulting in a loss of 500 jobs.