Banks take a hit on 'sell' note

BRITAIN'S banks may have beaten City expectations when they reported 2009 results this month, but not all analysts have bought into the improved sentiment.

Seymour Pierce yesterday predicted that the sector would deliver more revenue disappointment before rebuilding profitability, claiming forecasts for income growth were far too optimistic.

Slapping "sell" ratings on Royal Bank of Scotland, Barclays and Lloyds, analysts at the brokerage said its expectations were about 10 per cent below consensus revenue expectations for 2012 for the sector. It based its assumptions on the experience of the economic recovery of the mid-1990s.

"Although margins peaked four to six years after bad debts peaked in the mid-90s, this will be a hard trick to repeat in this recovery, and we are currently seeing 'peak margins' now," the note said. Meanwhile, there were also jitters because of uncertainty over banking reforms in the US, where president Barack Obama is attempting to cut down on risk taking.

James Hughes at CMC Markets: "It still remains unclear whether the banking bill will gain support in the senate and this uncertainty is dragging the banking sector lower."

Lloyds Banking Group, which is part-owned by the tax-payer, dropped 1.5 per cent to 57.57p, Barclays fell 3.25p to 348.6p and HSBC dipped 3p to 681p. Royal Bank of Scotland bucked the trend, closing up 0.16p at 42.73p.

The wider FTSE 100 headed south, with mining companies accounting for much of the fall.

There is growing expectation the Chinese government will raise interest rates to counter spiralling lending, which could curb construction and metal prices.

The FTSE 100 fallers' board was dominated by miners, with Eurasian Natural Resources down 40p at 1,133p, Antofagasta down 32p at 1,001p and Fresnillo down 26p at 820p.

Plumbing company Wolseley was also sold heavily, shedding 56p to 1,620p.

British Airways was broadly unmoved by comments from Transport Secretary Lord Adonis that an upcoming strike by cabin crew staff threatened the company's existence.

The City appears to be backing chief executive Willie Walsh to win the battle, with shares in BA dropping just 0.2p to 235.4p.

BSkyB slipped 14p to 584p on fading speculation that Rupert Murdoch's NewsCorp is planning to take the satellite broadcaster private. The media group already owns about 40 per cent of BSkyB. It was also hit after Evolution Securities cut its rating on the stock to "reduce" from "neutral" on valuation grounds.

Oil and gas companies were also down as crude slipped beneath $80 per barrel. BP fell 0.6p to 619.3p, while peer Royal Dutch Shell, which gives an update on strategy today slipped 11p to 1,830p. Cairn Energy, Scotland's largest oil company, dipped 5.1p to 373.3p.

Centrica was the biggest gainer in the top flight after analysts at Nomura raised the rating on the British Gas parent, pushing shares 4.7p higher at 294.7p.

BT gained 1.1 per cent as Citigroup raised its rating for the telecoms firm to "buy" from "hold" with an increased target price of 150p, up from 145p, citing valuation grounds. Shares closed up 1.4p at 124.7p.

Pharmaceuticals were also higher as investors looked for defensive targets. Shire was the biggest gainer in the sector, closing up 17p at 1,466p.

Outside the top flight, shares in French Connection surged more than 9 per cent, or 4.75p, to 46.75p, after it sold its Nicole Farhi brand and refused to rule out a return to private ownership.