February 1, 2008

FTSE falls as financial worry spreads

London equities fell on Thursday, on renewed worries about potential write-downs in the financial sector.

The FTSE 100 fell 1.3 per cent to 5,760.9 a loss of 78 points. Mid-cap stocks also fell, with the FTSE 250 losing 106 points to 9,801.5, a loss of 1.1 per cent

Standard Chartered lost 3.1 per cent to £16.02 after it announced plans to bail out Whistlejacket, one of its structured investment vehicles exposed to the subprime lending crisis. The bank, which focuses on emerging markets, said Whistlejacket's core assets fell from $18.2bn at the end of August to $7.2bn by January 24.

Wider financial stocks suffered on fresh worries about the dangers posed to the sector by monoline insurers, who guarantee punctual interest and principal payments on bonds.

The risk of widespread failure among monolines, which could lose their triple-A credit ratings due to their own exposure to the subprime crisis, stoked worries about banks which use them to protect their assets.

London's high street lenders were not immune to the worldwide concern. Royal Bank of Scotland fell 4.6 per cent to 367½p, Barclays (NYSE:BCS) lost 5.1 per cent to 453p, HBOS fell 4.4 per cent to 672p and HSBC lost 2.7 per cent to 734p.

Elsewhere, Royal Dutch Shell reported record annual earnings of $27.6bn, up from $25.4bn a year earlier, boosted by strong crude prices throughout the year.

Although its profits became the biggest ever reported by a British company, the Anglo-Dutch refiner did not update investors on the rate at which it was replacing drilled oil with proven reserves of new supplies, an important performance indicator in the sector, limiting the momentum for its shares which rose 0.5 per cent to £17.52.

The strong earnings news from Shell was enough to lift its peer BP, up 0.8 per cent at 528½p.

Elsewhere in the sector Tullow Oil was up 1.5 per cent at 578½p after it agreed to sell its 11 per cent interest in a Congo oil field to Korea National Oil for $435m.

But Cairn Energy bucked the strong trend anong energy group, falling 1.5 per cent to £24.70, after it reported gross operated production for 2007 of 87,031 barrels of oil equivalent per day, down from 105,028 in 2006.

Friends Provident announced plans to sell its F&C and Lombard fund management units as part of the strategic review undertaken after its failed plans to merge with Resolution. It also said 2007 profits would be 41 per cent below the year before. The shares fell 7.1 per cent to 144.2p, the biggest losers on the FTSE 100.

Vodafone beat forecasts with news of a 15.8 per cent rise in third quarter revenue of £9.2bn, but it failed to lift full-year profit guidance. Shares in the mobile phone service provider, one of the most actively traded stocks on the FTSE 100, fell 0.5 per cent to 176p

There was also important newsflow in the mining sector.

Kazakhmys, the eastern European copper specialist, confirmed fourth quarter production met existing guidance. Its shares rose 0.2 per cent to £12.04

Vedanta, which operates principally in India, said a stronger rupee led to a 7.3 per cent fall in third-quarter profit. Its stock fell 0.2 per cent to £18.31.

There was little reaction to news of the Federal Reserve's move to cut its Fed Funds rate by 50 basis points to 3 per cent. Traders had priced the move into the market over previous sessions.

Overnight in New York, a broad rally on Wall Street indices after the rates decision faded in the last hour of trade on those renewed concerns about the bond insurance sector. The S&P 500 closed down 0.5 per cent at 1,355.8, with the Dow Jones Industrial Average 0.3 per cent lower at 12,442.8.

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