UK/Euro Financial Market Daily Evening Briefing 11-02-2008

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London shares closer lower on weaker NY; insurers, banks under pressure

Leading shares closed near lows as Wall Street remained weaker on news of credit default troubles at US insurer American International Group Inc, which exacerbated falls in the UK insurance and banking sectors.
   
At close, the FTSE 100 index was 76.3 points weaker at 5,707.7, off a high of 5,789.6 and a low of 5,681.5, while the FTSE 250 slipped 72.1 points lower to 9,735.4. Volume was light, however, with only 1.98 bln shares changing hands in 602,787 deals.
   
"We are in a full-blown equity bear market; there is going to be a lot more down days than there are up days," said Jim Wood-Smith, head of research at Williams de Broe. "People are also going to be nervous as it is a busy week for earnings and corporate updates with numerous companies already reporting that margins are being squeezed," added Wood-Smith.
   
Over in the US, Wall Street continued to retreat, extending its steep slide from last week as AIG unveiled a sharp increase in the estimated decline in value of its super senior credit default swap portfolios.
   
AIG, one of the 30 Dow Jones industrials, said in a regulatory filing it would need to alter the way it values credit default swaps involving collateralized debt obligations.
   
At London's close, the Dow Jones industrial average was down 44.9 to 12,137.3. Separately, the Standard & Poor's 500 index fell 1.4 to 1,329.89, while the Nasdaq composite index rose 0.31 to 2,305.16.
   
Returning to London, insurers were under pressure following the news about AIG. Resolution fell back 44 at 672, Old Mutual was off 6.9 at 116.5, Prudential was 23 weaker at 583, Aviva was down 28-1/2 at 551 and Standard Life lost 7-1/2 at 198.
   
However, Friends Provident bucked the trend and gained 0.7 at 131.9 amid returning bid hopes after the Sunday Times reported that JC Flowers sent a letter to the insurer's board last week in an attempt to open discussions, but Friends' board rejected it on the grounds that it was too vague. The insurer declined to comment on the report yesterday.

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In other financials, banks were under the weather as investors await with trepidation several final results reports over the next few weeks. HSBC also added to the cautious sentiment by today cutting a number of price targets in the sector.
   
Alliance & Leicester, which reports on Wednesday next week, was off 27 at 580, Barclays, which reports on Tuesday of next week, was 12-3/4 lower at 429-1/4; Lloyds TSB, which reports on Friday of next week, was 12-3/4 lower at 429-1/4; and HSBC itself was 24-1/2 lower at 712-1/2.
   
Not all was doom and gloom, however, as pharmaceuticals giant GlaxoSmithKline rose 14 pence to 1,084 pence, regaining some of last week's lost ground when it warned on the outlook for 2008. This morning, UBS upgraded the shares to 'buy' from 'neutral' on valuation grounds, with a price target of 1,350 pence.
   
But the main upward force on the index was the commodity sector as metals prices remained firmer although off the day's highs at close.
   
Kazakhmys was up 10 pence to 1,257, while Antofagasta added 4-1/2 at 727 and Lonmin rose 6 at 3,106.
   
Oil heavyweight BP gained 0-1/2 at 547-1/2 after oil prices rose sharply on Friday on news that supply outages could cut exports from Nigeria by as much as 1 mln barrels a day, and amid fears of reduced production in the North Sea.
   
Among broker changes, Diageo added 7 at 1,028, helped by Citigroup lifting its price target to 1,085 from 1,040 ahead of Thursday's first-half results. The broker maintained its 'hold' rating on the shares.
   
Supermarkets were also in the spotlight after a report in the Financial Times this morning that Morrison Supermarkets is taking legal action against the Office of Fair Trading over the competition watchdog's decision to name the grocer in its investigation into an alleged milk cartel.
  
Morrison shares were 4 ahead at 291-1/2 by midday.

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On the second tier, Hargreaves Lansdown was down 9-3/4 at 158 as Investec reiterated its 'sell' stance and target of 170 pence ahead of the company's interim results, due tomorrow.
   
On the upside, FKI led the mid-cap risers, 5-3/4 ahead at 70-3/4, after The Independent reported US private equity firm Blackstone Group is considering a new bid for FKI of between 90-95 pence a share.
   
Meanwhile, Kier Group was up 15 at 1,228 after the group said it has sold its 50 pct private finance initiative investment in Hairmyres Hospital in East Kilbride to its partner in the project, Innisfree M&G PPP Fund, for 13.8 mln stg cash.
   
And finally Eaga was up 11-1/4 pence to 177-3/4, after announcing it has been selected as the preferred supplier for the BBC's digital switchover help scheme, subject to contract.
   
KBC Peel Hunt said in response that the contract win is significant as confirmation of a broadening of Eaga's scope of work. The broker upped its earnings estimates and raised the price target to 180 pence from 172 while keeping its 'hold' recommendation.

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Paris shares close down on US losses; Socgen down on capital hike terms
 
The CAC-40 index finished down 26.95 points or 0.57 pct at 4,682.70. Among CAC-40 stocks, 11 closed higher and 29 closed lower.  On the broader indices, the SBF-80 index closed down 57.54 points or 1.07 pct at 5,334.28, and the the SBF-120 ended down 21.73 points or 0.64 pct at 3,389.82.
   
Societe Generale suffered the day's worst losses, ending 3.13 or 4.03 pct lower at 74.59. The stock pared some of its losses after an initial fall of as much as 5 pct, following the release of details of its 5.5 bln eur capital increase plan, which is priced below market expectations.
   
Natixis analysts said the market had been expecting a price of around 60 eur per share, while their Deutsche Bank counterparts argued gloomily that "the psychological signal is not positive."
   
The bank later specified that the theoretical price for the offer is 71 eur, since each new share worth 47.50 requires 4 preferential subscription rights, which will be free to shareholders but have an initial market value of 5.90 eur each.
   
Other marketwatchers were more positive about the offer price. The Paris dealer said SocGen had set a price "that can attract (new) buyers," in addition to existing shareholders, while CM-CIC Securities underlined that the discount provides goods terms for existing shareholders, especially staff, who control 12 pct of voting rights.
   
Other financial stocks were down, with Dexia ending the session 0.19 or 1.25 pct lower at 15.04, Credit Agricole closing 0.22 or 1.21 pct lower at 17.98 and BNP Paribas down 0.60 or 1.02 pct at 58.48.
   
Elsewhere, Alcatel-Lucent finished the session 0.07 or 1.69 pct lower at 4.07. The shares had ended almost flat in Paris on Friday as investors wondered whether to focus on its hefty fourth-quarter loss, cancelled 2007 dividend, and downbeat comments on 2008, or concentrate instead on strong quarterly growth in revenues. But a 4 pct drop in Friday trading in the US and negative broker comments helped push down the stock this morning.
      
Bouygues closed down 1.24 or 2.63 pct at 45.95, the biggest faller after SocGen, and Vinci was close behind, falling 1.08 or 2.42 pct to 43.51 amid ongoing concerns about the construction sector. Analysts will be looking closely at construction trends when Bouygues reports full-year sales on Wednesday evening.
   
Elsewhere in the sector, electrical products makers Schneider Electric and Legrand both gave up ground after UBS cut its recommendations on the pair to 'sell' from 'neutral' to reflect its growing concerns about the prospects for the construction and general industrial markets in 2008. Schneider was down 1.60 or 2.25 pct at 69.64 while off the CAC-40 Legrand was 1.10 or 5.65 pct lower at 18.38.
   
Ingenico meanwhile slumped to end the session 2.02 or 11.09 pct lower at 16.20 after it made a bid for US peer Hypercom, with analysts arguing that the deal makes strategic sense but could be difficult to execute. Natixis said a deal would give Ingenico 39.1 pct market share compared to Verifone's 30.6 pct, but agreed that integrating two companies at the same could be risky and said Ingenico will have to take on debt to finance the deal -- adding risk to its profile.       

On the upside, CAC-40 gainers included Alstom, which ended 2.06 or 1.53 pct higher at 136.30, supported by a reiterated 'buy' recommendation from UBS in its review of the construction and general industrial markets. Renault rose 0.85 or 1.26 pct to 68.16.
   
Defensive stocks also fared well, with Danone climbing 0.39 or 0.74 pct to end at 53.12.

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German shares close lower, tracking lower opening on Wall Street

The DAX closed 23.74 points or 0.35 pct lower at 6,743.54 after trading between a low of 6,690.77 and a high of 6,812.21 today. The MDAX was down 85.99 points or 0.99 pct to 8,560.17, while the TecDAX dropped 1.77 points or 0.23 pct to 765.86. DAX futures lost 26.00 points or 0.38 pct to 6,765.00, while bund futures declined 0.11 points or 0.09 pct to 117.31.
  
Leading blue chips lower, Commerzbank decreased 0.78 eur or 3.93 pct to 19.07, as traders said the stock was under pressure due to losses its US peers posted on Wall Street on Friday and as investors prepared for full-year numbers scheduled for release Thursday, which some are speculating will be disappointing.
   
Allianz was down 2.52 eur or 2.18 pct at 113.18 along with other European insurance groups, after US peer American International Group unveiled a sharp increase in the estimated decline in value of its super senior credit default swap portfolios.
   
Earlier, AIG said the gross cumulative decline in valuation during 2007 as of Nov 30 was 5.96 bln usd. Metro declined 1.05 eur or 1.92 pct to 53.75, while Munich Re dropped 2.03 eur or 1.78 pct to 111.85. Auto shares were also under pressure, with Continental AG losing 0.98 eur or 1.51 pct to 64.11, while Daimler fell 0.76 eur or 1.49 pct to 50.28.
   
On the upside, Infineon led large caps higher, adding 0.12 eur or 2.14 pct to 5.72. Dealers credited a technical-trade inspired rebound for the gains.
   
Deutsche Boerse gained 2.11 eur or 1.85 pct to 116.17, with traders pointing to a rebound from earlier losses and recent market turbulence which will help revenues at the German stock market operator.
   
In addition, the company reiterated its plans to move staff from its location in Frankfurt-Hausen to the neighbouring town of Eschborn, thereby rejecting new attempts by the city of Frankfurt to persuade the company's management not to carry out the plan.
   
Deutsche Postbank rose 0.59 eur or 1.00 pct to 59.62. The Tagesspiegel newspaper reported that German politicians will support a potential takeover of Deutsche Postbank by Deutsche Bank AG because such a tie-up would put pressure on Germany's regional state banks to consolidate.
   
TUI jumped 0.12 eur or 0.79 pct to 15.33, while RWE was up 0.57 eur or 0.67 pct at 85.19.
  
Over on the MDAX, IKB Deutsche Industriebank plunged 1.38 eur or 21.84 pct at 4.94 on news that the bank reportedly needs 2 bln eur in additional guarantees to cover risks from failed investments related to the US sub-prime market.
   
A report in Frankfurter Allgemeine Sonntagszeitung said a re-evaluation of its securities portfolio showed that IKB's financial risks now totaled 11.5 bln eur and the mid-sized company lender needs an additional 2 bln eur in funds.
   
At the other end, Hugo Boss advanced 2.63 eur or 7.37 pct at 38.30 as the top gainer. TecDAX-listed Adva AG Optical shed 0.14 eur or 6.11 pct to 2.15, while QSC climbed 0.08 eur or 3.79 pct to 2.19.

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Amsterdam shares close down led by financials, lower Wall Street

The AEX closed down 4.36 points or 1.01 pct to 427.74 after opening at 428.22, reaching an early afternoon high of 434.90 and a late afternoon low of 425.83.
      
Financials went down on news Societe Generale's 5.5 bln eur capital increase will be priced lower than expected, analysts said, to fall further on news AIG may have more mortgage debt to write off.
   
Aegon led the AEX lower, trading down 4.44 pct to 9.04, with Fortis shedding 3.88 pct to 13.12 and ING off 2.85 pct to 20.08. By contrast, midcapper SNS Reaal lifted 0.31 pct to 12.80.
   
Amid food and drink related issues, Ahold was down 1.90 pct to 8.28 and Heineken shed 1.48 pct to 34.65. Unilever was off 1.59 pct to 21.03 eur after a UBS downgrade to 'neutral' from 'buy' and midcapper Nutreco was up 0.60 pct to 41.84 ahead of results expected Thursday. Analysts are forecasting a sharply higher full-year EBIT on strong organic sales growth and certain acquisitions. Local issue Grolsch was down 2.04 pct to 47.95 ahead of results expected tomorrow and amid SABMiller upping its stake in the brewery to 96.23 pct from 94.65 pct.
   
Publishers traded lower, with investors disregarding a positive note from Theodoor Gilissen. Reed Elsevier slid 0.25 pct to 11.78 and Wolters Kluwer went 1.48 pct lower to 18.01.
   
Oil issues turned red, pushing the AEX further into negative territory, with Royal Dutch Shell down 0.17 pct to 23.10 eur and SBM Offshore slid 1.26 pct at 20.32. Midcapper Fugro closed off 2.32 pct to 43.80.
   
Van der Moolen was the strongest decliner on the midcap, falling 2.52 pct to 2.71, with LogicaCMG off 2.21 pct to 1.33. Crucell weakened 1.28 pct to 9.26 ahead of results expected tomorrow.
   
Aalberts Industries was down 1.15 pct to 11.19 eur, with investors unimpressed by its acquisition of Duralloy, a specialist in chromium surfaces.
   
Local issue OPG closed the day 0.27 pct lower to 18.17 after the pharmaceutical company reported a solid set of fourth quarter results, dampened by a disappointingly cautious outlook for 2008, analysts said.
   
KPN led AEX gainers, up 3.28 pct to 12.71 amid news from Barcelona's Mobile World Congress the company chose Oracle applications to help further its strategy of simplifying and transforming its IT systems while improving customer service.
  
TomTom added 0.94 pct at 37.54 while takeover candidate TeleAtlas led gainers on the midcap, adding 0.63 pct to 26.97. TNT put on 0.46 pct to 26.25 and ArcelorMittal lifted 0.48 pct to 46.19.
   
Chemical issue DSM rose 0.26 pct to 27.01 ahead of results expected Wednesday.

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