UK/Euro Financial Market Daily Evening Briefing 14-09-2007

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London shares close down, as Northern Rock drops on BoE aid, NY lower

UK blue-chips ended the day down, albeit off lows, as Northern Rock plummeted following its profit warning and news it is to tap the BoE for emergency funding, while Wall Street turned down after weak
retail sales data.
   
By the close of play, the FTSE 100 index was down 74.6 at 6,289.3, off a low of 6,209.1, with the FTSE 250 index 215.2 points lower at 10,956.8.
  
Volume was firm, with 3.119 bln shares changing hands in 692,925 deals.
  
In the US, stocks pared their losses after opening lower following a government report that August retail sales excluding autos fell sharply.
   
The report suggested consumers held off spending in the face of turmoil in the financial markets, though perhaps helped cement arguments of those calling for the Federal Reserve to cut its benchmark federal funds rate of 5.25 pct when policymakers meet Tuesday.
   
By the London close, the Dow Jones was down 82.30 points to 13,031.50, while the Nasdaq Composite lost 27.43 to 2,538.27 and the S&P 500 index dropped 13.20 to 1,440.35.
  
Back in London, Northern Rock shares stuck to the top of the FTSE fallers board, trading 31 pct lower, down 196 pence to 443, its lowest level in over 6 years, after the mortgage bank confirmed that it had negotiated emergency funding from the BoE after being hit by an abrupt tightening of credit market conditions this summer, and issued its second profit warning in three months.
   
CEO Adam Applegarth said the emergency borrowing facility it has negotiated with the Bank of England will be capped by the amount of collateral it can provide.
   
The bank said today that underlying pretax profit for 2007 would come in at 500-540 mln stg, down from 588 mln stg last year, and below the current consensus analyst forecast of 647 mln stg. That follows an earlier profit warning in June.

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Broker reaction was swift with several re-rating, including Landsbanki who downgraded Northern Rock to 'hold' from 'buy' and Goldman Sachs placing its 'neutral' rating, target and estimates under review.
   
The news sparked a general shift out of financial stocks with Alliance & Leicester falling 64-1/2 pence at 873, HBOS dropping 32 pence to 860, Barclays down 19 at 596, while midcap Bradford & Bingley lost 27-1/2 pence to 329-3/4.
   
Looking at the sector as a whole, Credit Suisse said it believes Bradford & Bingley can fund itself until at least December, and Alliance & Leicester and HBOS will be able to fund themselves until at least the second half of 2008.
   
The broker group remains cautious generally and reiterated its 'underperform' rating on B&B and A&L.
   
Elsewhere among financials, insurer Legal & General also lost ground today, shedding 3.8 pence to 130.2, after Panmure Gordon cut its rating to 'hold' from 'buy', and its target to 150 pence from 185.
   
Meanwhile, Cadbury Schweppes slid 7-1/2 pence to 580 following a report in the Financial Times which said it has turned down a bid from a private equity consortium to buy its drinks arm for somewhere in the region of 6.4-6.9 bln stg.
   
The newspaper pointed out this increases the likelihood the company will demerge its beverages business.
   
Also on the downside was Wolseley dropping 37 pence lower to 921 after Credit Suisse downgraded its stance to 'underperform' from 'neutral' and dropped its target to 850 pence from 1,150, citing a continued deterioration in the US housing market.
   
On the upside, positive broker comment provided the spur for Reed Elsevier shares, up 6-1/2 pence at 608, with Merrill Lynch upgrading its stance to 'buy' from 'neutral', with a 695 pence target, as the broker assessed the logic of a merger between Reed and Wolters Kluwer.
   
There were only a handful of mid cap risers too. Among them, Tullow Oil managed to take on 1 pence at 553-1/2, continuing to celebrate its imminent elevation to the FTSE 100 index, while Venture Production added 5 pence at 749 ahead of next Tuesday's first half results.

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The main mid cap faller remained specialist lender Paragon, down 60 pence at 298 in reaction to Northern Rock's profit warning this morning and against a backdrop of falling house prices outside of London which prompted KBC Peel Hunt to reiterate its 'reduce' stance on the second liner today.
   
Big falls by heavyweight housebuilders in reaction to the woes of the mortgage lenders and worries over the property market was also a drag on the FTSE 250 index, with Bovis Homes shedding 41 pence at 693-1/2, Taylor Wimpey down 18-3/4 pence at 313, Bellway off 87 pence at 1,067, and Redrow down 24 pence at 471.
   
The two blue chip housebuilders were also weak, with Barratt Developments down 41 pence at 829-1/2, and Persimmon off 72 pence at 1,016.

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Paris shares close down, off afternoon lows; banks, Capgemini weigh

The CAC-40 index finished down 27.05 points or 0.49 pct at 5,538.92. Among CAC-40 stocks, 9 closed higher, 30 closed lower and 1 was unchanged. On the Matif, September CAC-40 futures were trading at 5,529.5. On the broader indices, the SBF-80 index closed down 44.73 or 0.68 pct at 6,555.57 and the SBF-120 was 20.75 or 0.51 pct lower at 4,031.21.
   
Over the week, the CAC-40 gained 108.82 points or 2.0 pct compared to last Friday's close of 5,430.10. The index fell below the 5,500 mark in afternoon trading as a sell-off of banking shares was compounded by a sharp fall for Capgemini.
   
The company's shares plunged more than 5 pct on talk it would have to cut its full year forecasts because of difficulties at Kanbay in India. Capgemini later confirmed to Thomson Financial News that chief financial officer Nicolas Dufourcq yesterday warned Kanbay will see sales suffer as a result of the subprime crisis. The stock closed down 1.70 eur or 3.93 pct at 41.51, leading bluechip fallers.
   
The news added to jitters following Northern Rock's announcement this morning that it has set up an emergency borrowing facility with the Bank of England.
   
The Northern Rock story has contaminated European banks," one dealer said. But one Paris-based banking sector analyst cautioned that "you can't do a read-across to French banks" from Northern Rock, given that "the businesses are very different."
   
Among French banks, Societe Generale ended down 2.58 or 2.22 pct, BNP Paribas shed 1.12 or 1.50 pct to 73.72, Dexia was 0.27 or 1.27 pct lower at 20.95, while Credit Agricole was down 0.27 or 1.00 pct at 26.83.
   
Outside the CAC-40, investment bank Natixis was particularly hard hit -- losing 0.61 or 3.98 pct to 14.71 -- after it was downgraded to 'sell' from 'hold' by Societe Generale.
   
Elsewhere in Paris, Alcatel-Lucent fell further in the aftermath of its profit warning yesterday, giving up 0.12 or 1.81 pct to 6.50. CEO Patricia Russo is reportedly coming under pressure from French board members to bolster her management team, the Financial Times reporting that the latest profit warning is fuelling pressure for changes to the way the management team is organised.
   
Housing-related stocks also lost ground amid the latest fears about the subprime fallout. Construction groups Bouygues -- down 1.63 or 2.71 pct at 58.52 -- and Vinci -- off 1.27 or 2.52 pct at 49.09 -- were among the heaviest bluechip fallers, as was property group Unibail-Rodamco -- down 4.09 or 2.31 pct at 173.05.
   
Among the handful of CAC-40 stocks bucking the negative trend, Alstom led the way by rising  3.32 or 2.37 pct to 143.32. The engineering firm's CEO acknowledged that the group is interested in a tie-up with state-owned nuclear group Areva, but said Alstom is not currently in discussions over the project.
   
Gaz de France gained 0.76 or 2.26 pct to 34.34 on the back of a Credit Suisse upgrade to 'outperform' from 'neutral'. The news lifted GDF's merger partner Suez -- up 0.54 or 1.41 pct at 38.84 -- as well as fellow utility EDF -- up 1.40 or 1.93 pct at 73.80.
   
ArcelorMittal extended its strong gains from yesterday, adding another 0.96 or 1.99 pct to 49.16, amid investor enthusiasm following recent upbeat comments from the company as well as steel sector peers.

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German shares close lower as financials slump on negative sector newsflow

The DAX was 38.23 points or 0.51 pct lower at 7,497.74 points, having traded in the 7,445.41-7,522.12 band. The MDAX fell 75.70 points, or 0.75 pct, to 9,990.41, while the TecDAX retreated 5.15 points, or 0.57 pct to 902.92. DAX futures were up 45.00 or 0.60 pct at 7,517.00, while bund futures declined 0.41 or 0.36 pct to 114.04.
  
Blue-chip stocks were led down by financials, which fell on news that UK mortgage company Northern Rock was forced to turn to the Bank of England for emergency funding as the credit squeeze brought about by the crisis in the US sub-prime market made commercial lenders more wary about lending to each other.
      
Traders also said a downgrade of Deutsche Bank from Societe Generale was helping to add pressure on the German banking sector, as were persistent rumours that Deutsche Postbank might issue a profit warning due to fallout from the subprime lending crisis.
   
Postbank earlier denied the rumors, though, saying there is no major change in its third-quarter operating business from the previous quarters.
   
In addition, Interhyp AG slashed its full-year profit and revenue guidance and said it now expects earnings before interest and tax to reach about 27 mln eur, compared with a previous forecast of 32 mln eur, with a net revenue forecast that is lowered to 75 mln eur from 80 mln eur.
   
Commerzbank was hit hardest among German banks, closing 1.15 eur or 4.05 pct lower at 27.23 eur. Hypo Real Estate slumped 0.74 eur or 1.94 pct to 37.49 eur, while Deutsche Postbank slid 0.95 eur or 1.88 pct to 49.63 eur.
   
Peer Deutsche Bank fared slightly better, down 1.21 eur or 1.33 pct at 89.97 eur.
   
In addition to feared fallout from the subprime crisis, the DAX was also under pressure from a strong euro and high gas prices. Export-heavy stocks like Siemens, down 1.73 eur or 1.94 pct at 87.52 eur, and retailers -- Metro fell 1.42 eur or 2.25 pct to 61.64 eur -- were among the worst performers.
   
Bucking today's negative trend, Deutsche Post rose 0.39 eur or 1.88 pct to 21.10 eur after the company said it appointed John Allan as its new chief financial officer, effective Oct 1.
       
Utilities were also a bright feature, with RWE gaining 0.68 eur or 0.83 pct to 82.54 eur and EON advancing 0.95 eur or 0.76 pct to 82.54 eur.
    
Bayer gained 0.32 eur or 0.57 pct to 56.11 eur on the back of a bullish note by brokerage Bear Stearns which reinitiated the stock with an 'outperform' rating and a 75 eur a share target.
   
Over on the MDAX, Zapf Creation fell 0.27 eur or 5.65 pct to 4.51 eur as the index's worst performer.
   
Pressure on the banking sector -- especially through Interhyp's profit warning -- pushed Aareal Bank down near the bottom of the index; its shares fell 1.23 eur or 3.80 pct to 31.15 eur. Financial provider MLP slid 0.41 eur or 3.70 pct to 10.66 eur.
   
K&S was the top gainer, adding 10.46 eur or 10.35 pct to 111.52 eur on mounting takeover speculation after Russian billionaire Andrej Melnichenko announced in a notice in the Boerzen-Zeitung that his investment vehicle Linea holds a 6.75 pct interest in the German chemicals company.
   
TecDAX-listed GPC Biotech was 0.38 eur or 3.77 pct lower at 9.71 eur, pushing it to the bottom of the index. Morphosys, meanwhile, was up 5.54 eur or 14.01 pct at 45.08 eur.

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Amsterdam shares close off lows as US econ data better-than-expected

The AEX closed down 2.60 points or 0.49 pct at 528.36 after opening at 529.14, and reaching a midafternoon low of 524.38. Government bonds were mainly higher and the euro stood at 1.3876 usd, versus 1.3876 usd late yesterday.
   
Temping stocks led decliners, with Vedior falling 4.56 pct to 15.28, USG People down 5.19 pct to 20.09, and Randstad sliding 3.65 pct to 36.71 amid the company buying German staffing company Team BS for 71 mln eur cash. SNS Securities said the buy was a "nice add-on acquisition for Randstad."
   
BAM was 4.20 pct lower to 18.92 after the company said it has completed its takeover of Belgian civil engineering company Betonac. Heijmans weakened 3.71 pct to 32.40.
   
Hagemeyer shed 2.97 pct to 2.94, Corporate Express lost 3.38 pct to 7.73 and Unibail-Rodamco slid 1.98 pct to 173.52.
   
Among oils, SBM Offshore was down 1.70 pct to 26.54. Royal Dutch Shell was the second share traded in terms of volume, closing 1.01 pct to 29.44 after the company said its Texas refinery was shut after the last hurricane.
   
KPN was another heavily traded stock, losing 1.15 pct to 12.0.
   
Among chemical issues, Akzo Nobel was down 0.82 pct to 55.64 and DSM went off 0.39 pct to 36.21 eur after the company said it will make a "significant investment" in the polyethylene sector.
   
Dutch financials were not very much hit by Northern Rock's woes, tracking rather Wall Street in general and their own issues in particular. ABN Amro was the most heavily traded stock of the day, down 0.54 pct to 35.0 with the banking group seen by analysts as giving a neutral opinion on its two rival takeover bids.
   
Amid other financials, Fortis shed 0.54 pct to 25.66 eur amid reports the bank may sell off parts of its business banking operations in the Netherlands due to its bid for ABN Amro. ING slipped 0.60 pct to 29.99 eur as the bank reiterated it is not interested in struggling UK mortgage bank Northern Rock. Aegon edged 0.08 pct lower to 13.22.
   
Biotech issues had a good day, with Crucell gaining 1.97 pct to 15.04 eur after the company said it will report a breakthrough in its research into a H5N1 bird flu vaccine. Pharming closed up 3.97 pct to 2.62 following an upgrade at SNS Securities.
   
ArcelorMittal closed up 2.01 pct to 49.16, with Reed Elsevier adding 1.14 pct to 13.32 eur after Merrill Lynch raised the stock to 'buy' from 'neutral'.  The other AEX gainer was TomTom, 0.77 pct higher to 52.65.

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