UK/Euro Financial Market Daily Evening Briefing 26-11-2007

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London shares close lower, sub-prime fears return, Northern Rock gains
 
By the close, the FTSE 100 index was down 81.6 points at 6,180.5, the day's low and sharply off the session high of 6,307.8. The FTSE 250 finished down 78.3 points at 10,452.9. Volume was moderate, with 2.1 bln shares having changed hands in 709,619 deals.
   
Over on Wall Street, US stocks gave up a modest advance early on to trade lower as concerns about a weakening credit market unravelled some enthusiasm over reports of strong electronics sales over the holiday weekend.
   
A short while ago, the DJIA was down 41.0 at 12,938.8, the Nasdaq was off 17.6 at 2,578.2 and the S&P500 down 10.5 at 1,430.2. In the UK markets today, HSBC, the UK's biggest bank, slid 15-1/2 to 811-1/2 after saying it plans to restructure its two Special Investment Vehicles with a total of 35 bln usd in liquidity facilities and term funding.
   
The bank said that it expects to have no material losses or capital requirement as a result of restructuring the SIVs, named Cullinan Finance Ltd and Asscher Finance Ltd.
 
HSBC said it will consolidate Cullinan and Asscher for accounting purposes, resulting in 45 bln usd of additional assets and related funding being included on HSBC's consolidated balance sheet. In reaction, Goldman Sachs reportedly downgraded its stance in the bank to 'sell' and suggested the bank may need a further 12 bln usd in provisions. 

   
Elsewhere among financials, Alliance & Leicester remained under pressure, 31 pence lower at 614 after the Observer said yesterday the group is expected to make significant write-downs on the value of its holdings of so-called "toxic loans" in a forthcoming trading update.
   
Peers felt the pressure with Lloyds TSB fell 14-3/4 to 455-1/2 amid a UBS price target cut and Barclays eased back 13-1/2 to 497. Among leisure stocks pub operator Mitchells & Butlers was another top faller, down 32-1/2 at 608-1/2 after Punch Taverns yesterday quashed speculation over a potential 5 bln stg merger.
   
Housebuilders also suffered after further evidence that house prices continue to fall. In its latest monthly survey, Hometrack said house prices fell by 0.2 pct in November, following a 0.1 pct decline in October -- the first fall in two years. Barratt Developments dipped 27-1/2 to 456-3/4 with Persimmon down 24 at 770.

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Elsewhere, BA fell 16 to 329-3/4 after stating it will not be exercising its preemption rights to acquire any of the shares in Spanish carrier Iberia. And drugs giant AstraZeneca ended 43 lower at 2,232 after Dresdner Kleinwort cut its stance to 'sell' from 'reduce', while keeping its target unchanged at 2,000 pence, saying the stock is "expensive not defensive".
   
On the upside, Northern Rock rallied 24.2 to 110.1 following today's news that the troubled UK mortgage lender is to take forward takeover discussions with the Virgin Money consortium.
   
Under the deal the lender would see the injection of 1.3 bln stg in cash, half from the consortium and half from current shareholders via an underwritten rights issue, both completed at 25 pence per share. Accordingly Virgin would contribute its subsidiary, Virgin Money for 250 mln stg or 1 mln shares.
   
If current shareholders were to subscribe fully, the consortium will own 55 pct of Northern Rock. In reaction Shore Capital said while there is uncertainty regarding shareholder approval, it would expect the Virgin Money consortium's proposal to proceed in the absence of a viable alternate offer.
   
On the second line, beleaguered specialist mortgage lender Paragon was the biggest gainer, rallying another 12-1/2 pence higher to 130-1/2 after the Sunday Times reported that the firm is planning to sell a 140 mln stg portfolio of car loans as part of its attempts to avert an emergency rights issue.
   
Oil service firm Wood Group was also in demand, adding 31-3/4 pence at 412-1/2 amid rumours -- later denied --- of possible bid interest from AMEC, with Evolution Securities repeating its 'buy' stance and 500 pence target for the stock.
   
Rank Group attracted interest, adding 1-3/4 pence at 82-1/4 after the Sunday Telegraph reported that the firm has rejected a proposal from Harrah's Entertainment, the owner of Caesars Palace casino, that would have seen the Las Vegas-based company sell a significant portion of London Clubs International to
Rank in return for a stake of around 28 pct in the UK gaming group.

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And Kelda Group rose 32 to 1088 after the Yorkshire Water owner accepted last week's 1,090 pence a share cash bid from the Saltaire Water consortium. Under the bid Kelda's ordinary shareholders will also keep the interim dividend of 10.65 pence a share in cash, which is expected to be paid on Jan 4,2008.
   
On a negative note, Homeserve shares shed 74 pence at 1,703 after the firm posted a 3 pct fall in first-half pretax profit, although it left its full-year outlook unchanged. Merrill Lynch kept its 'sell' rating on the shares, while Seymour Pierce reiterated a 'hold'.
   
Also on the downside with blue chips, Biffa was the worst performer, losing 33-1/2 pence at 291-1/2 after the waste management group confirmed it rejected an indicative preliminary takeover proposal from a consortium comprising Montagu Private Equity and HgCapital received on September 4.
   
Finally, shares in Bodycote and FKI suffered after UBS cut its stance on both firms to 'sell' from 'hold' as part of a UK Capital Goods sector review today. Bodycote was 18-1/4 lower at 220-3/4 and FKI shed 4.5 at 72.5.

UK diary of Events:

For a diary of key financial and corporate events in the UK this week, click here

UK Small Cap Report:

For a summary of today's trading on the FTSE 250 and the AIM, click here

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Paris shares close lower as investors turn cautious on US concerns

The CAC-40 index closed down 62.78 points or 1.14 pct at 5,458.39.  The euro was quoted at 1.4860 usd, against 1.4821 late Friday. Comments by the New York Federal Reserve Bank about heightened pressures in money markets sparked renewed fears about US credit market liquidity. The news offset some positive early reports about US Christmas shopping as the season for that got underway.

Air France-KLM closed down 1.20 points or 4.72 pct at 24.25 amid continued uncertainty about whether the airline group will bid for Alitalia, Iberia or neither of them.
   
The timetable for the Italian government's privatisation of Alitalia was slipping, although the transport minister said he still wants a deal before year-end. Meanwhile, British Airways said it will not exercise a pre-emptive right to buy Iberia shares being sold by Spanish bank BBVA, and the consortium BA is in said it is evaluating the situation.

Property company Unibail-Rodamco closed down 5.77 eur or 3.73 pct at 148.79 in a correction from last week's 13 pct surge. PPR was another large decliner, finishing down 3.44 eur or 2.90 pct at 115.23, after the weekly newsletter Lettre de l'Expansion said the blue chip retailer will start exclusive talks with Clarins in hopes of securing control of the luxury cosmetics firm.
   
Clarins surged, closing up 2.33 eur or 3.97 pct at 61.05. Amid the talk of M&A activity in the sector, luxury goods company LVMH also stayed above today's losses, closing up 0.17 eur or 0.21 pct at 80.45.   Banking shares underperformed amid the concerns about credit. Dexia ended down 0.48 eur or 2.74 pct at 17.05, and BNP Paribas finished down 1.43 eur or 1.99 pct at 70.50.
   
Societe Generale dropped 1.76 eur or 1.80 pct to 95.99, and Credit Agricole closed down 0.28 eur or 1.27 pct at 21.77.  Nuclear power plant maker Areva was the market's most notable gainer, closing up 33.22 eur or 4.59 pct at 756.22, after the company secured a major foothold in China with nuclear power plant projects involving China Guangdong Nuclear Power Corp. The companies will also create a joint engineering venture for future projects.
   
Other companies that have done or are expected to do deals with China were also in the spotlight as a number of French executives currently are on a visit to the country with President Nicolas Sarkozy. Aerospace company EADS closed down 0.03 eur or 0.14 pct at 21.38, amid talk of a major sale of Airbus planes to China.

Alcatel-Lucent, which signed 750 mln eur of deals with China Mobile and China Unicom, closed down 0.01 eur or 0.20 pct at 5.08.

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German shares close lower as Wall Street slumps on credit market worries

The DAX closed 41.60 points or 0.55 pct lower at 7,567.36 points, after trading between 7,559.70 and 7,674.66. The MDAX slumped 57.42 points or 0.62 pct to 9,229.38 points, while the TecDAX gained 20.94 points or 2.38 pct to 902.18 points. DAX futures slumped 34.00 or 0.45 pct to 7,596.00, while bund futures were 0.06 or 0.05 pct lower at 115.17.
   
The euro was trading at 1.4858 usd against 1.4843 in afternoon London trade. The Federal Reserve Bank of New York's open market trading desk earlier acknowledged "heightened pressures" in money markets that are expected to last through the rest of the year. It said it will conduct term repurchase agreements that extend past the turn of the year to help alleviate upward pressure on the overnight rate.
  
Further dampening sentiment, Citigroup Inc said it does not expect to get data on the US homebuilders market to stoke any optimism until the second quarter of 2008. Over in Germany, financials declined on concern that ripples from the US mortgage loan crisis may continue to spread.
   
Deutsche Postbank fell 1.47 eur or 2.50 pct to 57.39 eur, and Commerzbank eased 0.22 eur or 0.92 pct to 23.65 eur. Deutsche Bank fell 0.75 eur or 0.89 pct to 83.23 eur. But the biggest decliner was Merck KGaA, falling 3.09 eur or 3.48 pct to 85.70 eur as the stock came off last week's gains.
   
Among other decliners, Lufthansa slipped 0.45 eur or 2.49 pct to 17.62 eur after oil prices earlier neared 100 usd per barrel, with prices in London hitting a new record earlier, and Deutsche Telekom eased 0.32 eur or 2.11 pct to 14.86 eur. SAP slipped 0.18 eur or 0.52 pct to 34.61 eur amid talk of a large placing in the German software group, with one dealer noting talk Dietmar Hopp, co-founder of business software giant SAP AG, is selling part of his stake.
   
At the other end of the index, Infineon gained 0.11 eur or 1.43 pct to 7.80 eur as traders said the chipmaker was helped by semiconductor inventory levels that substantially improved quarter on quarter and dropped to their leanest levels since 2003.
   
Thyssenkrupp rose 0.49 eur or 1.31 pct to 37.76 eur as traders said that steel shares were rebounding from recent drops. Financial Times Deutschland reported that ThyssenKrupp chief executive Officer Ekkehard Schulz may stay on for one or two years beyond the end of his contract in Jan 2009.
   
In addition, the European Commission said it has cleared ThyssenKrupp and Alfred C Toepfer GmbH's proposed international sea transportation venture with Imperial Logistics International GmbH. MAN shares were 0.38 eur or 0.36 pct higher at 107.37 eur, continuing to advance on strong delivery numbers released by Volvo AB on Friday.
   
TUI added 0.01 eur or 0.06 pct to 18.18 eur after a report in Der Spiegel magazine said the recent purchase of shares in the shipping and tourism conglomerate by Russian investor Alexei Mordaschov could lead to more changes than originally thought at the company and could be the first step in it selling
some units.
   
Over on the MDAX, AWD Holdings AG remained lodged ahead of its peers, having gained 1.94 eur or 10.54 pct to 20.34 eur due to lasting effects after DWS investments, an asset management unit at Deutsche Bank AG, said it increased its stake in AWD to over 3 pct last Thursday, traders said.
   
Arcandor was 0.38 eur or 1.98 pct higher at 19.60 eur after a report in the Frankfurter Allgemeine Zeitung said the company has found a buyer for its Karstadt department-store properties and will present the bidder by the end of the month.
   
Bucking the positive trend, IKB Deutsche Industriebank lost 0.87 eur or 9.05 pct to 8.74 eur, as the index's worst performer, after a report on Friday in the Boerzen-Zeitung continued to weigh on the bank. The report said that a consortium of banks, which supplied the bank with a 3.5 bln eur risk shelter do not want to increase their coverage.
   
Handelsblatt today reported the company notified German financial watchdog BaFin that it may face further liquidity problems. TecDAX-listed Versatel led its index higher, gaining 2.05 eur or 13.59 pct to 17.14 eur following news that Berenberg Bank hiked its stake in the company to 10.73 pct from less than 3 pct.
   
Conergy gained 0.42 eur or 2.36 pct to 18.20 eur after the company benefited from a general rebound in solar energy stocks and due to plans from investor Otto Happel to maintain his engagement in the company for a long time, after slightly raising his stake to 5.08 pct from 4.25 pct. At the other end, GPC Biotech fell 0.14 eur or 4.08 pct to 3.29 eur.

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Amsterdam shares close lower in nervous trading; Nutreco bucks trend

The AEX closed down 0.65 points or 0.13 pct at 491.82, after opening at 497.16 and trading in a range of 491.30-499.51. Government bonds traded higher while the euro stood at 1.4859 versus 1.4820 usd late Friday. Property stocks led decliners on both the AEX and midcap indices, with Unibail-Rodamco closing 3.64 pct lower at 148.67 on the AEX. Midcap stock Corio fell 5.50 pct at 54.44 and fellow midcapper Wereldhave was off 2.53 pct at 72.71.
   
Corporate Express fell 1.80 pct at 6.01 eur as Goldman Sachs cut its price target to 7.5 eur from 10.5, while US peer Office Depot said sales for Black Friday were "okay" and that total sales for its retail operations in North America in the fourth quarter to date are still softer than the third quarter.
   
Philips finished 0.28 pct lower at 28.36 amid news it will buy US lighting company Genlyte for 95.50 usd per Genlyte share, or 2.7 bln usd, in cash. Royal Dutch Shell lost 0.80 pct at 27.43 while oil services group SBM Offshore gained 0.74 pct at 23.12.
   
Financials traded mainly lower, with Aegon ending 1.68 pct lower at 11.68 as initial enthusiasm about the group's surprise announcement on its 2010 new business value target gave way to ongoing concern about the group's exposure to US sub-prime woes.
   
ING lost 0.44 pct at 25.11, but Fortis added 2.11 pct at 17.41 after a newspaper report indicated it may get a bigger slice of ABN Amro than previously expected. Among gainers, TomTom led AEX stocks, putting on 4.26 pct at 61.96 eur amid growing optimism that the personal navigation company will report good fourth-quarter sales in the US, brokerage Petercam said.
   
Randstad was next in line, gaining 2.38 pct at 31.37. Heineken added 1.49 pct at 43.62 amid reports the Carlsberg, Heineken consortium is open to a raised bid for S&N eur, while Wolters Kluwer gained 1.17 pct at 20.83. On the midcap, Nutreco surged 5.17 pct at 41.32 following an upgrade to 'buy' from 'hold' at ING and amid bargain hunting trades following the stock's recent declines, trading sources said.
   
BAM added 2.75 pct at 14.95 as it was upgraded to 'buy' from 'add' by Dutch broker Petercam ahead of third-quarter results expected on Thursday.  Boskalis put on 0.27 pct at 37.10 after the company ordered two new dredging vessels for its fleet from IHC Holland for a total of 200 mln eur. Midcap chemical storage company Vopak lost 2.93 pct at 35.75.
   
Local issue retailer Laurus gained 0.57 pct at 3.51 as it said it will hold an EGM on Dec 19 to appoint two new supervisory board members and a chairman of the supervisory board.

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