London trades lower, but banks buck trend
Soon-to-be-merged banking groups HBOS and Lloyds TSB moved higher on Monday, although losses from firms closely linked to commodity prices kept the top London index under pressure.
Shares of Lloyds TSB climbed 7.3%, while HBOS advanced 6.1%.
As had been widely expected, shareholders snubbed the lenders' capital-raising plans valued at 13 billion pound ($19.6 billion) Monday, leaving the U.K. government to pick up more than 99% of the newly issued stock.
The shares have been trading below their offer prices. It means the government will own 43.4% of the combined entity once Lloyds completes the acquisition of HBOS. See full story.
Credit Suisse upgraded Lloyds TSB to neutral from underperform, citing valuation and the potential for the U.K. government to help banks manage down their risk weighted assets.
Credit Suisse also said it thinks HM Treasury will work more closely with banks to ease funding -- including extending the existing credit guarantee scheme to include asset-backed securities -- rather than forcing banks to raise yet more capital
Other banks advancing on Monday included Royal Bank of Scotland Group , shares of which traded up 3.6%, as well as Barclays , up 3.7%, and HSBC Holdings , up 1.5%.
Overall, the FTSE 100 index moved 0.6% lower, ceding 26.23 points to stand at 4,421.59.
Shares also traded lower on the Continent, while U.S. stocks weakened at the start of trading on Monday. See Europe Markets. See U.S. Market Snapshot.
Shares of mineral extractor BHP Billiton lost 3.3% and oil producer BP sank 1.1% in London.
The losses came after light sweet crude futures fell below the $40-a-barrel mark on Monday, with the contract down $2.09 at $38.80 a barrel. Oil futures got greased Friday after the release of dismal U.S. jobs data. See full story.
Gold futures also dropped to start the week, trading down $23.90 at $831.10 an ounce.
Morgan Stanley cuts 3i, ups Aberdeen
Also in the London spotlight, shares of 3i Group fell 5.2%.
Morgan Stanley downgraded the company to equalweight from overweight at as part of the broker's review of U.K.-listed investment companies.
"After a 45% bounce off lows, we view the risk-reward as more balanced and would look for greater clarity on asset sales to lower gearing and capital pressures before becoming more positive," said the broker.
At the same time, Morgan Stanley upgraded Aberdeen Asset Management to overweight from equalweight. Aberdeen's shares climbed 1.1%.
"We view it as best positioned to benefit from further accretive deals given its execution experience and strengthened balance sheet as banks and insurers reassess priorities," the broker said. "We view the greater execution experience of Aberdeen as a differential."
The broker said that it remains cautious on fundamentals and continues to see headwinds ahead for mutual-fund sales as a negative for Schroders , Henderson and F&C Asset Management . Their respective shares traded down 4.6%, 1.5% and 3%.
On a related note, Schroders and Henderson, as well as Neptune and Hellman & Friedman, are interested in buying New Star Asset Management , City AM newspaper reported. New Star's shares jumped 38.9% to 4 pence.
The firm said early Monday that it's considering a number of indicative proposals, including a sale of the firm. Bids for the fund manager carried values of about 100 million pounds, several reports said.
Inchcape mulling capital options
Also on the move, shares of car retailer Inchcape fell 8.9%. It said it's evaluating "a range of options" for its capital structure, including a potential equity issue.
The company stood by its forecast for underlying results for 2009 said it remains in compliance with its financing arrangements.
In the property sector, shares of Great Portland Estates declined 4.5% and Derwent London dropped 2.4%.
J.P. Morgan downgraded both firms to underweight from neutral, telling clients 70% of the 32 companies it covers in the European property sector face loan-covenant or financing issues and projecting 34% need to raise equity.
