FTSE 100 adds to advance; Royal Dutch Shell shares under pressure
British stocks advanced modestly Monday, though the FTSE 100 index remained well below the 4,000 level, amid reports that Royal Bank of Scotland Group would be broken in two and that Citigroup would not get fully nationalized by the U.S. government.
The FTSE 100 climbed 0.5% to 3,907.07, stabilizing following a retreat of more than 7% last week.
Gains for the FTSE 100, other leading European indexes and U.S. stocks came as The Wall Street Journal reported that Citigroup was in talks with the U.S. government for an increased stake that would not lead to full nationalization. See Europe Markets.
And the U.S. government issued a statement to reassure financial markets that Washington prefers that financial institutions remain in private hands. See full story. See Citi story.
Banks trading sharply higher in London included Royal Bank of Scotland up 16.6%.
RBS is due to report annual results on Thursday. Along with splitting in two, RBS management's expected to detail moves to slash costs by more than 1 billion pounds ($1.46 billion) and potentially cut up to 20,000 jobs.
Such a plan would give clarity over a viable future banking group," said Robert Sage, analyst at Macquarie Securities. Read more on RBS.
Against this backdrop, Lloyds Banking Group the other troubled lender due to report results this week, saw its shares rise 5.9%.
Also on the move was chocolate maker Cadbury shares of which traded up 2.2% ahead of its results due out Wednesday.
Jefferies upgraded its rating to hold from underperform, telling clients: "Cadbury's repositioning on confectionery and ongoing 650-million-pound restructuring and investment program is showing signs of delivery."
A big mover was 3i Quoted Private Equity (UK:QPE: news , chart , profile ) , up 25.6% to 83 pence.
Top shareholder 3i Group (UK:III: news , chart , profile ) , which already holds a 44.9% stake, offered 50 pence in cash and 0.1706 of its own shares for each QPE share. The firms said the deal values QPE at its net asset value of 88.8 pence.
Meanwhile, 3i's shares fell 3.6%.
Fresnillo lower following results
On the flipside, oil producers were under selling pressure, with shares of Royal Dutch Shell down 1.3% and BP off 0.4%.
Barclays Capital said that BP and Royal Dutch Shell are its key underweights in the large-cap European oil sector. It started the sector at negative after 30% outperformance over the last 12 months, citing valuation.
"Equity markets are pricing an extended downturn for most sectors but not, in our view, for the large-cap oils," the broker said.
"Facing the largest-ever fall in oil price, the European integrated-oil sector is trading near an all-time high versus the market on 2009 earnings forecasts," Barclays added.
In the metals sector, shares of Fresnillo (UK:FRES: news , chart , profile ) fell 5% after the company reported an 11% profit drop for 2008.
"We recognize that Fresnillo plc will be impacted by the same factors as the industry as a whole," the silver miner said.
"In light of economic conditions, our focus will be on critical (capital spending) and intermediate and advanced exploration projects, ensuring that the group's short- to medium-term targets are met. Nonetheless, our strong financial position will allow us to pursue acquisition opportunities, should they arise, of high quality assets that will continue to expand our growth platform."
