Bloomberg News

U.K. Stocks Drop as Barclays Leads Selloff

June 28, 2012

U.K. stocks fell for the fifth day in six, as bank shares declined after British lawmakers criticized Barclays Plc (BARC) over its manipulation of inter-bank lending rates.

Barclays contributed the most to the drop in the FTSE 100 Index (UKX) as fines levied by the Financial Services Authority sparked concern the lender will face lawsuits. Ladbrokes Plc plunged the most since October 2008 after predicting a decrease in online profit.

The FTSE 100 Index slid 30.86, or 0.6 percent, to 5,493.06 at the close in London. The gauge has still added 4.4 percent since the 2012 low on June 1 as Greece formed a coalition government after its second election in six weeks, easing concern the nation will leave the euro. The broader FTSE All- Share Index slipped 0.5 percent today, while Ireland’s ISEQ Index gained 0.2 percent.

“The FSA will be girding their loins to look at other areas of potential market abuse, and at other banks,” said Gerard Lane, a strategist at Shore Capital Group Ltd. in Liverpool, England. “It’s unclear where this stops.”

Prime Minister David Cameron urged Barclays Chief Executive Officer Robert Diamond to show accountability after the bank was fined $451 million for attempting to manipulate the inter-bank lending rate, known as Libor.

Ed Miliband, leader of the opposition Labour Party, and Boris Johnson, Mayor of London, called for a criminal investigation into the matter.

EU Summit

European Union leaders will gather at Brussels for a two- day summit to discuss ways to contain the region’s debt crisis. Among the proposals to be debated is a 10-year road map drafted by European Council President Herman Van Rompuy for closer regional integration.

The plan focuses on common banking supervision and deposit insurance, along with a “criteria-based and phased” move toward joint debt issuance. The blueprint also suggests the EU can impose upper limits on annual budgets and debt levels of euro-area nations.

German Chancellor Angela Merkel has rejected the issuance of joint euro-area bonds as a way of lowering Spain’s borrowing costs, a proposal backed by French President Francois Hollande, Italian Prime Minister Mario Monti and Spanish Premier Mariano Rajoy. Merkel met Hollande last night in Paris.

“We have quite a severe disagreement between the French and the Germans about the way to go forward,” said Lane. “The problem is fixable, but compromise and clarity don’t appear to be the name of the game for politicians.”

Spanish Bonds

Spain’s benchmark 10-year bond yield increased to as much as 7.013 percent, a one-week high, before trading at 6.929 percent at 5:44 p.m. in Madrid.

Italy paid the most since December to sell 10-year bonds, pricing the debt to yield at 6.19 percent, up from 6.03 percent on May 30. The country sold 5.42 billion euros of five- and 10- year bonds, near the maximum target of 5.5 billion euros.

In the U.K., data showed that disposable income fell for a second quarter in the first three months of year, when consumer spending fell and the economy shrank.

Disposable income dropped 0.9 percent in the quarter from the previous three months, the Office for National Statistics said. Gross domestic product fell 0.3 percent, matching a previous estimate and the median forecast of 29 economists in a Bloomberg survey.

U.K. house prices dropped 0.6 percent in June, the Nationwide Building Society said. That compared with economist forecast for a 0.1 percent gain, according to a Bloomberg News survey.

Banks Tumble

A gauge of London-listed banking shares fell 4.3 percent, the biggest decrease since November.

Barclays plummeted 16 percent to 165.6 pence, the most since March 2009 and HSBC Holdings Plc (HSBA) retreated 2.6 percent to 558.2 pence.

Debenhams Plc (DEB) gained 2 percent to close at 84.95 pence, after dropping as much as 2.9 percent in intraday trading.

The company today lowered its profit forecast because wet weather deterred purchases on higher-margin women’s clothing lines. The gross margin for the year through August will be 0.3 percentage points lower than last year, the company said. Debenhams had earlier predicted the margin to be “broadly flat.”

Ladbrokes Plc (LAD), the U.K. betting-shop operator, tumbled 12 percent to 152.7 pence after saying a decline in online profit will be worse than forecast.

Mining stocks retreated as copper prices fell in New York for the second time in three days. Glencore International Plc (GLEN) slipped 1.6 percent to 293.55 pence and Vedanta Resources Plc (VED) slid 1.4 percent to 871.5 pence.

United Utilities Group Plc (UU/), the U.K.’s largest publicly traded water company, gained 2.4 percent to 674.5 pence. JPMorgan Chase & Co. wrote in a note today Veolia Environnement SA’s 1.24 billion-pound ($1.9 billion) sale of its U.K. unit is in line with the usual acquisition costs for the industry and will have “little impact” on water stocks.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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