Bloomberg News

U.K. Stocks Drop From 23-Month High; Banks Advance

January 07, 2013

U.K. stocks declined from a 23-month high amid concern recent gains in share prices overshot the outlook for company earnings.

Rolls-Royce Holdings Plc (RR/) dropped 1.5 percent after a report said the company has been accused of bribery in China. Fresnillo Plc (FRES) slid 1.9 percent as silver prices fell for a third day. Barclays Plc (BARC) and Lloyds Banking Group Plc (LLOY) led a rally among lenders as global central banks agreed to ease a liquidity rule.

The FTSE 100 Index slipped 25.26 points, or 0.4 percent, to 6,064.58 in London. The benchmark gauge last week climbed to the highest level since February 2011 as the U.S. Congress reached a budget compromise to avoid automatic deficit-reduction measures. FTSE 100 companies are trading at 15.6 times reported earnings, the highest since December 2010, according to data compiled by Bloomberg.

“After the big rally we saw last week, investors are taking profits,” said Jacques Porta, who helps oversee $627 million as fund manager at Ofi Patrimoine in Paris. “There is still some uncertainty regarding the U.S. debt issue. We also need to be cautious ahead of the U.S. earnings season that begins tomorrow.”

The broader FTSE All-Share Index also declined 0.3 percent, while Ireland’s ISEQ Index added 0.2 percent today.

U.S. Debt

In the U.S., Republicans yesterday attempted to shift the the budget debate’s focus away from taxes to spending cuts. Lawmakers are discussing an increase in the government’s $16.4 trillion debt limit, which it has already reached. The Treasury is now using extraordinary measures that the Congressional Budget Office says will end as early as mid-February.

Senate Minority Leader Mitch McConnell, a Republican, said yesterday that further tax changes are off the table, a stance that Democratic Representative Chris Van Hollen of Maryland said will be a “recipe for more gridlock.” The New Year deal involved raising taxes on top earners.

Alcoa Inc. unofficially starts the U.S. earnings season with the release of its fourth-quarter results tomorrow.

Global central bank chiefs yesterday allowed lenders to use an expanded range of assets to meet the so-called liquidity coverage ratio. The banks will also have an extra four years to fully comply with the measure that stipulates the amount of highly liquid assets they must keep to meet short-term obligations.

A gauge of lenders rose to the highest level since May 2011. Lloyds advanced 1.3 percent to 50.50 pence.

Barclays climbed 3.8 percent to 287.2 pence as Espirito Santo Santo SA said the British lender’s pretax profit may be boosted by about 4 percent after the agreement in Basel.

Cameron’s Policy

Prime Minister David Cameron said the U.K. government will outline plans to overhaul public spending before the annual budget in March. He was speaking at a press conference in London along with Liberal Democrat Deputy Prime Minister Nick Clegg.

The leaders will focus on transport investment, childcare and a revised pension scheme for the elderly, according to a joint foreword to the “Mid-Term Review” released by the premier’s office.

U.K. businesses are more optimistic on the economic outlook this year, according to separate surveys of finance directors and manufacturing executives published today.

Rolls-Royce

Rolls-Royce declined 1.5 percent to 904.5 pence after the Sunday Times reported the maker of aircraft engines is facing allegations that it bribed an executive at Air China Ltd. and China Eastern Airlines Corp. to secure orders worth $2 billion.

The London-based company said Dec. 6 it had “identified matters of concern” relating to actions of intermediaries in China, Indonesia, and other markets during a review prompted by the U.K.’s Serious Fraud Office. Rolls-Royce declined to comment on the Sunday Times story.

Fresnillo, the world’s biggest primary producer of silver, slid 1.9 percent to 1,775 pence as the precious metal’s price dropped 0.4 percent. The company’s shares have tumbled 6.6 percent since Jan. 2, the biggest three-day decline since June.

A gauge of miners fell 0.6 percent. Rio Tinto Group, the second-biggest mining company, lost 1.1 percent to 3,574.5 pence and Antofagasta Plc slipped 1.6 percent to 1,322 pence.

RusPetro Plc plunged 19 percent to 68 pence, the biggest drop and the lowest price since the Russian oil explorer sold shares to the public last January, after saying late Jan. 4 that production growth has been slower than expected.

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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