Last updated: November 19, 2012 7:36 pm

Barclays leads risers on shake-up talk

Barclays led London’s blue-chip risers as speculation grew that the bank was planning a radical restructuring.

Goldman Sachs said it expected Barclays to shrink its investment bank and wind down low-returns operations in Europe as part of a strategy review due in February.

Meanwhile, dealers heard speculation that Barclays could announce cuts to its UK branch network before the end of the month.

“The wind-down/divestment of Barclays’ Europe RBB [retail and business banking] operations and non-UK corporate businesses offer the most attractive trade-off between capital consumption today and returns improvement tomorrow,” said Goldman. “If Barclays delivers on a business plan to generate returns that match the group’s cost of capital, the stock could offer sector-leading upside.”

For investment banking, Goldman saw Barclays cutting its headcount by 15 per cent and its balance sheet by 20 per cent. Disposing of the unit would be strongly accretive to shareholders but execution risks would be too great, it added.

Shutting low-returns businesses would require a £6.8bn charge after tax, including £1.1bn to restructure the investment bank, which would be “broadly neutralised” by earnings, Goldman said.

Under that scenario, the stock would be worth 407p apiece by 2015, said the broker. Barclays closed up 6.6 per cent to 249.8p, its highest since March. The stock has jumped 66 per cent in four months.

A broad-based rally carried the FTSE 100 higher by 132.07 points, or 2.4 per cent, to 5,737.66, its biggest gain since early June.

HSBC was up 3.8 per cent to 618.3p on news that it was in talks to sell its 15.6 per cent stake in Ping An, the Chinese insurer.

Investec Securities added HSBC to its “buy” list, arguing: “The downgrade cycle may finally be over.”

Chip designer Arm Holdings jumped 5.1 per cent to 747p. The surprise early retirement of Intel president Paul Otellini was proof that the US group could no longer compete in current form with Arm’s “near-viral architecture”, said analysts at Raymond James.

ENRC led a rally among the miners, up 4.8 per cent to 272.1p, after RBC upgraded to “outperform”. RBC welcomed the group’s decision to pull spending on a Brazilian iron ore project.

The rally among risk assets lifted the rest of the miners as commodity prices touched one-month highs.

Randgold Resources was up 4.8 per cent to £66.55, Vedanta Resources took on 4.5 per cent to £10.83 and Kazakhmys gained 4.5 per cent to 684p.

Lonmin rallied 9.3 per cent to 515p after Nomura turned positive. Strikes in South Africa meant platinum surpluses were being run down and the market would be in deficit throughout 2014, it forecast, adding: “This price momentum could have a significant impact on a very out-of-
favour sector.”

BP rose 3.6 per cent to 431.6p following weekend reports that it was looking at a $6bn share buyback to offset the sale of its Russian arm and repel predators.

“Such a move would emphasise management’s increasing confidence and the improved circumstances of the business,” Deutsche Bank said. “We would not, however, regard a $6bn buyback as overly material and question whether it represents the most appropriate use of funds for a business in much need of rebuilding.”

A short squeeze sent Ocado soaring 23.9 per cent to 75p after it agreed to ease debt covenants and moved to raise £36m with a share placing. Investors had been betting that Ocado would need a deeply discounted rights issue with about 15.5 per cent of the stock loaned out to short sellers.

Among the fallers, G4S lost 0.7 per cent to 242.4p. Credit Suisse turned cautious on G4S, based on the fallout from its mishandling of a prisons contract.

“We do not expect G4S will be perpetually excluded from the UK government outsourcing market, given the range of its offering and track record in this market, but think it will take some time to regain momentum,” the broker said.

Mitie , the outsourcer, faded 3.5 per cent to 280p after reporting an unexpected slowdown in first-half organic growth.

Sportingbet lost 4 per cent to 48p on rumours that William Hill was trying to lower the price on its takeover offer. William Hill, up 0.7 per cent to 331.1p, last month made a provisional offer with GVC Holdings of 61.1p per Sportingbet share but the stock has since been hit by talk of poor trading.

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