The London market managed to hold on to all of the record-breaking gains of Monday’s session, but shares in Friends Provident fell sharply on fears it could be one of the big losers from the pre-Budget report.
One of the few surprises in Monday’s statement was news of an independent review of British offshore financial centres such as Guernsey, Gibraltar and the Isle of Man focusing on issues such as supervision, transparency and crisis management.
JPMorgan told clients the review hit demand for international savings products, a big business for Friends and Skandia, which is owned by Old Mutual, down 6 per cent at 49p. “We see a period of uncertainty while this report is formulated. The outcome of which is likely to lower demand for sales from UK offshore centres for international savings products,” it said.
It also noted that car insurer Admiral, down 3.9 per cent at £10, could be affected due to its use of a ‘protected cell’ company in Gibraltar.
Friends Provident closed 9.5 per cent lower at 69p. Elsewhere in the sector, Prudential dipped 2.4 per cent to 288p unsettled by a warning from Axa of difficulties with variable annuites in the US.
Meanwhile, the FTSE 100 crept 18.3 points, or 0.4 per cent, higher to 4,171.3, an impressive performance considering Monday’s 9.8 per cent jump. Plans by the US Federal Reserve to boost consumer lending and purchase up to $600bn of mortgage-backed assets and mortgages linked to Fannie Mae and Freddie Mac provided a powerful prop for the market. Elsewhere, the FTSE 250 added 43.4 points, or 0.8 per cent, to close at 5,833.
Mining stocks took centre stage. BHP Billiton added 7.3 per cent to £10.51 after stunning the market with news it was abandoning an offer for Rio Tinto because it was not in the “best interests of shareholders”.
That news left Rio 36.7 per cent lower at £15.50, though the company went on the offensive, telling anyone who would listen that its $43bn of debts were manageable and it had no intention of launching a rights issue.
One company that might soon tap its shareholders for cash is Wolseley, according to broker RBS. “An equity issue now appears inevitable owing to quickly deteriorating UK and Nordic market trading,” analyst John Messenger said, adding that Wolseley needed to raise £750m. The shares fell 3.5 per cent to 288¾p.
Standard Chartered, which missed out on Monday, rallied 15.9 per cent to 840p, amid talk the bank had identified an acquisition target and that was the real reason behind its £1.8bn rights issue.
Barclays advanced 14 per cent to 167p, while Royal Bank of Scotland added 5.5 per cent to 53.6p after Citigroup set a 100p price target and said RBS had sufficient capital to deal with a prolonged economic downturn.
Among retailers, Wm Morrison dipped 3.4 per cent to 246¼p after Morgan Stanley cut its rating to “equal-weight”, arguing the supermarkets group was no longer a safe haven, given its premium rating and the risks from food price deflation.
“Indeed, deflation risk is why we make 8-12 per cent cuts to 2009 earnings forecasts and 12-19 per cent reductions in our price targets on Tesco, J Sainsbury and Morrison,” it said.
Sainsbury eased 0.4 per cent to 296½p, while Tesco improved 0.5 per cent to 301.4p in spite of talk that next week’s third quarter trading statement could disappoint.
Deutsche Bank said it expected same-store sales growth of just 1.7 per cent.
A Merrill Lynch downgrade to “neutral” saw BT Group slide 3.6 per cent to 130½p. “BT is increasingly exposed to the sharp slowdown in UK consumer and corporate spending, and pension concerns have constrained flexibility,” it said.
Among mid-caps, Taylor Wimpey, the heavily indebted housebuilder, dropped 37.1 per cent to 4.4p as traders took the view that a debt for equity swap was increasingly likely. Credit Suisse advised clients to steer clear of the company because it was in the hands of its creditors. Rival Barratt Developments lost 15.3 per cent to 47p after the latest data showed just 21,584 mortgages were approved for house purchases in October.
Domino’s Pizza drifted 0.9 per cent to 173p on rumours of tough trading.