Charles Pretzlik: Barclays hit hard in fresh sell-off

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The sell-off in the London market was back on this morning, with Barclays getting a particularly hard time. Rumours, which sound quite improbable, that Barclays has had to turn to the Bank of England for funding, plus speculation that it has been guiding analysts’ expectations down, knocked 7 per cent off the stock.

We’re obviously looking into all that and Sam Jones on FT Alphaville has dug up some excellent detail on Barclays’ conduit exposure.

However, it is worth noting that Barclays’ head of consumer banking, Frits Seegers, has today bought $1.5m-worth of shares in the bank.

Also, we’re hearing from elsewhere that Barclays has actually been a net beneficiary of liquidity flows recently and that it has not, in fact, been guiding expectations down. None of this, however, means we should expect the bank’s trading statement later this month to be anything but bad – it may simply mean that the market is pricing this in about right.

And, here is a note on the subject from Merrill Lynch analyst John-Paul Crutchley, who describes today’s Barclays rumours as “a Friday bear raid in a skittish market”.

“First in respect of funding worries – while we acknowledge that there is a difference between capital adequacy and adequate liquidity, we note that Barclays Tier 1 ratio (core equity 07e 5.7%, post buyback) is sound and the company is in the middle of a share buyback programme. The company bought back 5.75m shares yesterday at a price of c.577p and we believe that this would not have happened if they were in discussions with the BoE over liquidity support.

“Second, the Bank of England has confirmed this morning that it has not been approached by any bank for emergency funding; and thirdly, during the summer liquidity crisis, Barclays indicated that it was a beneficiary of funds seeking a “flight to safety” and we would expect the same to be true today. Notably the group has an excess of retail/commercial liabilities over assets and the investment bank remains full of assets available for repo.

“In terms of current trading, while the company is out on the road meeting investors, we understand the message is consistent with that given at our banking conference in October, when the bank reaffirmed the 15-20% target growth rate in Barclays Capital and operating trends elsewhere in the business.”

The key today will be how New York reacts to today’s non-farm payroll numbers. They have just come out and look strong, yet without too much sign of wage inflation. That’s clearly helping equities this lunchtime.

Today we’ll also be looking into the Journal’s story this morning about Merrill Lynch may not help things. “Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses,” the Journal said, adding: “The transactions are among the issues likely to be examined by the Securities and Exchange Commission.” No comment from Merrill yet. Paul Murphy on FT Alphaville thinks it is all quite innocent.

BA shares fell 3.7 per cent to 413¾p in early trading after the carrier, announcing first-half results, revised downwards its forecasts for both revenues and costs for the full year due to the weak US dollar.

BSkyB said it was seeing continued strong demand across its range of products during the first quarter as it reported an 11 per cent rise in revenues. However, the shares fell 3 per cent because the rate of growth in broadband was slower than in the previous quarter and the cost of investing in broadband hit operating profits hard. Watch my online interview with chief executive James Murdoch in which he talks about when shareholders can expect pay-back from this investment and what the implications are for his satellite platform.

Finally – at long last in fact – we conclude our week-long series on Mifid today. Chris Hughes has got his Union Jack boxer shorts on and Elgar is blaring out from his computer: he is writing about why London is the big winner.

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