Market update - 9 February

The FTSE 100 retreated to 4277.55, down 14.32 points, while the FTSE 250 was 55.24 points ahead at 6616.91 points at around 12.15pm.

Barclays was the strongest in the banking sector, gaining over 9 per cent or 9.5p to 144.3p after posting full year results. The headline numbers – profits, at £6.1bn, were well ahead of analyst estimates – were well flagged in the group’s January profits update and in an open letter, which was released by the chairman and chief executive in a bid to stem the sell off in the bank’s shares last month. The group also announced a halving of employee bonuses, with payouts at Barclays Capital, the investment banking arm, and Barclays Global Investors, the fund management division, declining further.

Looking ahead, Collins Stewart analyst Alex Potter highlighted the fact that, despite the profits, the outlook remains “pretty bleak”.

“As expected, the outlook statement makes for grim reading, alluding to downturns and recessions. Guidance is for credit market write-downs to be lower in 2009, though we would attach little confidence in this. In the ‘core bank’ loan loss rates are rising with corporate credit conditions described as ‘sharply worse’,” Mr Potter said, adding:

“The accounting rules applying to Barclays’ balance sheet are unhelpful to say the least. Increased volatility in markets means that the grossing up of derivative books becomes larger – this alone has driven Barclays’ balance sheet from £1.4 trillion to £2 trillion at [the end of 2008]. Underlying leverage has fallen marginally… The equity tier one ratio is 6.7 per cent, which does mean Barclays remains the most weakly capitalised of the UK banks, in our view.”

Moving up

Property group Hammerson was the strongest on the benchmark index, swinging to 441.75p, up more than 11 per cent or 44.75p, after launching a rights issue to reduce debt and strengthen its balance sheet in a bid to weather the real estate slowdown. The group announced plans for a 7-for-5 fully underwritten issue of approximately 406 million shares at 150 apiece – a significant discount to the current share price.

Traders attributed the market reaction to confirmation of recent rumours as the move comes after weeks of speculation, with numerous analysts highlighting the need for capital across the commercial property sector. The stock is also heavily shorted, they said, citing signs of a squeeze as short sellers scramble to abandon their downside bets.

KBC Peel Hunt said that while the dilution was huge – forcing it to reduce its forecasts substantially – it was “not all negative for Hammerson”.

“Raising close to £600m, the company can now repair its balance sheet – and the dilution is so great we can be sure that the issue will be covered,” the broker said,

“However, we would have much preferred to see a statement of intent to augment this capital-raising, with further property sales with which to raise cash and reduce leverage.”

Moving down

Mining group Rio Tinto was the weakest of the blue chips, easing to 1880p, down close to 4 per cent or 77p following news that chairman-designate Jim Leng had quit after a disagreement with chief executive Tom Albanese about how to deal with the company’s finances. Reports indicated that the two had split over the possible cash injection from China’s Chinalco, the aluminium producer which is Rio’s largest shareholder.