FTSE 100 falls from record highs as Lloyds and HSBC struggle

Falls in heavyweight lenders HSBC Holdings and Lloyds Banking Group saw the FTSE 100 fall from recent record highs on Thursday.

The FTSE 100 index closed down 39.47 points, 0.4%, at 9,509.40. The FTSE 250 ended up 11 points, 0.1%, at 22,052.83, and the AIM All-Share fell 2.32 points, 0.3%, to 793.70.

HSBC, the second most valuable firm on London’s blue-chip index, gave back 5.4% as analysts questioned the price paid as it bought out the minority stake in Hong Kong-based Hang Seng Bank.

HSBC said it has offered around 19.92 dollars per share for the 37% of Hang Seng Bank it does not already own.

Citi banking analyst Andrew Coombs said: “While strategic rationale is compelling, and this seems a sensible overall use of capital, we expect investors will query why now and at this price.”

Shore Capital banking analyst Gary Greenwood said the acquisition multiple looks “punchy”.

Meanwhile, Lloyds Banking Group reversed Wednesday’s gains, closing down 3.3%, after signalling it may need to make an additional “material” provision relating to the car finance mis-selling.

Lloyds added that “uncertainties remain outstanding on the interpretation and implementation of the proposals” and that the size of the potential provision remains subject to “ongoing analysis and review”.

The update comes just two days after the Financial Conduct Authority said UK lenders face a combined £8.2 billion in compensation payments to customers affected by car finance mis-selling, plus £2.8 billion in administrative costs, taking the total cost to around £11 billion.

KBW currently forecasts total impairments of around £2 billion for Lloyds, compared with the £1.15 billion already taken, noting that market share analysis of the FCA’s £11 billion total “suggests 15% or £1.65 billion”.

Close Brothers slumped 13% as it too warned the FCA’s compensation scheme is likely to result in a material increase in its existing provision of £165 million.

Defence stocks also lagged after Israel and Hamas agreed to terms for the release of all hostages held by Hamas in Gaza in a major step toward ending the conflict, with Babcock International down 1.1% and BAE Systems down 0.5%.

“This might simply be a small bout of profit taking after a strong run for the defence sector. Russia’s invasion of Ukraine in 2022 drove more investors to look at defence stocks and a subsequent heightening in geopolitical tensions in other parts of the world led various governments to spend more money on military and intelligence capabilities,” commented Russ Mould, investment director, at AJ Bell.

Peace hopes in the Middle East and well-received results from US peer Delta Air Lines gave British Airways owner, IAG, a boost, sending it up 3.2% and to the top of the FTSE 100 leaderboard.

The US airline delivered stronger-than-expected earnings over the last quarter and gave an upbeat outlook.

Advertising agency WPP and housebuilder Barratt Redrow were prominent blue-chip fallers, down 5.9% and 3.6%, as they traded ex-dividend.

Adding to the downward pressure on housebuilders was a downbeat survey from the Royal Institution of Chartered Surveyors.

The RICS report showed new buyer enquiries fell for the third month in a row, house prices remain negative and sentiment on near-term outlook remains cautious.

Anthony Codling, analyst at RBC Capital Markets, said things are unlikely to change ahead of the Budget in November.

“The sector looks cheap on a medium-to-long term view, but in the shorter term there are fewer reasons to be cheerful,” he added.

In European equities on Thursday, the Cac 40 in Paris closed down 0.2% while the Dax 40 in Frankfurt ended up 0.1%.

Shares in Italian car maker Ferrari plunged 14% after its aims for 2030 fell short of loftier forecasts.

Meanwhile, minutes from the most recent European Central Bank meeting showed all policymakers supported the move to leave rates unchanged.

There was “no immediate pressure to change policy rates at the current meeting”, the minutes said.

“The environment remained more uncertain than usual, especially because of the still volatile global trade policy environment but also owing to geopolitical developments. Such uncertainty could also justify keeping interest rates unchanged,” the minutes read.

Sterling drifted lower as the dollar gained strength. The pound was quoted lower at 1.3305 dollars at the time of the London equity market close on Thursday, compared to 1.3406 on Wednesday.

Stocks in New York were lower at the time of the London close. The Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite all traded down 0.3%.

The yield on the US 10-year Treasury was quoted at 4.15%, widened from 4.12% on Wednesday. The yield on the US 30-year Treasury stood at 4.73%, stretched from 4.71%.

Gold traded at 4,020.10 dollars an ounce on Thursday, down against 4,044.28 on Wednesday. Brent oil traded at 65.95 dollars a barrel on Thursday, down from 66.40 late on Wednesday.

The biggest risers on the FTSE 100 were IAG, up 12.8p at 412.8p, Anglo American, up 63.0p at 2,963.0p, Weir Group, up 58.0p at 2,860.0p, SSE, up 32.5p at 1,817.0p and Schroders, up 6.2p at 399.0p.

The biggest fallers on the FTSE 100 were WPP, down 21.7p at 345.9p, HSBC, down 57.4p at 1,008.6p, Barratt Redrow, down 14.0p at 375.4p, Lloyds Banking Group, down 2.9p at 83.5p and Burberry Group, down 42.0p at 1,223.0p.

Friday’s global economic calendar sees producer price inflation data in Japan and the Michigan consumer sentiment index in the US.

Friday’s UK corporate calendar has a trading statement from recruitment company, Hays.

Contributed by Alliance News