FTSE flat with banks firmer but insurers hit with sector downgrade

The UK’s blue-chip index is trading flat just before 10:00BST in the final session of the week with insurers being the major weight on progress after receiving a downgrade from Citigroup and a deal potential falling-through for Old Mutual (LON:OML). Banks are pulling in the other direction on Friday after positing significant losses in the previous session. However, investors will be awaiting a Federal Reserve speech due later for more direction.

Rob Hull
shareprices.com - Friday, October 15, 2010

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Old Mutual is down on the fall-through of a deal between HSBC and Nedbank

At 09:42BST, the FTSE 100 is 0.06 per cent down with a loss of just three points to minimally drop to 5,723.61.

The lack of movement for the top London index isn’t due to muted investment – in fact Friday’s session has began with a two-sector tug of war.

Banks are back in favour and reclaiming much of the loss made on Thursday, however any index headway is being cancelled out by insurance groups with Old Mutual and a Citigroup downgrade for life insurers strangling the sector.

Old Mutual has fallen out of favour with the share price falling at a rate of four per cent this morning after a report emerged in the Financial Times this morning.

The FT claims a £5bn offer from HSBC (LON:HSBA) has been retracted for the South African Nedbank business which is majority owned by the insurance firm.

And with fellow insurers bound to suffer from the announcement, Citigroup has worsened the blow by downgrading the UK life insurance sector to “underweight” from “neutral” in a note.

In fact, it appears to be a session of pessimism from Citigroup which also said its end of year target for the FTSE 100 is still 6,000, despite the sector value clearing 6,700 for the majority of the week.

RSA Insurance Group (LON:RSA) is suffering from the downgrade, shedding 2.3 per cent with Standard Life (LON:SL) and Prudential (LON:PRU) following closely with share price losses of 1.5 and 1.3 per cent respectively.

With insurers falling out of favour, banks returned to investor shopping lists after a brief spell of decline.

The sector was hit with fears over the cash raising requirements and lengths the groups may have to go to in order to abide by new regulations, but has recovered much of the ground today.

In fact, Lloyds Banking Group (LON:LLOY), Royal Bank of Scotland (LON:RBS) and Barclays (LON:BARC) are the top three performing stocks in the FTSE 100 this morning with gains between 2.2 and 2.6 per cent.

HSBC Holdings is also up by 0.7 per cent and Standard Charted (LON:STAN) has recovered from a difficult Thursday to make minimal gains.

Also on investor agendas are Rolls-Royce (LON:RR) and Cobham (LON:COB) after both received an upgrade from Goldman Sachs.

The engine maker and electronics group, which are both tied into the defence sector, were upgraded to “buy” from “neutral” and have gained 1.1 and 0.4 per cent to their share prices respectively.

For the meantime, London investors are waiting for a speech by Federal Reserve Chairman Ben Bernanke later for clues about the potential new policy steps to stimulate the economy.

 

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