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LONDON MARKET CLOSE: Banking sell-off as Credit Suisse reignites fears

15th Mar 2023 16:56

(Alliance News) - Stocks in London closed deep in the red on Wednesday as banking stocks suffered heavy declines amid bad news for Credit Suisse, which added to worries for markets already shaken following the collapse of Silicon Valley Bank.

The FTSE 100 index closed down 292.66 points, or 3.8% at 7,344.45 on Wednesday. The FTSE 250 ended down 503.81 points, or 2.6%, at 18,625.85. The AIM All-Share closed down 17.29 points, or 2.1%, at 810.40.

The Cboe UK 100 ended down 3.8% at 734.59, the Cboe UK 250 closed down 3.0% at 16,217.38, and the Cboe Small Companies ended down 3.7% at 12,876.64.

"Earlier today, we had described a 'nervous calm' returning to financial markets. That has not lasted long at all as attention has switched to Europe and the pressure on Credit Suisse's share price after The Saudi National Bank, one of CS's top investors, said it was not open to a further capital injection into CS," said Chris Turner, global head of markets at ING.

Credit Suisse's market value already had fallen this week over fears of contagion from the collapse of two US banks and its annual report citing "material weaknesses" in internal controls. On Wednesday, shares in the bank hit a historic low, closing down 24%.

In London, HSBC, NatWest, Lloyds, and Barclays closed down 5.0%, 5.9%, 3.0%, and 7.2% respectively. Meanwhile, UBS shares finished 8.2% lower in Zurich, Deutsche Bank shed 9.3% in Frankfurt, and Societe Generale and BNP Paribas lost 12% and 10%, respectively, in Paris.

The wider banking sector sell-off may have implications for the European Central Bank's policy decision on Thursday and is also keeping pressure on the euro.

In European equities on Wednesday, the CAC 40 in Paris ended down 3.6%, while the DAX 40 in Frankfurt ended down 3.3%.

The euro stood at USD1.0538 at the European equities close on Wednesday, sharply lower against USD1.0719 at the same time on Tuesday.

At its last meeting on February 2, the ECB lifted interest rates in the eurozone by 50 basis points, and indicated an intention to enact another 50bp hike in March.

However, analysts at ING said that, given the financial stability risk, the ECB is now torn between "adding fuel to the fire by delivering the promised hike, and further falling behind in a fight against inflation that it is already losing".

Nonetheless, Andrew Kenningham at Capital Economics said his best guess at this stage is that the central bank will press on with its plan to raise the deposit rate from 2.5% to 3.0%, "while stressing that policy is not on a predetermined path".

The ECB will announce its decision at 1315 GMT.

Against the yen, the dollar was trading at JPY132.43 late Wednesday, lower compared to JPY134.45 late Tuesday.

ING's Turner said that a "safety-first approach" will dominate until developments in the banking system become clearer, which should mean the JPY "continues to outperform on the crosses" and "may even continue to outperform the dollar, too".

The pound was quoted at USD1.2030 at the London equities close on Wednesday, down from USD1.2150 at the close on Tuesday.

Chris Beauchamp, chief market analyst at IG, said the pound's slip against the dollar shouldn't be taken as anything a but a sign of "general risk aversion" as he noted that a "rosier statement" from UK Chancellor Jeremy Hunt was overshadowed by market turmoil.

As part of his spring budget announced to the UK House of Commons on Wednesday, Hunt said the UK will avert a recession this year.

While no longer predicting a recession, the Office for Budget Responsibility still expects the UK economy to decline 0.2% this year. However, the prospects for outer years are more promising, with the OBR predicting growth of 1.8% in 2024, 2.5% in 2025, before slowing to 2.1% in 2026.

In the FTSE 100, Prudential was the worst blue-chip performer on Wednesday, plunging 11% as it posted mixed yearly results amid the wider market turmoil.

The insurer's annual premium equivalents - a measure of the new policies sold - rose 4.7% to USD4.39 billion from USD4.19 billion in 2021. This came ahead of company-compiled consensus of USD4.22 billion.

Meanwhile, hurting its bottom-line was a USD30.16 billion investment loss, swinging from a gain of USD3.49 billion in 2021. Pretax profit halved to USD1.48 billion from USD3.02 billion.

"Prudential's results may well have got a better hearing a week ago before the collapse of SVB but right now investors are treating financial stocks with the same suspicion as something they've found on their shoe," said AJ Bell Analyst Russ Mould.

In the FTSE 250, Ferrexpo dropped 6.5% after it reported its profit and revenue tumbled in 2022 as the war in Ukraine continued to affect production.

The Swiss-headquartered iron ore pellet producer reported 2022 pretax profit of USD338.7 million, down 68% from USD1.07 billion in 2021.

The decline in pretax profit was a result of the combination of lower production, rising energy prices and global inflation, as well as the increase in the cost of production, the firm said.

The company said revenue was USD1.25 billion, down 50% from USD2.52 billion a year ago. Ferrexpo attributed the drop in revenue to the operational and logistics effects of the war in Ukraine, noting that 95% of its workforce is based in Ukraine.

Elsewhere in London, Hyve jumped 12% as it agreed to a GBP320 million takeover from media-focused equity investment firm Providence Equity Partners.

The bid values each Hyve share at 108.00 pence, a 41% premium to its 77.00p closing price on February 17 in London, the day before Hyve received an approach from Providence.

The takeover offer gives Hyve an equity value of GBP320 million and an enterprise value of GBP481 million. Providence made an approach back in February, pitching a bid of 105p per share.

Stocks in New York were also deep in the red at the London equities close, with the Dow Jones Industrial Average down 2.2%, the S&P 500 index down 1.9%, and the Nasdaq Composite down 1.3%.

Brent oil was quoted at USD72.03 a barrel at the London equities close on Wednesday, down significantly from USD79.36 late Tuesday. Gold was quoted at USD1,934.17 an ounce, sharply higher against USD1,903.01.

In Thursday's UK corporate calendar, there are full-year results from Deliveroo, Rentokil, and Savills.

In the economic calendar, in addition to the ECB announcing its interest rate decision at 1315 GMT, there is also the weekly US unemployment insurance claims report at 1230 GMT.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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