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LONDON MARKET OPEN: Banking crisis puts planned ECB hike in doubt

16th Mar 2023 08:59

(Alliance News) - Stock prices in London opened higher on Thursday, as shares recovered some of Wednesday's sizeable losses, though concerns over the health of the banking sector are unlikely to go away.

Wednesday's turmoil has put the European Central Bank in a tricky position. It has telegraphed a 50 basis point rate hike, but that outcome is no longer the foregone conclusion it once was.

In the banking sector, confidence is "slow to build" and "easy to shatter", remarked interactive investor analyst Richard Hunter.

"Investors were already on edge following the news emanating from the largely US-focused [Silicon Valley Bank], but a household name such as Credit Suisse entering the fray – albeit for seemingly different reasons – took concerns to a whole new level," he said.

The FTSE 100 index opened 74.82 points, 1.0%, higher at 7,419.27. The FTSE 250 was up 154.30 points, 0.8%, at 18,780.15, and the AIM All-Share was up 0.51 of a point, 0.1%, at 810.91.

The Cboe UK 100 was up 1.1% at 742.85. The Cboe UK 250 climbed 0.9% to 16,361.41. The Cboe Small Companies, however, fell 0.2% to 13,509.36.

In mainland Europe, the CAC 40 in Paris was up 1.1%, while the DAX 40 in Frankfurt rose 1.0%.

Credit Suisse, which ignited Wednesday's sell-off, announced early Thursday that it will borrow almost USD54 billion from the Swiss central bank to reinforce the group after a plunge in its share prices.

The disclosure came just hours after the Swiss National Bank said capital and liquidity levels at the lender were adequate for a "systemically important bank", even as it pledged to make liquidity available if needed.

In a statement, Credit Suisse said the central bank loan of up to USD50 billion, or CHF53.7 billion, would "support...core businesses and clients", adding it was also making buyback offers on about USD3 billion worth of debt.

"These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders," Chief Executive Ulrich Koerner said in the statement.

Credit Suisse, hit by a series of management scandals in recent years, saw its stock price tumble off a cliff Wednesday after major shareholder Saudi National Bank said it won't invest more in the group, citing regulatory constraints.

Credit Suisse shares jumped 23% early Thursday, all but recovering its 24% share price slide on Wednesday. Among other share price risers in Europe, it was a who's who of companies that sold off on Wednesday.

Barclays added 3.6% in London, Societe Generale climbed 1.2% in Paris, and UniCredit rose 4.2% in Milan.

In Tokyo on Thursday, the Nikkei 225 ended down 0.8%, while the S&P/ASX 200 in Sydney fell 1.5%. In China, the Shanghai Composite ended down 1.1%, while the Hang Seng in Hong Kong slumped 1.7%.

In New York on Wednesday, the Dow Jones Industrial Average closed down 0.9%, and the S&P 500 lost 0.7%; however, the Nasdaq Composite added 0.1%.

The pound and euro struggled in the wake of the European banking sector woes on Wednesday, though the safe-haven yen rallied. Roles were reversed early Thursday.

The pound was quoted at USD1.2095 early Thursday, up from USD1.2030 late Wednesday. The euro stood at USD1.0623, up from USD1.0538. Against the yen, the dollar was trading at JPY132.91, up from JPY132.43.

All eyes are on whether the European Central Bank presses ahead with a planned 50 basis point rate hike this afternoon. It announces its latest interest rate decision at 1315 GMT. A press conference with President Christine Lagarde follows at 1345 GMT.

"In light of recent market turbulence and the impact it may have for the economy, the risk of a smaller rate increase has risen. Markets currently attached less than a 20% probability to a 50bp hike. President Lagarde's comments at the press conference regarding financial stability concerns, market volatility and the potential impact on the economy will be closely watched," analysts at Lloyds Bank commented.

Back in London, Rentokil Initial climbed 6.6%, the best large-cap performer. In addition to reporting annual revenue growth, the pest control and hygiene company lauded early progress in integrating its Terminix acquisition.

Rentokil said revenue in 2022 jumped 26% to GBP3.71 billion from GBP2.96 billion. Pretax profit, however, fell 9.1% to GBP296 million from GBP325 million, amid a 29% rise in operating expenses to GBP3.37 billion.

Chief Executive Andy Ransom said: "All of this has been achieved alongside the landmark acquisition of Terminix, reinforcing Rentokil Initial as the largest pest control company in the world. Early progress on integration has been excellent. I am especially pleased with today's announcement of an increase in expectations for total cost synergies to at least USD200 million that evidences our strong conviction in the enlarged group's financial and strategic opportunities going forward."

OSB Group rose 6.5%. The lender, previously known as OneSavings Bank, said net interest income in 2022 climbed 21% to GBP709.9 million from GBP587.6 million. Pretax profit improved 14% to GBP531.5 million from GBP464.6 million.

Boosted by rising interest rates, its net interest margin expanded to 2.78% from 2.53%.

OSB announced a final dividend of 21.8 pence per share, up 3.3% from 21.1p a year earlier. In addition, it declared an 11.7p special dividend. Including its interim payout, it meant its total dividend grew 62% to 42.2p from 26.0p.

OSB, like some of its large-cap peers, also announced a share buyback with its annual results. It will repurchase GBP150 million worth of stock between now and this time next year.

Gym Group plunged 14% as it warned it will take longer than thought for conditions to normalise after the Covid-19 pandemic.

The low-cost gym operator said revenue for 2022 was 63% higher at GBP172.9 million from GBP106.0 million. Its pretax loss narrowed to GBP19.4 million from GBP44.2 million.

"This time last year, we reflected on emerging from the pandemic and indicated that we hoped 2022 would see a return to a more normal trading environment. It is now clear that it will take a longer time to return to pre Covid-19 levels as a result of both the changes to customers' everyday lives and lifestyles and the macroeconomic headwinds that we are all facing," Chief Executive John Treharne said.

Gym Group said it has seen an "uneven" start to 2023. Membership numbers have improved 8.4% from year-end to 890,000 at the end of February. That growth has slowed from 15% this time last year, however.

Ediston Property Investment climbed 6.2%. The company said it will undertake a strategic review and said it has a preference for achieving a merger with another real estate investment trust. It will consider "all options" for shareholder value, however.

Investec Bank is its lead financial adviser and Dickson Minto Advisers is joint financial adviser.

Brent oil was quoted at USD74.54 a barrel early Thursday in London, from USD72.03 late Wednesday. Gold was quoted at USD1,917.73 an ounce, down from USD1,934.17.

Still to come on Thursday are the Irish consumer price index at 1100 GMT and the weekly US unemployment insurance claims report at 1230 GMT.

By Eric Cunha, Alliance News news editor

Comments and questions to [email protected]

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