Barclays is leading the FTSE 100 fallers after analysts cut their price targets following Friday's news of a £7.3bn cash injection giving Middle East investors a 30% stake. The Abu Dhabi owner of Manchester City football club will become the bank's biggest single investor.
The news sent Barclays' shares down 12% on Friday because of the heavy dilution of existing investors, and the slide has continued today. It is down 13.2p at 165.7p, a decline of more than 7%.
Merrill Lynch has cut its price target from 235p to 204p, while UBS has reduced its estimate from 220p to 170p to reflect the higher number of shares in issue.
UBS said: "Barclays is not an expensive stock. However, expected return on equity is below cost of equity and the price/earnings ratio of 8.1x 2009 estimate profit is at a premium to peers. We also continue to expect substantial sector-wide negative earnings revisions from the UK cyclical downturn. As a
consequence, we retain a neutral rating on the shares."
Meanwhile Panmure Gordon, in a sell note, said: "Of course, it is a good thing that Barclays has boosted its capital ratios; it is just the cost of it that concerns us. And at first glance, the interim management statement [on Friday] seems to show additional deterioration in credit quality in some key areas (CLOs, CMBS) along with further deterioration in credit ratings of some counterparties (eg monolines)."
Still in the banking sector, HBOS has climbed 3p to 102.3p. The bank has raised its bad debt estimate to £5.2bn, in line with estimates, and there is also vague talk of a counter bid to the agreed Lloyds TSB offer. Lloyds, down 2.7p to 195.1p, has warned of a sharp fall in profits due to rising bad debts and the current financial turmoil.
Alex Potter at Collins Stewart said there was little unexpected in the HBOS statement and its shares were a cheap way into Lloyds. He said: "Capital has not been impaired beyond our expectations today. Therefore the Lloyds bid appears likely to go through (contingent on Lloyds' EGM on 19 November.) HBOS is at a discount of around 20% to the bid and we see that gap closing."
Overall we can expect another volatile week, awaiting the US election results and the UK interest rate decision, with some hoping for a full 100 basis point cut from the Bank of England. Some turnaround that would be, if it happened, given the Bank's reluctance to move until the recent global co-ordinated cut.
At the moment the FTSE 100 is continuing its upward trend, 19.33 points higher at 4396.67.
Miners continue to make much of the running, with Kazakhmys up 29p at 314.5p and Xstrata 84p better at £11.39.
The London Stock Exchange has climbed 36.5p to 595p.
