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Market Blog: FTSE up on stimulus hopes; RBS shares fall

Markets rise as investors look to central banks for stimulus action and oil price breaks $100 mark.

 
Market Blog: FTSE up on stimulus hopes; RBS shares fall

  • Brent oil surpasses $100-a-barrel mark amid rising geopolitical tensions
  • Global equity markets rise on stimulus hopes: FTSE 100 up 0.48% at 5,667
  • Analysts say 'hold' Barclays shares
  • Another sharp fall in UK construction activity
  • Consumer borrowing rises, but not enough to shift the economy

17.00: Britain’s markets made gains as investors looked to central banks for crisis-stemming stimulus on Thursday. The benchmark FTSE 100 index added 0.83%, or 47 points to 5,688 and the FTSE250 took on 0.87%, or 97 points, to 11,190.

Oil prices also rose as brent crude added 3.8% to hit $101 a barrel due to concerns over the possibility of the Strait of Hormuz closing.   

Vedanta Resources (VED.L) took on 6%, or 55p, to 961p leading the rally for miners as metals prices improved.

Banking stocks finished the day down as Royal Bank of Scotland (RBS.L) fell 1.14%, or 2.5p, to 216.5p on concerns about the extent of its possible role in the Libor-fixing scandal. Barclays (BARC.L) gave up 0.8%, or 1.4p, to 167p as chief operating officer Jerry del Missier resigned, following in the footsteps of chief executive Bob Diamond.  

Barclays lashes out

15.30: Barclays has named del Missier, the chief operating officer who just resigned, as the most senior person to order lower Libor rates.

‘Jerry was most senior officer who gave instructions to lower the libor rate,’ said chairman Marcus Agius in a conference call with journalists.

The bank has also published an explosive document which will form its submission to the Treasury Select Committee tomorrow.

It includes a note written by Bob Diamond, the Barclays chief who resigned this morning, implicating both the Bank of England and government in the bank's rate-fixing.

Email from Bob Diamond: Click to enlarge

The TSC submission explains:

'On 29 October 2008, Bob Diamond received a call from Paul Tucker, the Deputy Governor of the Bank of England. The substance of that call was captured by Bob Diamond via a note prepared at the time. A copy of that note is appended to this document; it was circulated to John Varley, then Barclays Chief Executive, and Jerry del Missier, then President of Barclays Capital.

'Subsequent to the call, Bob Diamond relayed the contents of the conversation to Jerry del Missier. Bob Diamond did not believe he received an instruction from Paul Tucker or that he gave an instruction to Jerry del Missier. However Jerry del Missier concluded that an instruction had been passed down from the Bank of England not to keep LIBORs so high and he therefore passed down a direction to that effect to the submitters.

'There was no allegation by the Authorities that this instruction was intended to manipulate the ultimate rate. The bank’s submissions had consistently been excluded from the LIBOR calculation. Moreover the instruction became redundant in a matter of days as market conditions improved.

'The FSA investigated Jerry del Missier personally in relation to these events and closed the investigation without taking any enforcement action.'

Shares in the bank are down now, at 167p.

Jerry del Missier latest to go in Barclays purge

15.00: Agius, Diamond, now del Missier… Barclays' chief operating officer is following the chairman and chief executive out of the door as the rate-rigging purge continues.

Jerry del Missier though did not offer up anything equating an apology in a statement just sent out by Barclays.

Management changes

Barclays today announces the resignation of its Chief Operating Officer, Jerry del Missier with immediate effect.

Commenting, Mr del Missier said: "My 15 years at Barclays have been a time of great accomplishment, both for me personally and for the bank. I am grateful for the opportunities that were provided to me and proud of what we achieved. We built one of the premier global investment banks from scratch – something that we are all very proud of. The firm is as strong today as it ever has been and is incredibly well placed to succeed within the post financial reform competitive landscape.

“I have every confidence that the Board and Executive Management of Barclays will be successful in executing their plans, and I wish them the best of luck in doing so."

Commenting, Barclays Chairman, Marcus Agius said: "Jerry played a pivotal role in many of Barclays standout successes during the last 15 years, including his extraordinary contributions as part of the leadership team that built the investment bank. His many contributions to the firm were critical to why Barclays was able to weather the extreme market turbulence of the credit crisis as well as we did. His colleagues, clients and other stakeholders hold him in the highest regard.”

We should get more details in a media conference call with Barclays management that is about to start.

Barclays shares meanwhile have let slip some of their earlier gains, now up 1.3% to 170p.

Oil price shoots above $100

14.09: The oil price is rising sharply again, with Brent crude futures up 3.2%, climbing above the $100 mark for the first time since the start of June.

A quick recap: oil, and commodity prices in general, are historically very high. But they have fallen sharply this year amid threats over the Strait of Hormuz and growing concerns about the state of the global economy, particularly China. In fact, analysts at Deutsche Bank note this morning that ‘the decline in commodity returns since the beginning of May has now surpassed the destruction in returns that occurred in May 2010 and September 2011’. 

In recent days, though, the oil price has picked up. A couple of threats to the supply of oil have helped the price higher in what strategists are describing as a return of geopolitical risk. These include a proposed bill in Iran to close the Strait of Hormuz to tankers bound for countries supporting sanctions against Iran, while in Norway, oil workers have been on strike for over a week now.

Analysts at Commerzbank reckon there might have been a ‘change of mood' on the commodity markets:

‘Surprisingly, not even weaker data such as the US ISM manufacturing index have checked oil’s advance. The situation would have been different a week ago, suggesting a change of mood on the commodity markets. One fact is evidently hopes that the central banks will providing an additional liquidity boost. And with speculators far from optimistic, oil prices could continue to rise for a while.’

Stick with Barclays shares – for now

12.57: Stick with your Barclays shares for now, analysts at Charles Stanley have said, in a note reiterating their ‘hold’ rating on the stock after Bob Diamond announced he was quitting.

Although the risk of holding the shares has ‘risen substantially’ in recent days, ‘on a technical basis the stock does look historically cheap trading on 5.3x 2012 earnings and only 0.4x book value for a business with a Q1 2012 adjusted ROE of 12.2%,’ Charles Stanley analyst Nic Clarke said in a note.

But:

‘We shall be watching events very closely and look forward to reviewing the performance of the business when the interim results are announced on 27 July.’

Barclays shares are 3.8% higher to 174.8p

Fidelity's questions for Diamond

11.30: Sorry Bob, Barclays (BARC.L) shareholders are pleased to see you go. Or, at least, they are relieved that the uncertainty around your position has been removed. The shares are now 6p, or nearly 3.5%, higher at just over 174p. They are still 15% down on their level five sessions ago, however, and have lost over a third of their value in the past year.

Dominic Rossi, global chief investment officer at Fidelity Worldwide Investments, has set out the questions he wants answered when Diamond appears before the Treasury Select Committee tomorrow.

He said: ‘I think the kind of questions everyone is trying to get to the bottom of is what was the nature of the manipulation? Who was involved? How long were they involved for? Was it escalated [for the attention of senior managers], if it was escalated who was it escalated to? What did the people it was escalated to actually do? Who did they inform? Did they inform the regulator? Did they inform the Bank of England, if they did, who within the Bank of England and the FSA knew?'

Rossi added: ‘I don’t think anyone should underestimate the seriousness of this. If anyone tried to rig the price of the S&P 500 or the FTSE that certainly is… I was going to say criminal act, but we don’t know whether it is a criminal act yet, but within financial services you can’t get more serious than that’, he added.  

Another fall in UK construction

11.00: The chances of the Bank of England relaunching its controversial 'quantitative easing' (QE) programme tomorrow rose today as new data showed another sharp fall in construction activity.

The Markit/CIPS Construction Purchasing Managers' Index (PMI) sank to 48.2 from 54.4 in May, its biggest fall in two and a half years. A level below 50 indicates that the sector is contracting.

Tim Moore, senior economist at Markit, which compiles the data, said: 'The UK construction sector moved back into reverse gear in June, with output falling at its fastest pace since the end of 2009.'

The data adds to the pressure on the government to do more to boost the economy. It may tip the balance towards the Bank of England restarting its QE policy of creating new money to buy back government bonds as a way of stimulating the economy. Many believe the Bank will tomorrow announce a £50 billion addition to the £325 billion it has already spent on trying to stave off a depression.

The FTSE 100 has edged up a bit to trade 19 points higher at 5,659. Barclays (BARC.L) shares continues to claw back their recent losses, up nearly 5p to 173p.

Consumer borrowing rises but not enough to shift the economy

10.40: Consumers borrowed more in May, according to the Bank of England, but it's nothing to get really excited about, unfortunately, either as a sign of public fecklessness or a much-needed tonic for the economy.

Consumer credit rose by £732 million, stronger than the £200 million increase forecast by economists and up from £379 million in April. However, mortgage approvals for house purchases fell to 51,098 from 51,627, as the property market remains very quiet. And net mortgage lending rose by £563 million, the smallest increase since September 2011 and below the £800 million rise forecast.  

FTSE rises but Europe becalmed as euro deal challenged

10:30: Oh dear, the wheels are beginning to come off last week's surprisingly positive EU meeting. Both Finland and Netherlands are saying they will block attempts to allow the European bailout fund from buying the government bonds of peripheral countries such as Italy and Spain.

Finland and Netherlands are 'hardcore' allies of Germany so their opposition to using the bailout money this way is not new but it is disappointing to see their stance has not changed. There also remains the risk that Germany's constitutional court will challenge the decision to use the European Stability Mechanism to intervene in bond makets in an attempt to bring down the cost of borrowing for Italy and Spain.

Markets have not taken fright, however, and the Euronext 100 index is trading sideways at 6,215. The FTSE 100 is 15 points higher at 5,657.

10:10 We will update the blog very soon, just been totally side tracked by Barclays, up 3p at 171.5p.

Liberum: was Diamond's threat to embarrass regulators his undoing?

08:15: Barclays (BARC.L) shares are jumping all over the place after the shock news that Bob Diamond has given up his fight to stay in his job as chief executive. Having opened down the shares are rising now 2.5p, or 1.5%, up at 171p.

Cormac Leech of Liberum Capital says Diamond's chances of clinging on were reduced by reports in the Financial Times that he was 'threatening to reveal embarrassing details about dealing with regulators' when he appears before MPs on the Treasury Select Committee on Wednesday.

The FTSE 100 has started 12 points, or 0.21%, higher at 5,652.

5 comments so far. Why not have your say?

Graham Barlow

Jul 03, 2012 at 09:46

What this scandal has revealed is :- What is the depth of the Political complicity in all this?. Bob Diamond' enquiries with the BBA and the FSA about other Banks Libor submissions raises some fundemental questions about the HBOS takeover by Lloyds without due ciligence and in inordinate haste. Diamond's question ed how HBOS submissions for Libor to the BBA were lower than Barclays. What the Hell was going on? Clearly they failed to get adequate assurances from even the FSA the BBA and ultimately the B of E it seems prima facie they had no option but to join in the unclean. The question is did this Libor scandal in 2008 reach as far up the chain to Brown Darling and Balls? Clearly everyone else knew about it. We know about the cover up at HBOS of the B of E loans not revealed to the Lloyds shareholders, but who was complicit in the HBOS libor submissions? Northern Rock's were also

allegedly below Barclays Libor sumissions. As a shareholder in Lloyds Clearly the accounts at HBOS presented to the shareholders in HBOS should not have been signed off. I for one am looking for justice

report this

Raj Thamotheram

Jul 03, 2012 at 13:00

Great to see Fidelity has questions for Bob Diamond. As a major owner of the company I am sure you will get answers.

My questions to Fidelity, again because you are a major owner of Barclays are

1) Did you vote against the pay deal or were you part of the 73% that allowed it to happen

2) Did you have clarity about the CEO succession plan

3) Were you satisfied with board independence & risk functions?

If the answer to any of these are "no", what are you going to do to adapt your governance/investment practices across the board?

report this

snoekie

Jul 03, 2012 at 16:35

Graham, why do you think the politicians want to control the inquiry?

For a judge led one, Red Ed, Brown Balls have more time to cook their stories. If Political inquiry, the Tories will be able to smear the above, and others, including the barrel maker wife of spherical objects. However, million to one odds they will not resign, or even be truthful about their involvement, or even give authority for their paperwork to be disclosed.

Would a judge be able to order disclosure? I think not and we will have to wait another 25 years before that is disclosed.

In the meantime the wide boys will collect their pay and froth away at the mouth trying to score points over something they presided over. Who, generally, is above the law, yep, you got it, the politicians.

report this

Charles Flawn

Jul 03, 2012 at 17:08

What really matters is the effect on the reputation of London as a safe financial centre.

To that end this whole matter needs to be cleared up quickly, the culprits dealt with in a clear transparent way that all can understand.

Let us hope that the T.Select Comm. take this matter seriously and get the job done quickly.

report this

mark jukes

Jul 04, 2012 at 09:09

There is something fundamentally wrong with this whole situation why are these people allowed to resign? Why are they allowed to walk away, with the usual compensation, on their own steam.

These people have destroyed Barclays reputation yet they just walk away!!

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