Market Report: RBS shares dive on rumour of Santander sell-off

Shares in Royal Bank of Scotland took a dive in the last minutes of trading yesterday, as a rumour swept dealing halls that it is ready to unwind its remaining cross-shareholdings with Santander, the Spanish group which has just acquired Abbey National.

Shares in Royal Bank of Scotland took a dive in the last minutes of trading yesterday, as a rumour swept dealing halls that it is ready to unwind its remaining cross-shareholdings with Santander, the Spanish group which has just acquired Abbey National.

Santander owns just shy of 3 per cent of RBS, which would be a sizeable chunk to put on the market just weeks after the Spaniard cut its holding from 5.4 per cent in September.

The chatter appears to have been triggered by suggestions in Madrid that RBS was placing its own stake, which equates to about 2.5 per cent of Santander after the acquisition of Abbey. Santander shares, which Abbey's army of 1.7 million small shareholders can sell at their local branch without incurring foreign exchange or dealing fees, were off 8 cents at €8.91 (£6.23) in Madrid.

Yet both sides were pouring cold water on the story, suggesting no moves are imminent. Santander has agreed not to sell any more of its RBS shares until at least mid-December, while RBS would be likely to inform the Spanish market before a placing of Santander shares.

RBS shares slumped 16p shortly before the end of trading and recovered only slightly to close at 1,627p, 9p lower on the day. An alternative explanation for the move was that one particular seller was struggling to finish its business by the end of the day. Analysts, though, say the future of the RBS-Santander cross-holding will be the subject of speculation from now on, with both sides looking at their remaining shares as financial investments, pure and simple. The nomination of directors to each others' boards ended with Santander's approach to Abbey.

Abbey was replaced in the FTSE 100 yesterday by Corus, and the steel maker got off to an ignominious start by becoming the day's worst performer in the index. Its shares fell 2.75p to 53.5p from a two-year high after the chief executive of its rival Arcelor warned that the 50-100 per cent rises in steel prices this year will not be repeated.

The FTSE 100 closed down 32.7 points at 4,770.4. Investors have decided to take a collective breather after the rallies of recent weeks. Shares in the ailing supermarket chain J Sainsbury were sold down 3.75p to 269.25p, before results this morning. Meanwhile, over at rampant Tesco, Philip Clarke, the head of international operations, netted £332,000 from the exercise of share options. Tesco shares were 300.5p yesterday, down a ha'penny.

Investors in pubs groups were left gasping after the Government proposed banning smoking in venues which serve food. Enterprise Inns tumbled 11.5p to 610p on fears that a significant number of its customers will be driven away. And there was a similar sell-off among the mid-cap pubs operators. Mitchells & Butlers was off 9.5p at 282.5p. Punch Taverns fell 8.25p to 551.75p. JD Wetherspoon was hit for 6p to 226.5p. Wolverhampton & Dudley Breweries was 28p lower at 888p. Greene King was 16p sicker at 1,144p. In all, more than £150m was wiped from the value of the pubs sector. And it was a black day, too, for the tobacco companies which together account for 90 per cent of the UK cigarette market: Gallaher, which makes 55 per cent of its profit here, fell 16.5p to 701p, while the market leader Imperial Tobacco, which makes 51 per cent in the UK, was off 4p at 1,318p.

Intermediate Capital, supplier of debt and equity funding to management buyouts, was heavily traded for a second day. Traders at Numis found a home for 1.2 million shares, clearing out a seller who has dogged the stock for a while. The shares closed flat at 1,028p.

And talking of management buyouts, Homestyle shares traded heavily amid another burst of speculation about an imminent private equity-backed bid. The furniture group's stock was up 9 per cent at its height, and closed 5.5p better at 119.5p. There was also talk of a very healthy offer for the beds business that Homestyle has put up for sale, which might fetch a price tag almost equivalent to Homestyle's whole market capitalisation, according to the bulls. The company's mightier rivalMFI Furniture enjoyed a 4.75p bounce to 117.25p after promising it was getting on top of its warehouse stocking problems. "Smartening itself up to be taken over," said one optimistic holder.

Little Stanelco jumped 0.63p to 4.62p after saying it had invented a way to stop Asda's microwave meals leaking. It is also working with other supermarket chains, it was said.

And Southern African Resources gained a further 3.5p to 32.5p now that its founding chairman Phil Edmonds, the former England cricketer, has been sidelined in favour of a more professional mining company management.

Market Movers

↑ SSL International 267p (up 2.75p, 1.0 per cent). Betting that results on Thursday will be the trigger for a renewed bid from Reckitt Benckiser.

↑ Supercart 16.5p (up 4.5p, 37.5 per cent). Confident chairman buys 220,000 shares for his pension pot.

↑ African Gold 7.25p (up 1.5p, 26.1 per cent). Switch of focus from Zimbabwe to Ghana rewarded with positive drilling results at Banka.

↑ SkyePharma 60.5p (up 2.25p, 3.9 per cent). Long-awaited licensing deal is close, gossips say.

↑ Burberry 413p (up 18p, 4.6 per cent). Promises to return cash, estimated at £250m, to shareholders.

↑ GUS 892.5p (up 2.5p, 0.3 per cent). Owns 66 per cent of Burberry.

↑ CardPoint 112.5p (up 3p, 2.7 per cent). Fee-charging cash machines set to outnumber free ones next year.

↑ Manchester United 282p (up 3.75p, 1.4 per cent). Malcolm Glazer seeking backers for a new bid approach.

↑ Emap 825p (up 13.5p, 1.7 per cent). Promises to meet City forecasts.

↑ Chrysalis 174.5p (up 10.5p, 6.4 per cent). Makes up bulk of Monday's losses after Emap proves radio advertising slowdown is industry-wide, not specific to Chryalis.

↓ Formjet 4.12p (down 0.63p, 13.3 per cent). Product launch delayed.

↓ HSBC 926.5p (down 27p, 2.8 per cent). Household figures disappoint.

↓ Capita 355.75p (down 10.75p, 4.9 per cent). Citigroup abandons "buy" recommendation after share price rally.

↓ BHP Billiton 578.5p (down 8p, 1.4 per cent). Oil and other commodities prices seen falling.

↓ Plant Health Care 42.5p (down 12p, 22.0 per cent). No sales recovery in the second half, company says, sending shares to below July float price.

↓ Cubus Lux 25p (down 5p, 16.7 per cent). Said on Monday that its Croatian hotel casino was failing to attract professional gamblers.

↓ Numerica 27.5p (down 1p, 3.5 per cent). Profit warning from Cubus Lux, which it floated only in August.

↓ French Connection 255p (down 50p, 16.4 per cent). Customers fcuk off.