Market Report: Mortgage banks depress sentiment

AHEAD OF Thursday's expected interest-rate cut, mortgage banks came under pressure as cautious comments emerged from two investment houses and another was thought to be on the verge of producing a bearish circular.

Alliance & Leicester led the retreat, falling 41.5p to 850.5p; Woolwich was not far behind with a 14.75p decline to 354p and Halifax slipped 17p to 847p.

CSFB believes the former building societies are 18 per cent overvalued and suggests investors should be underweight in the shares. It is worried by growing competition and the impact of the slowdown in the economy. The investment house is expected to trim its profit forecasts.

The much smaller Williams de Broe has already wielded the axe, lopping a few million from its Abbey National and Halifax current-year estimates, but was much more severe on next year's forecasts, cutting Abbey pounds 65m to pounds 1.65bn and Halifax pounds 70m to pounds 1.83bn. The stockbroker regards Abbey shares, down 7p at 1,178p, as a buy but is a seller of Halifax.

Credit Lyonnais is thought to be lining up a negative review of the mortgage banks, and there were suggestions ABN Amro was cautious on some of the players, particularly Alliance & Leicester.

The rest of the market had a lethargic session, with the looming Monetary Policy Committee decision prompting many investors to observe events from the sidelines.

At one time Footsie was up 49.2 points but as the session wore on the lack of buying interest took its toll and by the close the index was nursing a 5.2 fall at 5,576.7. The mid cap and small cap indices achieved modest progress.

Even a dazzling array of rumours of various forms of corporate action failed to stimulate. British Aerospace and General Electric Co. were among the heavyweight contenders for takeover honours and First Leisure Corporation and Sears were also prominent.

BAe, 15.25p higher at 511p, was back on the European consolidation runway. There is little doubt that links between the European aerospace groups are being discussed; the question is when will a deal be clinched and what form it will take.

The latest stir stemmed from weekend rumours in France that Daimler/Chrysler Aerospace and BAe were near to revealing an alliance which could be the central force in any regrouping.

GEC, 3p firmer at 537p, reflected reports that it has held discussions over joint ventures, possibly even a full merger, with Lockheed Martin, the US group.

The big blue-chip deal of the day failed to provoke any enthusiasm. ScottishPower was short-circuited 66p to 609p after confirming its pounds 4.7bn deal with PacifiCorp. The all-share takeover will catapult the group, with a pounds 12.8bn capitalisation, into the world's top 10 utilities.

Among the midcap bid candidates, First Leisure put on 22p to 255.5p on talk of a management buyout or venture capitalist break-up. In summer the shares were 436.5p.

Sears, the retailer which demerged Selfridges in July, hardened 7p to 240p. Here again a venture capitalist-backed bid is considered more likely than a strike from another retail chain.

Engineer Siebe firmed 2p to 218.75p on talk that its offer for struggling rival BTR was encountering growing City criticism.

Among the third liners Evans Halshaw led the field. The car dealer drove up 50p to 211.5p as it said bid talks were under way. The shares were 305p in the spring.

Aspen, a hard-pressed marketing group, lost 9p to 40p after putting itself up for sale and warning of further losses. Chemical group Blagden Industries slumped 37p to 136.5p as talks with a potential bidder were called off.

Cadbury Schweppes hardened 18p to 883p. The confectionery and soft drinks group has clinched a bottling deal which "will ensure future growth" of its Dr Pepper/Seven-Up soft drink operation in the US.

Analysts' comments were not confined to mortgage banks. Lehman Brothers provided a boost for Imperial Chemical Industries. Surprisingly, the American investment bank had not, until now, researched what used to be the bellwether of UK industrial health. It set a target price of 700p, enough to put ICI at the top of the Footsie leader board with a 24p gain to 570p.

J Sainsbury, downgraded by Goldman Sachs, was cut 13p to 462.5p and Tesco, ahead of an investment meeting tomorrow, slipped 2p to 162p.

Shell, the oil giant which has been left out in the cold, flared 6.5p to 335p after confirming that it intended to meet analysts this month.

Jockeying ahead of this week's various FTSE index changes prompted activity, with advertising group WPP, one of those in the relegation zone, up 13.25p to 346.75p, and Dixons, a sure-fire candidate for promotion, 20p up at 770p.

SEAQ VOLUME: 669.1 million

SEAQ TRADES: 54,681

GILT INDEX: 113.89 -0.34

AHEAD OF a trading update due tomorrow Kingfisher rose 7.5p to 524p. BT Alex.Brown regards the shares, which have performed much better than most retailers, a buy but feels the trading report could be disappointing. It frets about the retail recession which "must be hurting" and has trimmed its year's expectations by 4.3 per cent to pounds 559.2m. Kingfisher has moved between 406p and 582.5p in the past year.

EXPLORATION MINNOWS, irrespective of what they are seeking, remain unloved in the stock market. Latest to feel the pinch is little South African group Firestone Diamonds, floated at 114p in the summer. The shares, already down to 81.5p, plunged a further 15p prompting the company to complain it was unaware of any reason for the fall. It promised updates on its developments in the near future, saying they were "progressing well".