Market Report: Barclays unsettled by concerns over capital

Concerns about capital left Barclays 3.7 per cent lower at 350.25p yesterday. The stock was unsettled after a "sell" note from Royal Bank of Scotland focused on the bank's balance sheet, suggesting it may face a shortfall of up to £7.5bn.

"Barclays offers a clear, well-executed long-term strategy. But benchmarking [its] capital ratios and writedowns versus peers implies a £4.9bn-£7.5bn shortfall at a time when credit quality and coverage ratios are weakening and core deposit momentum is disappointing," RBS analyst Ian Smillie said, reducing his target price for the stock to 300p from 475p.

In the wider sector, leading shares traded lower on concern about what may replace the Bank of England's Special Liquidity Scheme, which comes to an end next month. While there are no official figures, analysts reckon that around £100bn may have been lent as part of the scheme, which allows banks to swap mortgage assets for more liquid government bonds.

Credit Suisse, which weighed in on the issue last night, said that while there was little prospect that UK banks will be left without access to some sort of scheme, sector share prices are likely to remain unsettled until details of the replacement are available.

The anxiety was evident in yesterday's movements. HBOS was down 6.75p at 303.25p, Bradford & Bingley lost 2.25p to 42.75p and Lloyds TSB eased back to 303.5p, down 7.5p.

The FTSE 100 was down 121 points, or 2.2 per cent, at 5,499.7, while the FTSE 250 slipped back 173.9, or 1.8 per cent, to 9,369. BAE Systems, up 2.25p at 485.25p, was one of only three stocks which registered gains on the FTSE 100 as banking, retail and resource sector shares fell back.

On the FTSE 100, consumer-related stocks gave back Tuesday's gains following a disappointing update from the mid-cap pubs group Punch Taverns, which scrapped its final dividend in the face of inclement market conditions. The shift in sentiment hurt Enterprise Inns, which was down 8.79 per cent or 27p at 280.25p. Following recent losses, traders expect the company to fall out of the benchmark index in the upcoming quarterly reshuffle, the results of which will be announced after the market closes next Wednesday. Punch lost 12.15 per cent or 38.5p to 278.25p.

Next, the high-street fashion retail chain, eased back 41p to 1,092p. J Sainsbury, which has reportedly expressed an interest in Ireland's Superquinn, was down 15p at 355p. Other supermarkets were also unsettled after Morgan Stanley reiterated caution: the broker said that while it doesn't expect either Sainsbury, Morrisons, which was down 5.5p at 284.5p, or Tesco, which was off 8.5p at 388p, to miss their respective first-half forecasts for 2009, recent food price inflation had "bailed out" the industry, allowing the three to post healthy sales numbers despite weak volumes and increased competition.

Also on the downside, resource stocks registered fresh losses thanks to weaker commodity prices. The Ukraine-focused iron ore producer Ferrexpo, trading ex-dividend, was the weakest on the FTSE 100, down 15.42 per cent or 38.5p at 221.25p. BG, the natural gas giant, slipped 72p to 1,047p after JP Morgan reduced its target price for the stock to 1,480p from 1,500p.

BP fell 5.5p to 506p, despite positive comment from Goldman Sachs which, mindful of the recent de-rating of the sector, added the stock to its "buy" list. "Since its mid-July peak, the oil price has fallen 25 per cent, leading the oil sector to underperform the European market by 9 per cent. We maintain a bullish view on the oil price, which gives up a 36 per cent per cent average potential upside in the sector," the broker said.

The consumer goods giant Unilever was on the back foot, down 52p at 1,490p, after Cazenove switched its stance on the stock to "underperform" from "outperform".

"In the 1990s recession, Unilever's sale growth slowed and operating margins deteriorated," the broker said. "In this recession, in our view, sales growth could slow materially, given significant price increases to pass on higher food commodity costs."

Among the mid-caps, the housebuilders fell back as the effect of short covering wore off and the market, initially cheered by the Government's housing recovery package, fell in line with analyst views that the measures will offer scant support to falling property values.

"We view the... announcements from the Government as primarily a political exercise rather than one that will have a material economic impact on the underlying housing market," said Credit Suisse, which reiterated its "underweight" stance on the sector. It singled out Persimmon, which was trading ex-dividend yesterday, as its key "underperform" idea, contributing to the stock's 21.75p slide to 402.5p. In the wider sector, Taylor Wimpey fell 5.5p to 55.25p.