HSBC Holdings Share News (HSBA)

LONDON (Alliance News) - UK shares closed lower Tuesday, breaking a five day winning streak, as equity markets across Europe were hit by renewed jitters about potential deflation in the eurozone as well as a new escalation in the conflict in eastern Ukraine.

The FTSE 100 closed down 0.3% at 6,611.44, the FTSE 250 down 0.2% at 15,604.27 and the AIM All-Share index down 0.4% at 718.25.

The major indices in mainland Europe fared worse, with the French CAC 40 down 1.6% and the DAX 30 down 1.8% in Frankfurt.

US stock indices were also lower when the European equity markets closed. The DJIA and S&P 500 were down 0.3%, while the Nasdaq composite was down 0.2%.

Early sentiment had been hit when regulators in the US, UK and Switzerland hit five banks, including HSBC Holdings and Royal Bank of Scotland, with over USD4 billion in fines over foreign exchange failings and attempted manipulation of foreign exchange benchmark rates.

The UK's Financial Conduct Authority fined Citibank USD358 million, HSBC USD343 million, JPMorgan USD352 million, RBS USD344 million and UBS USD371 million, saying the banks failed to control business practices in their G10 spot foreign exchange trading operations. In the US, the CFTC imposed fines of USD310 million each on Citibank and JPMorgan, USD290 million each for RBS and UBS, and USD275 million for HSBC. In Switzerland, regulator FINMA ordered UBS to disgorge a total of USD138 million. The Office of the Comptroller of the Currency, an independent bureau of the US Department of the Treasury, imposed a fines of USD250 million on Bank of America NA, and USD350 million each on Citibank and JPMorgan Chase Bank.

HSBC had booked a charge of USD378 million for the foreign exchange investigation, more than enough to pay up to UK regulators, but not enough to meet the combined USD618 million of fines and penalties imposed by the regulators. HSBC is expected to make up the shortfall in its report and accounts at the full year.

RBS had set aside GBP400 million for regulators' investigations into the foreign exchange market, in line with the size of its fine. However, RBS reiterated that it remains in discussions with other governmental and regulatory authorities over the issues, including the US Department of Justice and other financial regulatory authorities. RBS said that the timing and amounts of further settlements and related litigation risks are uncertain and could be significant.

"In relation to Barclays Bank PLC, we will progress our investigation into that firm which will cover its G10 spot FX trading business and also wider FX business areas," the FCA said in a statement.

In a response, a Barclays spokesperson said it had decided against agreeing to a settlement on similar terms to the other banks, concluding "that it is in the interests of the company to seek a more general coordinated settlement".

Barclays ended down 2.2%, amongst the worst-performing stocks in the FTSE 100, while HSBC closed down 1.0% and RBS closed down 0.6%. The FTSE 350 Banks sector index closed down 0.7%.

Equity investors were also jittery after the Ukrainian government said Wednesday that Russia had "crossed a red line" and that it was again preparing for war in the country's east. The armed forces' main task is "to prepare for combat" as the pro-Russian insurgents are massing troops, Defence Minister Stepan Poltorak told a cabinet meeting in Kiev, according to local media reports.

Ukraine's National Security Council said separatists and Russian regular forces continued the military build-up in the eastern districts they control. Large-scale troop movements have been confirmed by observers from the Organization for Security and Co-operation in Europe over recent days. General Philip Breedlove, NATO's supreme allied commander Europe, said Tuesday that the Alliance had also seen heavy weapons flowing into eastern Ukraine in the past days, according to an emailed transcript.

The pound fell and UK 10-year gilt yields slipped after the Bank of England cut its growth forecasts and said inflation is set to fall below 1% at some time over the next six months, before moving closer to the bank's 2% target at the end of 2017.

The central bank cited concerns about stagnation in Europe as it forecast the UK economy will grow 3.5% in 2014, unchanged from its previous estimate, but lowered the outlook for next year to 2.9% from 3.1% and that for 2016 to 2.6% from 2.8%.

"A spectre is now haunting Europe - the spectre of economic stagnation," BoE Chief Mark Carney said at a press conference.

The pound was trading at USD1.5808 and EUR1.2684 when the European equity markets closed, as analysts said the move had again pushed back expectations for when the bank might start to raise interest rates.

The best-performing stock on the FTSE 100 was G4S, which marked a continuing recovery from the contract issues that dogged 2013 by saying organic revenue was up 4.2% in the first nine months of this year, and underlying profits up by even more, driven by its corporate revamp, strong sales growth in emerging markets and a return to strong growth in North America. G4S ended up 2.1%.

Tullow Oil was also amongst the best performers after it said it would focus its capital expenditure on more commercially viable prospects in Africa such as its TEN development project, and away from exploration, due to weak oil prices and an under-par performance from its European projects. Tullow closed up 1.6%.

Outsourcing giant Capita was the worst-performing stock on the blue-chip index, closing down 6.1%, even though it said it is on track to meet market expectations for its 2014 results, after it won major deals like handling congestion charging in London and being made preferred bidder on a potential deal to handle The Co-operative Bank's mortgage servicing operation.

However, it has secured a lower value of major sales so far this year after 2013 was bolstered by its largest ever contract worth GBP1.2 billion with O2. Its bid pipeline is also lower than it was at the end of July.

Liberum said Capita is enjoying a strong period of growth as a result of a higher win rate at the start of the year and recovery in transactional activity, but continuing at this growth rate will become increasingly more challenging due to recent lost prospects, an expected slowdown into the next UK General Election, as well as gradual efforts by government to widen its supply chain and rehabilitate previous offenders, resulting in fewer prisoners.

In the FTSE 250, bwin.party digital entertainment shares closed up 10.5% after it confirmed it has entered preliminary discussions with "a number of interested parties regarding a variety of potential business combinations" which may or may not lead to an offer being made for the company.

The confirmation follows media speculation that the company has been approached by Canadian gaming and online gambling company Amaya Gaming Group.

Building products distributor SIG was amongst the worst performers on the mid-cap index after it said it had slightly lowered its expectations for the year due to weak economic conditions in Europe, although it also raised its cost benefit targets from the strategic initiatives it is taking.

"Trading conditions in mainland Europe, particularly Germany and Poland, weakened due to the deteriorating macroeconomic environment, not helped by political uncertainties in Ukraine," the company said. It shares closed down 6.1%.

Playtech was the worst performer in the FTSE 250 after it placed EUR297 million of unsecured convertible bonds, saying it intends to use the money to pursue acquisitions as well as driving organic growth. It closed down 7.5%.

It's another busy corporate reporting day Thursday, with half-year results from brewing giant SABMiller and London Stock Exchange Group, and interim management statements from Rolls-Royce Holdings, Premier Oil, Spirent Communications, ITV, and Rexam, amongst many others.

The economics calendar is also busier than in recent days, with Japan and China industrial production and China retail sales due overnight, consumer price index data from Germany and Italy out during morning trade and US jobless data due at 1330 GMT. The ECB will put out its monthly report in the morning, with the US monthly budget statement coming after the European close.

By Steve McGrath; steve.mcgrath@alliancenews.com; @stevemcgrath1

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