LONDON MARKET CLOSE: Commodity Stocks Support Gains But RBS Declines

LONDON (Alliance News) - London shares ended higher Friday, with higher crude prices supporting gains in miners and oil-related stocks, while Royal Bank of Scotland Group led the blue-chip fallers after the state-backed bank reported its eighth consecutive annual net loss.

Meanwhile, the pound weakened further against the dollar, after better-than-expected gross domestic product and consumer sentiment from the US.

The FTSE 100 closed up 1.4%, or 83.20 points, at 6,096.01, and closed the week up 2.5%. The FTSE 250 ended up 1.0%, or 167.97 points, at 16,567.04, and the AIM All-Share rose 0.5%, or 3.22 points, to 692.35.

Edinburgh-based Royal Bank of Scotland's net loss narrowed to GBP1.98 billion in 2015 from GBP3.47 billion in 2014. Adjusted operating profit, which strips out restructuring and litigation costs, among other items, fell to GBP4.41 billion from GBP6.06 billion, due to lower income and asset disposals.

The bank recorded a fourth-quarter net loss of GBP2.74 billion, narrower than the GBP5.79 billion net loss recorded the corresponding quarter the prior year, but enough to drag down results for the entire year. Most of the bank's annual litigation and conduct costs came in the fourth quarter, at GBP2.12 billion. Across the year as a whole, those costs rose to GBP3.57 billion from GBP2.19 billion.

Although it boasts a strong capital position, RBS said it now expects capital distributions, either through dividends or share buybacks, to take place later than the first quarter of 2017.

Analysts described RBS's full-year results as "messy", "disappointing" and a continuation of the "tale of woes".

"Every year we hope that the time has come for the bank to turn a corner and every year we return disappointed," said Michael Hewson, chief market analyst at CMC Markets. "Unless there is some clear evidence that this continued drip feeding of negative news shows signs of abating, it is going to be very difficult to see a rebound in the share price, as shown by today's sharp falls".

Shares in RBS ended down 7.1% at 226.60p, having touched a low of 215.90p, a level it hasn't seen since August 2012.

International Consolidated Airlines Group also closed in the red, down 3.1% at 541.00p, despite reporting a more than doubling in profit in 2015, as revenue grew despite taking a small hit to sales in the fourth quarter following the terrorist attacks in Paris.

The airline operator - which owns British Airways, Aer Lingus, and Spanish carriers Iberia and Vueling - said its pretax profit in 2015 grew to EUR1.82 billion from EUR828 million in 2014, as revenue rose by 13% to EUR22.86 billion from EUR20.17 billion.

Though having closed lower Friday, shares in IAG have rallied since mid-February. The stock touched a low of 466.84p in earlier this month, a level it hadn't see since late 2014, but has risen by 15% since.

Miners and oil-related stocks acted as the main support for gains in the blue-chip index, following a sharp rise in crude prices attributed to reports that oil ministers from Venezuela, Saudi Arabia, Qatar and Russia will meet next month to discuss freezing production.

Qatar's energy minister, Mohammed bin Saleh Al-Sada expressed optimism to CNN about a plan to freeze output from a number of major producers.

"At the moment the best possible feasible proposal is to freeze at the level of production of January," Al-Sada told CNN.

However, reports of this meeting come after Iran and Saudi Arabia ruled out a deal by major producers to cut oil output earlier this week. Iran's oil minister recently said it was "laughable" to think Iran would agree to freeze output following years of sanctions.

Brent oil was quoted at USD36.12 a barrel at the London equities close, higher than the USD33.75 seen at the close on Thursday. US benchmark West Texas Intermediate was at USD33.34 on Friday versus the USD31.30 a barrel seen on Thursday.

Oil producers ended firmly in the green, with Royal Dutch Shell 'B' shares up 3.0%, Shell 'A' shares up 2.9% and BP up 3.0%. In the FTSE 250, Petrofac was the best mid-cap performer, up 8.3%, and Tullow Oil was the second best performer, up 7.2%.

Miners also finished among gainers, benefited by the comments from the People's Bank of China Governor Zhou Xiaochuan, who said there is more room for monetary policy and multiple instruments to address possible downside risks to the Chinese economy.

Xiaochuan reiterated that there is no room for persistent renminbi depreciation. In the long-run, the exchange rate will reflect economic fundamentals, he noted. Economic growth remains relatively strong, Xiaochuan said ahead of this week's G20 meeting in Shanghai. The central bank said foreign reserves will be maintained around an appropriate and reasonable level.

Anglo American closed up 6.7%, Rio Tinto up 3.0%, Glencore up 8.0% and BHP Billiton up 3.8%.

BHP said progress has been made in its negotiations with Brazilian authorities on a settlement for the Samarco tailings mine dam burst. Responding to recent news reports that Brazilian authorities are seeking to substantially increase the value of a compensation settlement regarding the mine disaster, BHP said significant progress has been made in the negotiations and it was "hopeful" an agreement will be reached.

Standard Chartered ended as one of the best performers in the FTSE 100, up 7.9%, recovering some ground lost in 2016, with the stock still down by 24% year to date. Shares in the lender managed to end higher despite Standard & Poor's saying it could cut its credit rating on it, following the emerging markets bank's first annual loss since 1989, announced on Tuesday. Standard Chartered saw its A- rating put on watch by Standard & Poor's.

"We could lower the ratings on Standard Chartered PLC, Standard Chartered Bank, and its subsidiaries by a notch, if we believe the group's intrinsic creditworthiness has deteriorated," said S&P credit analyst Terry Sham.

Separately, Australian banker David Morgan, a former chief executive of Westpac Banking Corp, is one of a "significant number" of senior financiers who have been sounded out about replacing John Peace as chairman of Standard Chartered, Sky News reported on Friday. However, there is no certainty that Morgan, the managing director in charge of European and Asian investments at private equity group JC Flowers, will be offered, or accept, the chairmanship of the emerging markets bank, the report said, citing a City source.

Meanwhile, Nomura upgraded fashion house Burberry Group to Buy from Neutral, with the stock ending up 7.5%. The upgrade comes ahead of the luxury good company detailing the results of its operational review, with Nomura saying a change in approach would be a positive for the business. Driving productivity measures should boost Burberry's valuation, the bank said, as would more discipline on cost and capital allocation.

London Stock Exchange Group and Deutsche Boerse, the European exchanges which are in talks to merge, said that the outcome of the UK's Brexit vote will not be a condition of a deal.

The news came as the companies said a combined entity would be a UK PLC domiciled in London, with headquarters in London and Frankfurt, a premium listing on the London Stock Exchange and a prime standard listing on the Frankfurt Stock Exchange. Deutsche Boerse Chief Executive Officer Carsten Kengeter would lead the combined entity, the companies said, taking the position of chief executive officer, with LSE Group Chief Executive Officer Xavier Rolet to step down on completion of a deal.

Shares in LSE ended up 4.5%.

In the FTSE 250, Rightmove ended down 3.7%, making it the worst mid-cap performer. The company's results came in ahead of estimates and analysts said the growth was "highly commendable" given the property portal's dominant market position, but suggested there is scant room for the shares to rise further.

The group's pretax profit was up 16% to GBP144.3 million in the year to the end of December, from GBP124.6 million in 2014, boosted by the 15% increase in revenue to GBP192.1 million from GBP167.0 million.

Numis raised its pretax profit estimate for 2016 but downgraded its recommendation to Add from Buy "given a strong share price move into results". Meanwhile, Shore Capital kept its Hold rating intact, with analyst Roddy Davidson saying he "struggles to see significant upside potential beyond an adjustment to reflect forecast upgrades".

The stock touched a low of 3,298.84p earlier this month, a level it hadn't see since July 2015, although it has risen 15% since.

At the other end of the index, Kennedy Wilson Europe Real Estate closed up 4.2%. The property investor hiked its first quarterly dividend for 2016, as it reported an increase net asset value following a strong portfolio valuation increase in 2015. The company said its EPRA net asset value was up 15% at the end of 2015 to GBP1.53 billion from GBP1.39 billion in 2014, chiefly driven by portfolio valuation increases.

At the end of the year, Kennedy Wilson's portfolio was valued at GBP2.80 billion, up from GBP1.50 billion, after a number of acquisitions during the year. The group said it had paid 35.0 pence per share in dividends in 2015, but declared a 12.0p per share dividend for the first quarter of 2016, up from 10.0p in the last quarter of 2015. This represents 48.0p per share annualised, meaning a 37% increase in prospective annualised dividend.

Stocks in Europe ended higher, with the CAC 40 in Paris and the DAX 30 in Frankfurt up 1.8% and 2.1%, respectively.

In New York at the London equities close, the Dow Jones Industrial Average was up 0.3%, the S&P 500 was up 0.4% and the Nasdaq Composite was up 0.5%.

US economic growth in the fourth quarter of 2015 slowed by less than previously estimated, according to a report released by the Commerce Department.

The report said real gross domestic product increased by 1.0% in the fourth quarter, reflecting an upward revision from the initially reported 0.7% growth. The upward revision came as a surprise to economists, who had expected the pace of GDP growth to be downwardly revised to 0.4%. Nonetheless, the fourth quarter GDP growth still reflects a slowdown compared to the 2.0% increase in the third quarter.

Meanwhile, the University of Michigan released a report showing that US consumer sentiment deteriorated by much less than previously estimated in February, with revised data showing an uptick in the assessment of current conditions.

The report showed that the final reading on the consumer sentiment index for February came in at 91.7 compared to the preliminary reading of 90.7. The upwardly revised reading still came in below January's 92.0, although it exceeded economist estimates for an upward revision to 91.0.

Following the data the dollar strengthened against the pound, with sterling quoted at USD1.3863 at the London equities close. Meanwhile, the euro was quoted at USD1.0931.

The gold price slowed down slightly in its 2016, quoted at USD1,216.65 an ounce at the close.

In the economic calendar Monday, Japan's housing starts and construction orders are due at 0500 GMT. Germany's import price index and retail are both due at 0700 GMT. UK's nationwide housing price data are due at 0700 GMT, while UK consumer credit and mortgage approvals are due at 0930 GMT. Eurozone's consumer price index is due at 1000 GMT. In the US, the Chicago purchasing manager's index is due at 1445 GMT, while US pending home sales are due at 1500 GMT.

In the UK corporate calendar Monday, WH Ireland, Trinity Mirror, Bunzl, Jupiter Fund Management, Senior, Hiscox, Keller Group, British Polythene Industries, and Quartix Holdings release full-year results. Purecircle, Waterman Group and DX Group publish half-year results.

By Daniel Ruiz; danielruiz@alliancenews.com

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