LONDON MARKET MIDDAY: Deutsche Bank Woes Send Banking Shares Reeling

LONDON (Alliance News) - The financial sector dragged on London stock indices at midday on Friday caused by further declines in Deutsche Bank shares in Frankfurt, following a report that some hedge funds have reduced their exposure to the German lender.

With OPEC having given Deutsche Bank a break from the market spotlight on Thursday, it was back at the top of the agenda Friday and weighing on the European banking sector. A report by Bloomberg, citing an internal bank document it had seen, said some hedge funds have moved part of their listed derivatives holdings away from the German lender.

In a memo to staff published on Friday, Deutsche Bank Chief Executive John Cryan responded to what he called "media speculation", saying that the bank's balance sheet has never been safer over the past two decades. Deutsche Bank has been particularly under pressure of late after the US Justice Department earlier this month demanded it pay USD14 billion to settle an investigation into residential mortgage-backed securities.

The stock on Friday hit another record low of below EUR10 per share. At midday it traded down 5.0% at EUR10.33 in Frankfurt, coming off its lows following Cryan's reassurance.

Adding to the pressure on banking stocks, the Financial Times reported the US DoJ hopes to agree on multi-billion dollar fines with Deutsche Bank, Credit Suisse and London-listed Barclays for mis-selling mortgage securities in the lead-up to the 2008 financial crisis.

According to the FT report, two people familiar with the discussions said the DoJ had indicated that it would prefer to combine the settlements of the three banks into a single announcement, which could shift some attention away from Deutsche and onto its UK and Swiss rivals.

"With the US Department of Justice aiming to also penalise Barclays and Credit Suisse alongside Deutsche, there is a fear that we could see huge amounts of fines levied across the whole industry, effectively wiping out much of the safety buffers built up in case of emergency," said IG market analyst Joshua Mahony.

Barclays was down 3.2%, while peer Lloyds Banking Group was down 2.7% and Royal Bank of Scotland Group was off 2.3%. The FTSE 350 Banks sector index was down 1.9%.

RBS said it intends to shift to using the 'NatWest' name as its main consumer-facing brand outside of Scotland, as part of its restructuring to comply with new UK ringfencing regulations.

"Over the coming months, NatWest will become our main customer-facing brand in England and Wales and Western Europe, and in Scotland, Royal Bank of Scotland will be our core brand," RBS said.

The shift to the NatWest name also will take in the RBS Corporate & Institutional banking arm, which is set to operate under the name NatWest Markets.

At midday in London, the FTSE 100 index was down 1.1%, or 73.84 points, at 6,845.58. The FTSE 250 index was down 1.0% at 17,693.11 and the AIM All-Share was off 0.3% at 818.05.

The BATS UK 100 index was down 1.0% at 11,602.49, the BATS 250 down 0.8% at 16,141.48 and the BATS Small Companies down 0.2% at 11,142.76.

European indices also were significantly lower, with the French CAC 40 down 1.7% and the German DAX 30 down 1.4%.

Ahead of the open on Wall Street, futures pointed the Dow 30 and S&P 500 down 0.2% and the Nasdaq 100 down 0.3%.

Elsewhere on the London Stock Exchange, Capita, down 4.9%, was extending losses from Thursday, when it closed down 28%. On Thursday, Capita had issued a profit warning for 2016, hit by a slowdown in its divisions, costs from a Transport for London contract, and delays in clients awarding new work.

On Friday, Capita was downgraded to Sell from Hold by Panmure Gordon and Shore Capital. Standard & Poor's Global downgraded Capita to Hold from Buy. However, Goldman Sachs raised the stock to Neutral, having had the stock in its "Conviction Sell List", while Numis upgraded it to Buy from Hold.

Entertainment One said its full-year performance will be in line with management expectations.

The entertainment content provider said its operating performance to date is on track across all its divisions, with a "strong committed film and television slate underpinning the second half of the financial year" to the end of March 2017.

In the US, the company has seen stronger-than-expected demand for Peppa Pig merchandise across a number of product categories, Entertainment One said, while in China the show has surpassed six billion views on local on-demand platforms. The stock traded up 1.6%.

Speedy Hire was up 5.8% after the equipment and plant hire services company said it anticipates full-year pretax profit ahead of prior expectations, thanks to lower overhead costs from cutting employee numbers in its first half.

The company said its recovery plan has stabilised the business in the six months ended September 30 and is driving continued improvements in performance. This has included operational restructuring and management focusing on rental assets.

The UK economy grew more than previously estimated on a quarterly basis in the second quarter, the Office for National Statistics reported.

Gross domestic product climbed 0.7% sequentially in the second quarter, slightly revised up from the second estimate of 0.6%.

However, the annual growth for the second quarter was revised down to 2.1% from 2.2%.

Still ahead in the economic calendar, there is US personal consumption expenditure at 1330 BST, Chicago PMI at 1445 BST, the Reuters/Michigan consumer sentiment index at 1500 BST, and the Baker Hughes US oil rig count at 1800 BST.

By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1

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