MARKET COMMENT: UK Shares Sink As Regulators Fine Five Banks

LONDON (Alliance News) - UK shares are trading lower Wednesday, with downbeat sentiment affecting financial services after regulators in the US, UK and Switzerland hit five banks with more than USD3.2 billion in fines over foreign exchange failings and attempted manipulation of foreign exchange benchmark rates.

At mid-morning, the FTSE 100 to down 0.4% at 6,598.7, the FTSE 250 down 0.5% at 15,553.2 and the AIM All-Share index off 0.2%.

In Europe, Germany's DAX 30 is down 1.1% while the CAC 40 is 0.8% lower.

In economic news, the UK unemployment rate fell to 6.0% in the three months to September, the Office for National Statistics said, the lowest level since December 2008 and down from 6.3% posted in three months to June. However, economists had forecast the rate to drop to 5.9%.

The Bank of England published its inflation report, giving an assessment of the prospects for UK inflation over the next two years. It said its near-term outlook for inflation is 1.2% for the fourth quarter, markedly lower than August's 1.9% forecast. Its forecasts for growth in the UK economy were also lowered, citing a weaker outlook for global and eurozone growth, pushing the prospect of any interest rate rises further back.

The UK's Financial Conduct Authority imposed fines amounting to USD1.7 billion on five banks, including HSBC and Royal Bank of Scotland, saying the banks failed to control business practices in their G10 spot foreign exchange trading operations, while the US Commodity Futures Trading Commission ordered the banks to pay more than USD1.4 billion in penalties.

The FCA fined Citibank USD358 million, HSBC USD343 million, JPMorgan Chase USD352 million, Royal Bank of Scotland USD344 million and UBS USD371 million. 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.

Barclays, which last month set aside GBP500 million in provisions, is yet to be fined. The FCA said it will continue its investigation, and the bank's share are down 1.6%. HSBC set aside GBP236 million to cover the fines, meaning the bank will require a GBP153 million in additional provisions. Its shares are down 0.8%. RBS shares are up 0.5%.

J Sainsbury shares are down 4.1% as the supermarket operator swung to a pretax loss in the first half of the year and outlined its plans to cuts costs and capital expenditure. Pretax loss was GBP290 million for the 28 weeks to September 27 from a profit of GBP433 million in the same period a year earlier. First-half revenue fell 0.1% to GBP12.67 billion. Sainsbury also implied it would cut its full-year dividend, according to Cantor Fitzgerald analysts.

Burberry shares are down 2% after the luxury fashion retailer reported a 14% rise in underlying revenue of GBP1.1 billion but said it expects some pressure on the full-year margin, a reflection of the strong pound, a more difficult external environment and continued investments.

G4S leads the FTSE 100 gainers, up 2.8%, after it said organic revenue rose 4.2% in the first nine months of the year. The security company said it has agreed new contracts with annual revenues of over GBP870 million and total contract value of GBP1.7 billion. Contract retention for the nine months was similar to historical levels, at slightly above 90%, the company said.

Tullow Oil is second highest gainer in the FTSE 100, up 1.5%. The oil explorer said it is reviewing its capital expenditure and costs, with overall exploration spending significantly reduced and focused primarily on East Africa where it has major basin-opening potential.

Capita shares are the biggest faller in the FTSE 100 index, down 7.7%. The outsourcing company said it has secured GBP1.63 billion of major sales so far this year, down from GBP2.9 billion at this time last year when it had booked its largest ever contract worth GBP1.2 billion with O2.

Barratt Developments is up 1.1% as the housebuilder followed peers by saying market conditions remain robust across all regions of the UK and said it remains on track to deliver its target of 15,000 completions for the full year.

FlyBe Group shares are down 23% after it said it swung to a loss in the first half of its financial year, hit by a series of write-downs, charges and revaluations, though it said its operational performance continued to improve. The airline also said it has sold its 60% stake in its loss-making Nordic operation to Finnish airline and joint venture partner Finnair for just EUR1.

Brent crude continues to trade close to new four-year lows at USD81.28 a barrel.

Futures indicate a lower opening of trading on Wall Street. The DJIA is forecast to open down 0.1%, the S&P 500 0.2% lower and the Nasdaq Composite down 0.2%.

In Asia, the Japanese Nikkei closed up 0.4% Wednesday, its highest level in seven years. The Hang Seng closed 0.6% higher and the Shanghai Composite closed 1% up.

By Ian Edmondson; ianedmondson@alliancenews.com

Copyright 2014 Alliance News Limited. All Rights Reserved.