UK MIDDAY BRIEFING: EU To Probe Banks Including HSBC

LONDON (Alliance News) - The European Commission Tuesday said it will press ahead with a probe into Credit Agricole, HSBC Holdings and JP Morgan after they refused to join other lenders in a settlement last year over suspected manipulation of the Euribor interest-rate benchmark.

The FTSE 100 continues to underperform, weighed down by some of it's biggest names, including Vodafone, while the FTSE 250 continues to recover from the heavy sell-off it suffered towards the end of last week.

US stocks are set to open quietly Tuesday as another sparse economic data calendar provides little to drive investor sentiment one way or the other. Earnings from the likes of Staples and Home Depot will be in focus.

The DJIA and the S&P 500 both reached all-time highs one week ago, but since then, the US corporate earnings season has mostly come to an end and the data calendar has been much lighter, leaving equity markets consolidating just beneath those highs.

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FTSE 100: down 0.5% at 6,812.28
FTSE 250: up 0.6% at 15,472.25
AIM ALL-SHARE: down 0.1% at 790.88
GBP-USD: 1.6832
EUR-USD: 1.3704
GOLD: USD1,286.00 an ounce
OIL (Brent): USD109.31 a barrel

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Top UK Corporate News
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Vodafone Group tried to appease investors with the promise of higher dividends, after warning that cash flow will be hit by its huge investment programme in the next few years, and as it reported falling service revenue due to continued weakness in some of its European markets. The wireless company, which is going through a major transformation after selling its stake in Verizon Wireless late last year, reported earnings before interest, tax, depreciation and amortisation of GBP11.08 billion for the year to end-March, down from GBP11.47 billion a year earlier as customer costs rose. Revenue was GBP38.35 billion on a statutory basis, up from GBP38.04 billion, although fell to GBP43.62 billion, from GBP44.45 billion, when contributions from joint ventures are consolidated.
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Marks and Spencer Group reported its third consecutive annual drop in a closely-watched profit measure, as the retailer continued to struggle to entice customers to buy its clothing range and general merchandise offering against better performing rivals such as Next PLC despite heavy promotional activity. Underlying pretax profit, which strips out exceptional items and fair value movements, fell to GBP623 million, from GBP648.1 million. That was slightly above analysts' expectations for up to GBP620 million. The retailer said it remained cautious about the outlook for the business due to competition and promotional pricing in the UK retail sector, although it has seen some improvement in consumer confidence. The retailer has now come to the end of a three-year plan to turnaround the business. However, it has failed to resuscitate its general merchandise business despite the success of its food offering.
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The European Commission is pressing ahead with a probe into Credit Agricole, HSBC Holdings and JP Morgan after they refused to join other lenders in a settlement last year over suspected manipulation of the Euribor interest-rate benchmark. "The three banks have now the opportunity to defend themselves. We will look carefully at all their arguments," EU Competition Commissioner Joaquin Almunia said.
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BP has suffered a decisive setback in its court battle to limit the cost of its settlement for victims of the 2010 Deepwater Horizon disaster, leaving it with the option only of going to the US Supreme Court as a last chance to avoid billions of dollars of additional liabilities, the Financial Times reported Tuesday. The Fifth Circuit appeals court in New Orleans on Monday rejected BP’s request for a full review of the company’s case, as it seeks to establish that the compensation settlement it agreed with plaintiffs’ lawyers in 2012 is being interpreted unfairly, the paper says. The ruling means BP has now nearly run out of road in its attempt to stop the cost of the settlement soaring far above the USD7.8 billion that it originally predicted, the FT said, quoting BP saying it was disappointed.
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RSA Insurance Group said it has agreed to sell its shareholding in its Canadian insurance brokerage business to a subsidiary of Arthur J Gallagher & Co, as the FTSE 100 insurer continues to sell non-core assets as part of its plans to beef up its balance sheet and recover from its losses in 2013. In a statement, RSA said risk management business Arthur J Gallagher & Co has agreed to acquire Noraxis Capital Corp for CAD500.0 million. RSA said it expects to receive CAD441.0 million in cash for selling its majority stake in the business, subject to adjustments on completion. RSA said the transaction is expected to result in a gain on sale of about GBP140.0 million, as well as adding GBP225.0 million to its net tangible assets, which it said will improve its capital strength.
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Greencore Group raised its interim dividend 16% after reporting a good first half of the year driven by strong growth in the UK food-to-go market, although its pretax profit took a hit due to restructuring costs. The Irish convenience food business said it had outperformed a buoyant food-to-go market in the UK, and also benefited from the first full year of supply to a major new customer in the US. It cautioned that, although UK economic conditions are steadily improving, the country's grocery market continues to face pricing pressure and uncertainty.
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London Stock Exchange Group confirmed it has entered into exclusive discussions for potential deal to acquire US index and asset management business Russell Investments. Last week, the London Stock Exchange had said it was in ongoing discussions with The Northwestern Mutual Life Insurance Company, Russell Investments' parent company, over a potential acquisition. Media reports had indicated that there would be stiff competition for Russell Investments, but a report published in the Financial Times earlier said the London Stock Exchange's talks with The Northwestern Mutual Life Insurance Company have since become exclusive.
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Carnival Corp shares rose after the company said it would add two ships to its Australian fleet in 2015 to meet surging demand for cruises in the country. In a statement, the cruise company said Australian cruise passenger numbers have more than doubled in the past five years and are projected to grow to one million by 2016, from 800,000 in 2013. "P&O Cruises (Australia), one of Carnival Corporation's 10 brands, will add two ships to its fleet in 2015. With a total of five ships, P&O Cruises will establish Australia's largest year-round fleet and be well-positioned to continue meeting Australians' surging demand for cruise vacations," it said.
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Shares in Afren dropped after the oil and gas production company reported a drop in profits for the first quarter as revenue fell by 30%. The oil and gas exploration and production company, which operates in Africa and the Middle East, reported a pretax profit of USD55.8 million for the three months ended March 31, down from GBP138.8 million a year earlier, on the back of a 30% drop in revenues and higher finance costs. Its profit after tax however was USD73 million, compared with only USD28 million the prior year, primarily due to a tax income credit in the period, compared with a USD111 million charge last year.
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Defence and aerospace products supplier Cobham said it will buy US-based test systems and wireless communications business Aeroflex Holding Corp for about GBP869 million in cash, including debt, a deal that will further grow Cobham's connectivity business and boost its earnings. Cobham bought similar businesses Thrane & Thrane in 2012 and Axell Wireless in 2013, but this deal is bigger, with Aeroflex expected to contribute about 17% of the combined company's revenue. It is expecting to eke about GBP50 million of annual cost synergies out of the deal, for a total investment of about GBP128 million.
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Paragon Group of Companies reported a 19% increase in first-half pretax profit, supported by buy-to-let lending and its debt purchase business, Idem Capital. In a statement, the specialist lender said it made a GBP58.2 million pretax profit in the six months ended March 31, compared with GBP48.8 million in the corresponding period a year earlier.
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Plumbing and heating products distributor Wolseley said it is in talks with subsidiaries of Frauenthal Holding AG about the sale of its Austrian plumbing and heating business ÖAG. "This disposal is in line with our resource allocation strategy of focusing on our core operations where we can build significant scale and generate attractive returns. I would like to thank the staff of ÖAG for their commitment to the business and wish them every success for the future," Wolseley Chief Executive Ian Meakins said in a statement.
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Healthcare company BTG reported higher pretax profit for its last financial year, as higher revenue and reduced impairment charges more than offset increased research and development spending and the costs of launching varicose vein treatment Varithena. The company also gave a bullish outlook, saying it expects to further expand the business at the same time as delivering profitable growth.
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Footwear retailer Shoe Zone has priced its initial public offering at 160 pence a share, meaning it will be valued at about GBP80 million when it lists on AIM, as US-focused science and technology company Allied Minds added its name to the IPO pipeline for the London Stock Exchange's main market.
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AIM MOVERS
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Vatukoula Gold Mines is a big gainer after it reported a wider loss for the first half of its financial year as production declined and gold prices fell, but said it had cut costs sharply, was improving ore grades and gold recovery rates, and had started receiving funds from its recent investment deal. Trading Emissions is up after it said it intends to distribute GBP20 million, or 8 pence per share, to shareholders. Rurelec is doing well after it said it expects to receive its settlement for the seizure of its stake in Bolivia's largest power producer in 2010 shortly, after a key council of ministers in Bolivia gave the necessary approval for the payment to be made. UBC Media Group has lost nearly half its value after it said it intends to raise GBP6 million through a placing and share subscription so that it can acquire digital music services company 7digital Group Inc for GBP16.5 million. The reverse takeover will see UBC change its name to 7digital Group and will involve a 1-for-10 share consolidation. Sinclair (William) Holdings has seen its shares tumble by more than a third after it said it will report a significant underlying net loss for the year ending September 30 and said it intends to scrap its interim dividend after a weak trading performance resulted in higher-than-expected net debt.
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Top Economics And General
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UK inflation accelerated more than expected on higher transport costs in April, official figures showed. Inflation rose to 1.8% in April from 1.6% in March, which was the lowest since October 2009, the Office for National Statistics said. The rate exceeded the consensus of 1.7%. Month-on-month, the increase in consumer prices doubled to 0.4% from 0.2% in March. Excluding energy, food, alcoholic beverages and tobacco, core inflation increased to 2% in April from 1.6% in March.
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The chief of the Thai army declared martial law, in what he said was a bid to stem violence in the country following six months of anti-government protests. "There are some groups with bad intentions to create unrest, and threatening to use weapons on the people," General Prayuth Chan-ocha said. Martial law gives the army control over security, but leaves the government in command of other tasks. Prayuth denied that the army was carrying out a coup.
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Chinese President Xi Jinping held talks with Russian President Vladimir Putin before the planned signing of deals on gas and infrastructure projects. Putin arrived in the eastern Chinese city of Shanghai Tuesday for a two-day visit amid expectation that the two sides will announce a major deal to bring Russian gas to China. Xi and Putin were scheduled to attend the launch of a seven-day joint drill by Russian and Chinese naval vessels off Shanghai.
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Belgrade and nearby Serbian cities are bracing as two large rivers are set to swell beyond their limits even as the death toll from previous flooding has grown to 47. A swell on the Danube, one of Europe's largest rivers, is expected to cause flooding upstream of Belgrade before peaking on Thursday and beyond, the Serbian Hydrometeorological Institute said. "The swell will be somewhat smaller than initially forecast," Jelena Jerinic of the RHMZ said.
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Britain on Tuesday confirmed it was in talks with Iran over compensation for the 2011 attack on the British embassy in Tehran. "We have made clear to Iran the need to resolve the question of compensation for the damage caused to our embassy compounds in November 2011," a Foreign Office spokesman in London told dpa.
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Afternoon Watchlist (all times British Summer Time)
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13:55 US Redbook index
17:30 US Philadelphia Fed's Plosser speech
18:00 US Fed's William Dudley speech
18:30 UK MPC Member Bean Speech
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Wednesday's Key UK Corporate Events
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Great Portland Estates Full Year Results
Cable and Wireless Communications Full Year Results
HICL Infrastructure Company Limited Full Year Results
SSE Full Year Results
DCC Full Year Results
Stobart Group Full Year Results
FirstGroup Full Year Results
Burberry Group Full Year Results
Telecom Plus Full Year Results
Vectura Group Full Year Results
UK Mail Group Full Year Results
Britvic Full Year Results
OPG Power Ventures Full Year Results
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Wednesday's Key Economic Events (all times British Summer Time)
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00:50 Japan Exports/Imports
04:00 Japan BoJ Interest Rate Decision
04:00 Japan BoJ Monetary Policy Statement
09:00 EU Current Account
09:30 UK Bank of England Minutes
09:30 UK Retail Sales
12:00 US MBA Mortgage Applications
15:00 EU Consumer Confidence Preliminary
15:30 US EIA Crude Oil Stocks change
16:00 US Fed's Yellen Speech
17:50 US Fed's George Speech
18:30 US Fed Minneapolis's Narayana Kocherlakota speech
19:00 US FOMC Minutes
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