UK/Euro Financial Market Daily Morning Briefing 14-09-2007

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London shares lower early on; Northern Rock falls on BoE assistance news

Leading shares were lower in early deals, with the financial sector under pressure as UK mortgage bank Northern Rock confirmed it has agreed to emergency funding from the Bank of England after being hit by
the credit crunch.
   
At 9.22 am, the FTSE 100 index was 76.8 points lower at 6,287.1, up from a low of 6,278.8, and down from a high of 6,363.9, with the FTSE 250 index down 132.5 points at 11,039.9.
   
Early volume was fairly solid, with 409.3 mln shares changing hands in 86,176 deals.
   
"I don't think one wants to be too negative, as (the market) is higher today than it was a month ago, but the markets are limited on how much progress can be made, as what we need is a cut in interest rates, (...) and we're going to get one on Tuesday from the Fed," said Mike Lenhoff, strategist at Brewin Dolphin.
   
Overnight on Wall Street, the DJIA ended 133.23 points higher at 13,424.88, with strong gains seen from mortgage lender Countrywide Financial, which signalled a possible thawing in the credit markets with the announcement it had lined up additional financing.
   
Broader stock indicators also advanced, though more modestly. The Standard & Poor's 500 index rose 12.39 points to 1,483.95, and the technology-heavy Nasdaq composite index rose 8.99 points to 2,601.06.
   
Today in Asia the mood was bright, with the Nikkei 225 index closing up 306.23 points at 16,127.42.
   
Meanwhile, the Hang Seng finished its morning session higher too, up 357.38 points at 24,894.40, after hitting an all-time high of 24,924.69 earlier amid growing optimism of a cut in US interest rates next week.
   
Turning to today's corporate news, Northern Rock shares dropped over 18 pct, or 139 pence, to 500, with the UK mortgage bank confirming it has agreed to emergency funding from the BoE, and warning that its full-year profits will fall short of analysts' forecasts.
   
Earlier today, Adam Applegarth, chief executive of the struggling UK mortgage lender said the emergency borrowing facility it has negotiated with the Bank of England will be capped by the amount of collateral it can provide.

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In reaction this morning, Landsbanki has downgraded Northern Rock to 'hold' from 'buy', with the broker saying it believes the only short-term fillip for the share price would come from an acquisition by a bank with the capability to fund the business on an ongoing basis or a stabilisation of the credit markets.
   
Meanwhile, the news prompted Credit Suisse to cut its 12 month target to 500 pence from 745 pence, saying it would expect Northern Rock shares to fall sharply today, before attracting bid speculation, adding that the market is likely to be unnerved and other UK banks, particularly wholesale funded banks could suffer today.
   
Meanwhile, Goldman Sachs said it has place its 'neutral' rating, target and estimates under review for Northern Rock.
   
Other financials followed close behind, with Alliance & Leicester falling 49 pence at 888-1/2, HBOS dropping 25 pence to 867, Barclays down 15-1/2 pence at 599-1/2, while midcap Bradford & Bingley lost 14-1/4 pence to 343-1/4.
   
Credit Suisse said it believes Bradford & Bingley can fund itself until at least December, and Alliance & Leicester and HBOS will be able to fund themselves until at least the second half of 2008.
   
The broker group remains cautious generally and reiterated its 'underperform' rating on B&B and A&L.
   
Shares in Legal & General also experienced losses, falling 2 pence to 132.05, with Panmure Gordon cutting its rating to 'hold' from 'buy', and its target to 150 pence from 185.
   
Elsewhere, Cadbury Schweppes slid 6-1/2 pence to 581-1/2 following a report in the Financial Times which said it has turned down a bid from a private equity consortium to buy its drinks arm for 6.4 mln stg to 6.9 bln, with the newspaper pointing out this increases the likelihood the company will demerge its beverages business.
   
And GlaxoSmithKline shares fell back 6 pence to 1334-1/2 early on, with the Times reporting that UK pension funds are vying to lead a court action over claims the pharmaceutical giant mislead the market about its diabetes drug Avandia.
   
Turning to the handful of blue-chip gainers, positive broker comment provided the spur for Reed Elsevier, up 7 pence at 608-1/2, with Merrill Lynch upgrading its stance to 'buy' from 'neutral', with a 695 pence target, as the broker assessed the logic of a merger between Reed and Wolters Kluwer.

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In a note to clients in which Merrill reconsidered the merger proposed 10 years ago, the broker said although it doesn't believe a deal is imminent, it feels the "compelling" logic of a combination warrants attention, more so now than in 1997.
   
The broker pointed out that professional information markets are evolving rapidly, and the growth in online and workflow solutions creates a greater need for scale, with recent sector M&A highlighting the trend to duopoly.
   
And Scottish & Southern shares took on 4 pence to 1,437, after the company said it has agreed to form a new joint venture with Carbon Trust Enterprises to support InSource Energy Ltd, a bio-waste to energy business.
   
Scottish and Southern will invest up to 2.7 mln stg to buy up to 40 pct of InSource Energy, plus up to a further 10.0 mln stg to fund the company's projects as it enters its next phase of development.
   
Turning to the midcaps, Paragon topped the FTSE 250 loserboard, down 77 pence at 281, in reaction to Northern Rock's profit warning this morning and against a backdrop of falling house prices outside of London, prompting KBC Peel Hunt to reiterate its 'reduce' stance.

    
UK Diary of Events

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 US Summary

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VIENNA - Market data at 10.15 am

Main Indices
  
ATX down 0.58 pct or 26.22 points at 4,486.16
ATX Prime down 0.33 pct or 7.24 points at 2,189.22

Main Losers
   
Flughafen Wien down 2.13 pct at 71.73 eur, on profit-taking following recent outperformance
   
Raiffeisen Intl down 1.37 pct at 103.10 eur, tracking general decline among financials on Northern Rock news
   
Erste Bank down 1.34 pct at 53.15 eur, tracking general decline among financials on Northern Rock news
   
A-TEC Industries down 1.24 pct at 128.01 eur
   
Wienerberger down 1.00 pct at 48.75 eur, in-line with declines among building materials stocks

Main Gainers
   
Verbund up 1.17 pct at 38.10 eur, as investors greet CEO's comments on expansion plans
   
Uniqa up 0.67 pct at 22.52 eur
   
Oesterreichische Post up 0.40 pct at 27.85 eur
   
OMV up 0.35 pct at 45.89 eur
   
Wiener Staedtische up 0.33 pct at 48.91 eur

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MILAN - Market data at 9.45 am:

Main indices
   
Mibtel at 30,528, down 0.36 pct
   
S&P/Mib at 39,181, down 0.48 pct

Main S&P/Mib losers
   
Atlantia down 1.19 pct at 23.29
   
Finmeccanica down 1.01 pct at 20.64, continuing yesterday's slide after the presentation of first half results and after reports the UK government may cancel an order for 88 Eurofighter planes. Finmeccanica unit Alenia holds a 21 pct stake in the consortium producing the plane
   
Capitalia down 1.04 pct at 6.57. Its merger partner Unicredito was down 0.93 pct at 5.89
   
Banco Popolare down 0.99 pct at 16.92 eur, correcting after yesterday's sharp gains
   
UBI Banca down 0.74 pct at 18.78

Main S&P/Mib gainers
   
Bulgari up 2.08 pct at 10.28 after the release of better than forecast first half results which showed a rise in net profit to 58.4 mln eur from 44.4 mln thanks to currency hedging operations
   
Pirelli up 1.31 pct at 0.845
   
Fiat up 1.23 pct at 19.36 after the release of European car registration data that showed an 8.4 pct rise against a market increase of 2.5 pct with a 6.6 pct market share
   
Parmalat up 0.99 pct at 2.545 after the group reported a first half net profit of 244 mln eur and said that it was ready for acquisitions and joint ventures
   
Telecom Italia up 0.53 pct at 2.1775
   
Other stocks in the news
   
Fondiaria-SAI down 0.68 pct at 32.10 as Goldman Sachs views it as a 'sell' and cut the target from 35.7 eur to 34.0 eur.
   
Unipol down 0.54 pct at 2.4875 after yesterday's end-of-session strong rise following a stronger than expected rise in first half net profit. Goldman kept its 'buy' on the stock and upped estimates
   
Telecom Italia Media up 4.86 pct at 0.276 on continued unconfirmed rumours its largest shareholder, Telecom Italia, may sell its media unit

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BRUSSELS - Market data at 10.10 am:

Main index
   
Bel 20 down 34.59 points or 0.81 pct at 4,249.53

Bel 20 gainers
   
Omega Pharma up 0.54 eur or 0.90 pct at 60.79
   
Suez up 0.13 eur or 0.34 pct at 38.47. Asked for more information on Gas Natural stake hike by Spain's energy watchdog CNE.

Bel 20 fallers
   
Agfa-Gevaert down 0.34 eur or 2.27 pct at 14.66. Analysts expect the impact of last night's announcement of a 26.2 mln eur US healthcare deal to be limited, repeating the disappointment over weak Q2 results last month.
   
Dexia down 0.41 eur or 1.93 pct at 20.81
   
Solvay down 1.30 eur or 1.25 pct at 102.56. Analysts said the company's rumoured 71.5 mln eur Thai plastics acquisition would have a "limited impact" on the group.
   
Fortis down 0.30 eur or 1.16 pct at 25.48. Says expects EU regulatory nod on ABN asset buy after it offers 'remedies'.
   
KBC down 0.73 eur or 0.77 pct at 94.25
   
InBev down 0.19 eur or 0.31 pct at 61.91

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