London Report: Banks lift FTSE as new leverage rules welcomed

ARALLY in banking shares helped the FTSE 100 rise to a two-month closing high yesterday as investors welcomed the prospect of lighter rules on leverage for the sector.

Supermarket WM Morrison was the top FTSE gainer on speculation it may sell some property and return some of the proceeds to shareholders, while oil and gas engineering firm Amec was boosted by an expansionary deal to buy rival Foster Wheeler.

Banks rallied after regulators, seeking to keep the global economy financed, watered down the rules for calculating how much capital a bank must hold against its loans and other assets.

“It’s all about the banks. The relaxing of the regulations is really improving investor sentiment in the sector,” said Jonathan Roy, a broker at London Stone Securities.

Banks added 9.2 points to the FTSE 100, which rose 17.21 points, or 0.3 percent, to 6,757.15 points, its highest closing level since 7 November.

Barclays rose 2.9 per cent, Royal Bank of Scotland was up 3.1 per cent and Lloyds up 1.2 per cent.

WM Morrison rose 6.4 per cent to the top of the FTSE after media reports that, following weaker than expected Christmas sales, the grocer was under pressure from investors to sell part of its property portfolio, freeing up cash to return to shareholders.

“(Property sales worth) £800m pounds to £1bn could be a sensible amount,” Graham Jones, an analyst at Panmure Gordon, said.

“Then they could do a (share) buyback to offset the earnings dilution from a higher rental cost together with a special dividend.”

Amec was the second-top gainer after it agreed to acquire Foster Wheeler, in a deal that it expects will help more than double revenues in growing markets such as Latin America and the Middle East.

Societe Generale described the acquisition as “highly value accretive” and raised its target for Amec to 1,417p from 1,320p, confirming its “buy” recommendation.

Energy shares tracked crude prices lower as an international deal on Iran’s nuclear programme was seen as potentially paving the way for a lifting of sanctions on the country, bringing Iranian oil back to the global market.

Defensive pharmaceutical and utilities shares also weighed on the market as investors switched into sectors that offer greater exposure to a nascent European economic recovery, such as banks and car parts.