Banks drag FTSE down as UniCredit prices at discount

CONCERNS over the Eurozone sent Britain’s top shares into reverse yesterday after the previous session’s sharp gains, as Italian lender UniCredit priced a rights issue at a huge discount, and a German bond auction failed to excite.

The FTSE 100 fell 31.46 points, or 0.6 per cent, to 5,668.45, albeit in light volume, at 79 per cent of the 90-day daily average.

Banks knocked the most points off the FTSE 100 as worries surrounding the sector crept back in when UniCredit priced its €7.5bn rights issue at a discount of 69 per cent to its closing share price on Tuesday.

Gerard Lane, strategist at Shore Capital, said there were fewer worries surrounding UK-listed Barclays, HSBC and Lloyds’ need for recapitalisation, but much depended on the fate of European economies and their debt restructurings.

“I think there’s just a bit of realism today,” said Angus Campbell, head of sales at Capital Spreads.

“The ugly head of Europe has reared again. We’ve not had the best of auctions from Germany... which has just reminded people that the overall Eurozone crisis is still very much there and a huge threat to the economy.”

The UK benchmark had on Tuesday lurched to its highest close since late October when traders, spurred on by positive data from the United States, Europe and China, had put cash to work at the start of the new year.

This was followed yesterday by encouraging domestic data, with British mortgage approvals rising to their highest level in almost two years in November.

Nevertheless, the Eurozone debt situation still very much holds centre stage.

Martin Dobson, head of trading at Westhouse Securities, sees little in the way of catalysts to jolt the FTSE 100 out of the top of its trading range of recent months – about 5,900 – given the prerequisites to end the crisis have not been met.

“Nobody’s really got a fully-fledged plan that's going to be agreed by everyone... I think it’s [all about] getting actual working agreements [between the policymakers].

“And I think the problem that you’ve got is an awful lot of governments are slim majorities and are always going to be pandering to the electorate rather than to the economic situation.”

Retailers provided yet another downbeat focus for the market after a slightly cautious outlook statement weighed on Next's latest trading update, with earnings downgrades expected, sending the shares down 3.1 per cent.

“As a likely outperformer, the Next statement does not set a positive tone for competitor updates,” Peel Hunt said.

Marks & Spencer shed 2.6 per cent, while Kingfisher, owner of B&Q, slipped 0.5 per cent.

Satellite pay-TV broadcaster BSkyB fell 1.6 per cent, with traders pointing to a report in the Daily Mail newspaper which said Apple could bid for rights to show soccer matches from England’s Premier League.

BSkyB holds most of the rights to broadcast live matches in the UK.

Educational services and products provider RM was the highest riser in the FTSE All-Share yesterday, climbing 12.50 per cent.