Weak banks and fears over Eurozone debt drag on FTSE

BANKING stocks weighed on Britain’s leading share index yesterday, with the sector hit by their capitulation in a fight over loan insurance mis-selling, and by Eurozone debt concerns after S&P cut Greece’s credit rating.

The British Banking Association said members would not appeal a ruling that they compensate customers wrongly sold payment protection insurance (PPI).

Barclays and HSBC said they will take a combined hit of more than £1.7bn for the mis-selling.

Barclays lost 1.3 per cent, while HSBC fell 0.5 per cent.

HSBC also suffered after Europe’s biggest bank posted a 14 per cent fall in first-quarter profit, as rising costs offset lower bad debts.

The biggest sector faller was Royal Bank of Scotland, off 2.4 per cent. RBS said last week it was too early to estimate the possible PPI impact but settling claims could be “material”.

Eurozone credit concerns were heighted as S&P downgraded Greece’s long-term credit rating on an increased risk the country will take steps to restructure debt.

At the close, the FTSE 100 was down 34.08 points, or 0.6 per cent, at 5,942.69, giving back some of Friday’s one per cent gain made when investors were buoyed by US jobs data.

Technical analysis for the FTSE 100 index remained cautious.

“Conditions are ripe for further downside trading action,” said James Hyerczyk, analyst at Autochartist, with the key to whether the market stalls or accelerates to the downside how it reacts to the recent main bottom at 5,858.

“A break through this level is likely to attract fresh selling pressure as it will indicate that short traders are taking control and that trailing stops following the recent strong rally are being executed,” Hyerczyk said.

British Gas-owner Centrica was the biggest blue-chip faller, shedding 3.8 per cent after saying rising taxes on North Sea oil and gas production would erode profit growth this year and cause it to scale back investments.

Killik & Co, however, said: “Despite the increased uncertainty over the near-term outlook for earnings, we remain positive on [Centrica] shares and would highlight the strong balance sheet and attractive 4.9 per cent dividend yield.”

Other utilities suffered with Centrica, with United Utilities down 2.1 per cent and Severn Trent down 1.6 per cent.

Inmarsat was the top FTSE 100 gainer, up 4.4 per cent, after the satellite operator posted a 23 per cent rise in first-quarter earnings which, while broadly in line with expectations, prompted Investec to put its price target and “hold” rating under review after recent share price weakness.

Autonomy rose 3.9 per cent after Numis upgraded its rating on the software group to “add”, saying it was well positioned to deliver upgrades on a 12-month view.

Blue chip peer Sage Group rose 1.6 per cent, while mid cap software firm Misys added 8.4 per cent as Credit Suisse reinstated its “outperform” rating on the stock.

British Airways owner International Consolidated Airlines fell 2.2 per cent, giving up gains made last week after a positive trading update.