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Banks again looking weak as market struggles for direction

Today’s big news came from Barclays, and once again the market was a little disappointed with the headline index down around 20 points mid-morning. The bank saw Q1 profits drop on £1bn worth of new write-downs, but this was net of a £700m gain on the fair valuation of notes issued by Barclays Capital.

The statement did not give any clues on whether it plans to join RBS, HBOS and Bradford and Bingley in asking shareholders for new funds, but it refused to rule out a rights issue in a conference call with reporters. We view this the same way as the rest of the banks, and see further downside before the situation improves.

Another stock that has been struggling is BT which saw full year profits slide by 20% mainly due to a restructuring charge of £402m. Pre-tax profits fell to £1.97bn from £2.48bn previously on revenue that rose only 2% to £20.7bn. These were very dull figures, but a touch a head of analyst forecasts so awe would view any rally as an excuse to go short again here.

Keeping with the strugglers, DSG International said it plans to cut its total dividend in half, beginning with the full year to two weeks ago, as part of a five point plan for the renewal and transformation of the group. This once has not impressed the market and a 6% fall so far we believe suggests more downside in this, and indeed other retailing stocks.

Head of Research at Blue Index, specialists in trading Contracts For Difference
15/05/2008

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