Market update - 25 September

The FTSE 100 was down 16.42 points at 5079.15 and the FTSE 250 was down 18.57 points at 8388.79 at 12.18pm today. The banking sector fell back amid fresh concern about the American bail out plan, which is still being thrashed in Washington. Deutsche Bank made things worse for Lloyds TSB, which was down 12.75p at 254.25p after the broker advised investors to avoid the stock.

“We believe Lloyds will exceed its own synergy estimates [from the HBOS takeover] relatively easily, despite potential short term political difficulties. However, merging two banks does no reduce the quantum of wholesale funding required,” Deutsche said,

“We also estimate that purchase accounting adjustments will see the group core tier 1 ratio sink to 5.6 per cent which we believe should be augmented by at least £4.5bn to take the group a 6.5 per cent [ratio] in order to trade confidently through 2009, a year in which we see risks of repeating 1992’s peak loan losses.”

Bradford & Bingley, which announced measures to streamline its business this morning, was the hardest hit, down 10 per cent or 2.5p at 22.5p.

“Rapidly deteriorating credit quality and declining revenues suggest B&B will continue to underperform…” Deutsche said, advising investors to “sell” the stock.

The broker added: “B&B’s first half underlying EPS [earnings per share figure] was 7 per cent below out forecast and in our view the sharp deterioration in credit quality in May and June 2008 is a sign of things to come.”

Moving up

Insurers dominated the FTSE 100 leader board following a better than expected update from AXA, the European insurance giant. RSA was the strongest, up 8.36 per cent or 12p at 155.5p and Aviva gained 19.75p to 511p. Prudential gained 9p to 541p and Legal & General was up 0.8p at 100.8p.

On the FTSE 250, ITV gained 2p to 44.25p thanks to renewed bid speculation. The talk, which suggested that Bertelsmann was about the table an offer for broadcaster, was dismissed by traders. “A director [Sir George Russell] bought shares last night – that would not happen if Bertelsmann was in there,” said on trader.

Moving down

Daily Mail & General Trust slipped to 318p, down 16.5p, after posting a disappointing trading update. In response, Merrill Lynch said that while the company deserves to trade at a premium to other newspaper groups given its diversified business mix, “there are currently cheaper ways to gain exposure to the business-to-business publishing markets”.

“We believe that there are forecasts risks to come on some business-to-business and newspaper forecasting, given exposure to consumer confidence, recruitment, property and financial services markets,” the broker said, reiterating its “netural” rating for the stock.