Banks hit by levy announcement; scrutiny for Xstrata and BG results
By Barbara Kollmeyer, MarketWatch
MADRID (MarketWatch) — London stocks traded largely lower Tuesday, with miners on the decline after a rate hike from China while banks slipped on news that the U.K. government will increase the country’s bank tax.
The FTSE 100 index (UK:UKX 6,040, -10.87, -0.18%) fell 0.2% to 6,040.33, on the heels of two straight days of gains.
Late in the London morning session, the People’s Bank of China said it would raise key interest rates, the third time such hike since mid-October, in a bid to curb inflation, according to news reports. The one-year yuan lending rate will rise to 6.06% from 5.81%, while the one-year yuan deposit rate will rise to 3% from 2.75%.
Mining shares dropped to top the decliners list in the wake of the China hikes. Miners have a vested interest in the Chinese economy as the country uses a vast amount of natural resources, and any attempt to slow the economy is often viewed negatively for these companies’ prospects.
Shares of Lonmin PLC (UK:LMI 1,779, -55.00, -1.00%) , Anglo American PLC (UK:AAL 3,339, -72.00, -2.11%) , Eurasian Natural Resources Corp. PLC (UK:ENRC 1,023, -21.00, -2.01%) , Kazakhmys PLC (UK:KAZ 1,598, -33.00, -2.02%) and Fresnillo PLC (UK:FRES 1,419, -30.00, -2.07%) were all off by more than 2%.
Xstrata PLC (UK:XTA 1,463, -4.50, -0.31%) fell 0.8%, giving up earlier gains after the mining group reported a jump in 2010 net profit to $4.69 billion from the $661 million earned in 2009 and lifted its dividend payout to 25 cents a share for the year, up from 8 cents a year ago.
Banks were also weak, with Standard Chartered Group PLC (UK:STAN 1,668, -26.50, -1.56%) down 1.6% and Royal Bank of Scotland Group PLC (RBS 14.27, +0.14, +0.99%) (UK:RBS 44.14, -0.08, -0.18%) off by 0.8%.
U.K. Chancellor of the Exchequer George Osbourne said Tuesday that bank levy rates will be raised by 800 million pounds in 2011, to £2.5 billion, which will be deducted from banking profits annually.
The U.K Treasury originally said it would apply a reduced rate of 0.05% for this year owing to uncertain market conditions, but it no longer thinks is necessary.
“Last time ... Chancellor Osborne raised £1.7 billion. So £2.5 billion this year seems fair to me in view of the fact impairment charges will be down; thus exacerbating the indecent level of profitability,” said David Buik, strategist at BGC Partners, in a note to investors.
Profit taking seemed to be pushing some shares lower. Shares of chip group ARM Holdings PLC (UK:ARM 593.00, -18.00, -2.95%) (ARMH 29.68, +0.23, +0.78%) fell 2.8%, a day after gaining nearly 4%. Those shares are up 40% so far this year.
Shares of Cairn Energy PLC (UK:CNE 424.50, -10.90, -2.50%) fell 1.7%, a reversal after the prior day’s gains, as the market continues to fret over its planned deal to sell a stake in Cairn India to Vedanta Resources PLC (UK:VED 2,380, -52.00, -2.14%) . India’s oil minister on Tuesday reportedly said royalty issues would have to be dealt with before such a transaction could go through.
Among Tuesday’s gainers, shares of BG Group PLC (UK:BG. 1,457, +17.00, +1.18%) rose 1.4%. The energy group said fourth-quarter net profit rose 13% on a 1.2% gain for revenue and helped by higher prices, and also lifted several estimates, including production in its Brazilian Santos, forecasts for U.S. shale-gas production, and its profit projection on liquefied natural gas.
In the FTSE 250 index (XX:MCX 11,793, -18.36, -0.16%) , shares of household-goods maker McBride PLC (UK:MCB 137.00, -11.20, -7.56%) fell 7.5% after it reported a 26% decrease in first-half operating profit and said material costs in the second half could rise by about 7 million pounds as a result of higher commodity prices.
Shares of Premier Oil PLC (UK:PMO 1,964, -176.00, -8.22%) fell 7.8%. The company said it will plug and abandon its Cather North well located in the U.K. Central North Sea after disappointment drill finds for oil and gas.
On the upside, insurer Beazley PLC (UK:BEZ 125.50, +5.70, +4.76%) rose nearly 5% after 2010 net profit rose nearly 60% to $217 million for 2010 against 2009, helped by a $33.7 million foreign-exchange gain. Recent heavy flooding in Queensland, Australia, and the tropical storm Yasi will not have a material effect on earnings, the group said.
