1 March 2010
UK equities perform well in FebruaryUK equities perform well in February
Despite ongoing concern about the size of the UK’s budget deficit, investor sentiment in February was boosted by strong earnings announcements from the banking sector, positive news from the mining sector and an upward revision to UK economic growth for the fourth quarter of 2009.The FTSE 100 index rose by 3.2% over the month.
Royal Bank of Scotland (RBS) announced smaller-than-expected full-year losses. Controversially, the UK’s largest government-controlled bank also announced a 44% rise in pay and bonus deals for its investment bankers, although CEO Stephen Hester decided to forgo his £1.6m bonus. Amid sustained taxpayer resentment against the banking sector, the Government has urged banks to reduce or defer bonuses. Barclays, which avoided a government bailout, announced full-year profits that more than doubled.
Lloyds Banking Group reported a larger-than-expected full-year loss, exacerbated by bad loan losses resulting from its takeover of HBOS. CEO Eric Daniels waived his £2.3m bonus, following the example of his peers at Barclays and RBS. Lloyds remains the UK’s largest mortgage lender, but has lost market share after cutting loans. Meanwhile, Banco Santander’s share of the UK mortgage market has increased by almost five percentage points to 18.6%.
Mining company Rio Tinto reported a profit for the second half of its fiscal year, boosted by higher commodity prices, and reinstated its dividend payment. Xstrata also announced it was reinstating dividend payments, despite reporting a drop in full-year profits. Elsewhere in the sector, Anglo American announced profits for 2009 that were ahead of expectations and also expects to resume dividend payments during 2010.
The world’s largest drinks manufacturer, Diageo, announced first-half earnings that undershot consensus expectations. Profits growth was dampened by fragile consumer demand in Europe and the US. The share price of Rolls-Royce was boosted by the news of higher-than-expected profits and a dividend increase. Shares in fixed-line telecoms provider BT fell sharply following the news the pensions regulator is concerned about its plans to tackle its spiralling pension deficit, which amounted to £8.8bn at the end of December.
January’s unexpectedly wintry weather took its toll on UK retail sales, which fell by more than twice as much as expected. Sales fell by 1.2% according to the Office for National Statistics, compared with consensus estimates of a 0.5% drop. Home-improvement retailer Kingfisher reported disappointing fourth-quarter sales, citing poor weather and the return of VAT at 17.5%.
