Stockmarkets drop as optimism fades
London markets have taken a turn for the worse as yesterday's optimism over the government's banking sector insurance scheme faded amid worse-than-expected results from Lloyds.
The FTSE 100 slumped 64 points to 3851 with banks losing ground and healthcare firms and pharmaceuticals falling amid US plans to shake-up its healthcare system.
Banks were in a more subdued mood following their soaring gains on Friday. Lloyds fell 20% to 59.7p after reporting losses of £10.8 billion for 2008 at merger partner HBOS and reporting worse-than-expected profits of £840 million at its Lloyds TSB arm. It is yet to confirm details of its participation in the government's Asset Protection Scheme.
Rival Barclays and Royal Bank of Scotland were also giving up some of yesterday's gains, down 10% to 101.6p and 13% to 25.1p respectively.
Betting chain William Hill was in negative territory after confirming it will launch a fully underwritten one-for-one rights issue at a price of 105p to raise £350 million. This will increase the number of shares in issue by 50%. It also intends to scrap its final dividend as part of a £840 million restructuring. Shares in the group fell more almost 5% to 234.75p.
Oil exploration group BG has upped its recommended all-cash takeover offer for pure Energy Resources to $8.25 a share from its previous bid of $8 a share. It still requires approval from 90% of shareholders. The group's shares were trading flat at 1,012p.
Property website Rightmove saw pre-tax profits lift to £25.5 million from £18.6 million with revenue up 31% to £74 million. It also boosted its dividend by a quarter to 25p. However it warned that the troubled property market will impact business in the coming year. 'Despite the strength of our 2008 performance, the housing market downturn and the credit crunch has been and will continue to be too pronounced to insulate Rightmove,' it said. Its shares climbed almost 5% to 217.75p.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
A market-weighted index of the 100 biggest companies by market capitalisation listed on the London Stock Exchange. It is often referred to as “The Footsie”. The index began on 3 January 1984 with a base level of 1000; the highest value reached to date is 6950.6, on 30 December 1999. The index is “weighted” by how the movements of each of the 100 constituents affect the index, so larger companies make more of a difference to the index than smaller ones. To ensure it is a true and accurate representation of the most highly capitalised companies in the UK, just like football’s Premier League, every three months the FTSE 100 “relegates” the bottom three companies in the 100 whose market capitalisation has fallen and “promotes” to the index the three companies whose market capitalisation has grown sufficiently to warrant inclusion. Around 80% of the companies listed on the London Stock Exchange are included in the FTSE 100.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.