City more positive following bank’s defence against Iran accusations by New York regulator
Standard Chartered has continued its recovery following Tuesday’s 16% drop in the wake of New York regulators accusing the bank of $250bn worth of illegal transactions with Iran.
The bank came out fighting in a press conference on Wednesday, attempting to repair its battered reputation and accusing the regulator of “factual inaccuracies” in its attack. It did admit that $14m of transactions did breach US rules.
Buyers have now come back for the banks shares, pushing them 49p higher to 1364.5p and making them the biggest riser in an uncertain FTSE 100. Ian Gordon of Investec kept his buy recommendation, saying:
We wouldn’t expect any bank’s press conference to prove pivotal, but chief executive Peter Sands’ performance yesterday afternoon should, we believe, act as a source of further comfort to shareholders. This doesn’t look like a bank “in crisis mode”, as one might reasonably expect. Standard Chartered is taking the unusual, but courageous, stance of facing down a regulator because it believes that the regulator is factually wrong. Let justice prevail on 15 August [when a hearing takes place]. We expect the end-game to be a fine (of unwarranted size), and then we move on.
Bank of America Merrill Lynch moved its rating from underperform to neutral:
Presumably, Standard Chartered would not take such a strong line with its regulator, unless it was very sure of its position. If the latter is correct then it would be reasonable to expect its shares to recover more of their lost ground. If [the regulator] is proved to be correct then its tactics may increase the likelihood of a much more severe penalty, including (as threatened) the removal of its US banking licence. The stakes are clearly very high. Given the high degree of uncertainty, and the possibility that the outcome may prove less damaging to the bank than at first appeared, we think it is prudent to upgrade to neutral.
Overall the FTSE 100 is marking the fifth year of the financial crisis with a 1.70 point dip to 5844.22, with very light trading volumes. The mining sector is moving higher after weaker than expected Chinese inflation figures prompted talk of more policy action by the country to boost its economy.
Randgold Resources has risen 165p to £63.55 after a 32% rise in second quarter earnings, while Xstrata has added 11.3p to 923.8p following its results earlier in the week.
ITV is up 1.55p at 82.8p after forecasts of a good advertising performance next month. Liberum Capital said:
Initial feedback from a major media buyer suggests September has seen a rebound in advertising for ITV. If correct, this supports our view that July and August advertising weakness was caused more by a temporary shift of spending from TV to newspapers to capture Olympic audiences rather than a more negative general stance on advertising.
BSkyB has climbed 6p to 749p after it won an appeal against an Ofcom ruling that it must sell its sports channels to rivals at regulated prices. The broadcaster could receive £25m from an escrow account related to the pricing system, said analysts. BT, which recently won rights to Premier League football matches, has fallen 5.8p to 215.9p after the ruling.
Amec is the biggest faller in the leading index, down 82p at £10.77 after its half year results. Jon Bell at Shore Capital said:
We note a more cautious tone from management around the operating margin which has fallen by 70 basis points to 7.5%, mainly due to a shift in business mix. Given [the caution], evidence elsewhere of the effects of the global slowdown (e.g. Cape) and with the shares trading at the top end of their recent range, we downgrade our recommendation from buy to hold. We also take this opportunity to lower our full year forecast, reflecting some pressure at the Kearl project in Canada where key performance indicators were not met. We now forecast pretax profit of £330m (previously (£342m).
Lower down the market, Enterprise Inns is up 5.75p at 61.25p after the pubs group said like-for-like income improved in the 18 weeks to the start of August. Simon French at Panmure Gordon said:
Given the improving trading trends and falling bank debt we think the stock continues to offer significant upside potential and reiterate our buy recommendation and 87p target price.