Shares were lower at midday on Tuesday, as a big week for company earnings reports gathered steam, with bank shares suffering after US regional bank First Republic followed Credit Suisse in revealing the full extent of the run on deposits they suffered in the wake of the collapse of Silicon Valley Bank.
Major economic releases have been few so far this week - though that will soon change - allowing corporate earnings to take centre-stage. Still to come is a US consumer confidence reading at 1500 BST, but focus will be on earnings from Google-owner Alphabet and Microsoft after the closing bell in New York.
The FTSE 100 index traded down 27.59 points, or 0.4%, at 7,884.61 midday Tuesday. The FTSE 250 was down 65.72 points, or 0.3%, at 19,161.22, and the AIM All-Share was down 1.96 points, or 0.2%, at 826.89.
The Cboe UK 100 was down 0.4% at 788.98, the Cboe UK 250 down 0.5% at 16,800.47, and the Cboe Small Companies down 0.2% at 13,316.44.
Market confidence has been knocked by poor earnings from regional US lender First Republic Bank. The stock was down 21% in pre-market dealings on Tuesday in New York.
First Republic Bank lost more than 40% of its deposits in the first quarter this year, it said on Monday, adding that the situation has stabilized since late March. It is the bank’s first batch of earnings since Silicon Valley Bank’s dramatic collapse in March raised alarm bells about the vulnerabilities of regional lenders.
Also spooking investors, management took no questions during a subsequent earnings call.
‘First Republic Bank’s latest results have restarted the market’s worry engine,’ AJ Bell analyst Russ Mould commented.
‘There are already concerns that banks in many parts of the world will choose to be more selective over whom they lend to, which in turn could have negative implications for the economy. Investors certainly lost their appetite for banking stocks.’
Among European banking shares, UBS slid 1.8% in Zurich.
The Swiss bank reported a net profit of $1.03 billion in the first quarter of 2023, down 47% from $1.94 billion in the previous year. Diluted earnings per share dropped to $0.32 from $0.50. Revenue in the quarter totalled $8.74 billion, up 8.8% from $8.03 billion the year prior.
Jefferies noted that UBS net profit missed consensus of $1.7 billion.
UBS said it is likely to complete the hastily arranged takeover of stricken rival Credit Suisse before the end of June.
Banco Santander fell 5.1% in Madrid. The lender booked total income of €13.92 billion in the first three months of 2023, up 13% annually from €12.31 billion.
Profit attributable to the parent edged up 1.1% to €2.57 billion from €2.54 billion. Santander said its bottom line would have grown by 8%, were it not for €224 million worth of temporary windfall taxes in Spain.
Among London-listed lenders, NatWest fell 1.4%.
NatWest noted a wild start to the year for the banking sector, in the wake of Silicon Valley Bank’s collapse and Credit Suisse’s worries. NatWest hailed its own ‘robust and resilient balance sheet’, however.
‘Tight risk management underpins our strategy and ensures we are well-positioned for the future. We nonetheless continue to monitor customer activity and behaviours closely for signs of stress, taking action where appropriate,’ Chair Howard Davies said at the company’s annual general meeting on Tuesday.
Davies added that it is now ‘appropriate to initiate the search for my successor’, as he is approaching nearly eight years as chair.
‘This will allow time for a rigorous search process and an orderly handover, which I expect will take place at some point before I reach nine years tenure in July 2024. That is the maximum recommended in the UK corporate governance code,’ he added.
The pound was quoted at $1.2471 at early Tuesday afternoon in London, higher compared to $1.2457 at the close on Monday. The euro stood at $1.1028 unchanged against $1.1026 late Wednesday. Against the yen, the dollar was trading at JP¥134.02, lower compared to JP¥134.38.
Stocks in New York were called lower. The Dow Jones Industrial Average was called to open down 0.4%, with the S&P 500 index, and the Nasdaq Composite both seen down 0.5%.
US President Joe Biden announced Tuesday he is running for re-election in 2024, plunging at the record age of 80 into a ferocious new White House campaign ‘to finish the job’.
‘Every generation has a moment where they have had to stand up for democracy. To stand up for their fundamental freedoms,’ Biden wrote on Twitter, along with a video.
‘I believe this is ours. That’s why I’m running for re-election as president of the US. Join us. Let’s finish the job.’
Back in London, Associated British Foods fell 3.3% after setting out a cautious outlook in its Primark retail arm.
The FTSE 100 constituent said it is ‘cautious about the resilience of consumer spending’, as shoppers face rampant inflationary pressure.
‘We expect like-for-like sales growth in the second half, although we expect that growth to moderate from that in the first half,’ Chair Michael McLintock said.
For the first-half ended March 4, Primark sales were up 19% to £4.23 billion, reflecting ‘good growth in all countries’.
At group level, AB Foods reported pretax profit edged up by 1.4% to £644 million from £635 million the year prior. Revenue from continuing operations jumped 21% to £9.56 billion from £7.88 billion.
Whitbread’s stock was on the up, rising 5.7%, the best FTSE 100 performer.
In the financial year that ended March 2, the Premier Inn-owner posted pretax profit of £374.9 million, multiplied from £58.2 million the year before. Whitbread said this was above pre-pandemic levels, driven primarily by its Premier Inn UK division. Revenue surged to £2.63 billion from £1.70 billion.
In addition, Whitbread announced a £300 million share buyback programme.
In European equities on Tuesday, the CAC 40 index in Paris was down 0.7%, while the DAX 40 in Frankfurt was down 0.1%.
LVMH fell 0.4% in Paris as the luxury retailer returned some gains during risk-off market trade on Tuesday. The Louis Vuitton owner on Monday became the first European firm to hit a stock market valuation above $500 billion.
Brent oil was quoted at $82.11 a barrel at early Tuesday afternoon in London, flat from $82.10 late Monday. Gold was quoted at $1,983.64 an ounce, up slightly against $1,982.78.
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