Spiralling costs of payment protection insurance scandal and superstorm Sandy fail to derail hardy banks and insurers
A spooky week on the markets saw two of the UK’s biggest banks admit they will have to increase their provisions for resolving the payment protection insurance scandal. The compensation pot for Royal Bank of Scotland reached £1.7bn after a £400m increase and Lloyds Banking Group‘s is at £5.3bn after a £1.2bn rise.
But shares in both banks are trading well. RBS shares hit a 15-month high of 292.7p on Friday morning and Lloyds reached a 16-month peak on Thursday at 43.9p.
As the scandal continues to unravel and we get a clearer picture of the true cost, investors can see some hope for the government-backed banks, although with interest rate swap mis-selling and possible fines for Libor rate-rigging on the horizon it may not be the end of their woes.
Traders in New York had an unexpected two-day break due to the devastating storm which swept into the city. The stock exchanges were closed for two consecutive days due to weather for the first time since 1888, and as the clean-up began much of downtown Manhattan was without electricity.
With an estimated $50bn-worth of damage, Lloyd’s of London insurers started to wobble, but by the end of the week, they managed to stabilise.
Prudential closed the week up 31.5p at 858.5p; Old Mutual was up 1.7p at 172.9p; Catlin up 6.7p at 464.9p; Hiscox up 5.5p at 483.6p; Amlin up 5.3p at 374p; Lancashire unmoved at 848p and Beazley up 0.4p at 173.7p. However, they had nearly all fallen as the worst of the storm hit. The only insurer to close the week out on a low was Admiral – down 25p at £10.81 – but this was because it delivered a disappointing set of results, admitting revenues were falling.
In retail, news that electrical retailer Comet had gone bust with the potential loss of 6,000 jobs had one perverse outcome – shares in its rivals all shot up. The biggest winner was Dixons, which saw its shares rise 23.7% last week, including an 11% jump on Friday. Shares closed at 25.8p. Home Retail Group, owners of Argos and Homebase, also saw its shares rise on Comet’s demise, up 5.6% on the week, closing at 117.4p.
Next week all eyes will be on Halfords and Marks & Spencer, as the two retailers deliver their half-year results. Analysts believe it will be another set of disappointing numbers from M&S, piling more pressure on chief executive Marc Bolland. Halfords will be hoping to build on the success the Olympics brought as wannabe cyclists flocked to its stores. Investors will be keen to see if the struggling retailer has finally turned a corner, or will revert to its weather-based excuses for poor performance.
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