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“Defensive stocks came to the market’s rescue on Wednesday morning with consumer goods and utilities helping to lift the FTSE 100 by 0.5% to 6,988. Markets in mainland Europe also enjoyed a rebound, although investors will be watching that part of the world closely after new figures showed Germany’s business activity had grown by its slowest rate for nearly three and a half years,” says Russ Mould, Investment Director at AJ Bell.
Barclays
“The key numbers for Barclays are moving in the right direction with rising profit and a quarter-on-quarter improvement in its CET1 ratio. The latter is essentially a measure of the ability of a bank’s balance sheet to withstand economic shocks.
“Even its investment banking arm has seen higher profit which will put chief executive Jes Staley in a stronger position to justify his plans for expanding this operation.
“Many investors and critics dislike Barclays’ investment banking arm because of its low returns and unpredictability, suggesting the group should focus more on its retail operations.
“It appears that Mr Staley has now given a new lease of life to the investment banking operation whose services include strategic advice on mergers and acquisitions.
“Activist investor Sherborne bought a 5% stake in the bank earlier this year and has been pushing for various changes in the business including a desire to shrink the investment banking arm.
“Sherborne, run by corporate raider Edward Bramson, has expressed concerns about Barclays’ capital allocation, quality of earnings, capital adequacy, cost structure and the search for a new chairman. It believes addressing these issues could improve Barclays’ financial strength and its long-term competitive position.”
Metro Bank
“It appears to be a good time to get a mortgage judging by how rife competition is among lenders. Metro Bank’s margins are being squeezed as it fights for business which explains why its share price got a hammering on Wednesday.
“Figures from Moneyfacts earlier this month showed a drop in the average two-year fixed rate mortgage, despite the Bank of England having pushed up UK interest rates in August. You would normally expect mortgage rates to travel in the same direction as the base rate.
“The drop in mortgage rates is down to fierce competition among lenders, particularly those who want to attract homeowners seeking to remortgage.
“Metro Bank says it is experiencing continued competition in residential mortgages which is impacting the pace of margin growth.
“Its net interest margin, which measures the difference between how much interest banks earn from lending and how much they pay out, fell to 1.77% in its third quarter from 1.85% in the previous three months.”
Yu Group
“Coming hot on the heels of the scandal at cake seller Patisserie, accounting problems at small cap gas and electricity supplier Yu Group will do little to improve investor sentiment towards AIM, London’s junior stock market.
“Both Yu Group and Patisserie had been very popular constituents of AIM before problems emerged, although Yu’s share price had recently come under some pressure as money flowed out of growth companies.
“It is worth saying the issues at Yu do not look as serious as those at Patisserie where finance director Chris Marsh was arrested and released on bail as part of a probe into potential fraud.
“However, it will be difficult for Yu’s management to regain their credibility as fixing problems with the way ‘historic accrued income’ is recognised and higher than expected non-payments from trade debtors are set to hurt reported earnings.
“You have to question why companies aren’t prepared to be very conservative with their accounting as, if they are not, it seems inevitable that at some point an event like this will arise.
“Yu’s ability to recover from this setback may be compromised by shifting dynamics in the energy supply market. Changes to the rules have made it easier for businesses and households to switch in recent years, supporting the growth of small independent suppliers and undermining the entrenched position of the so-called ‘big six’.
“However, the recently announced price caps may put more pressure on the smaller operators who lack the same capacity to absorb the impact of this move as their larger counterparts.”
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