U.K. Bank Stocks Drop, Led by RBS; Marks & Spencer Retreats

By Sarah Thompson

Aug. 13 (Bloomberg) -- U.K. bank stocks fell, paced by Royal Bank of Scotland Group Plc and Barclays Plc, on concern about earnings at financial companies after ING Groep NV said second-quarter profit dropped 25 percent.

Barratt Developments Plc paced declines among U.K. homebuilders after analysts told investors to sell housing stocks following a rally and the Bank of England cut its economic growth forecast. Marks & Spencer Group Plc, the U.K.'s largest clothing retailer, slipped after Redburn Partners LLP suggested investors sell the shares.

The FTSE 100 Index lost 40.1, or 0.7 percent, to 5,494.4 at 12:39 p.m. in London. The FTSE All-Share Index slid 0.8 percent. Ireland's ISEQ Index fell 1.9 percent.

The Bank of England reduced its forecast for U.K. economic growth and held out the prospect of lower interest rates as unemployment rose the most in almost 16 years in July. Earlier today, ING said net income fell as investment earnings at wholesale-banking and insurance units declined.

RBS, the U.K.'s second-biggest bank, declined 5.1 percent to 233. Barclays, the U.K.'s third-biggest bank, fell 4.4 percent to 361.75. HSBC Holding Plc, Europe's biggest bank by market value, lost 1.6 percent to 855.5.

Barratt, Britain's second-biggest homebuilder, dropped 14 percent to 138 pence. Larger rival Taylor Wimpey Plc declined 4 percent to 55.75 pence and Redrow Plc slid 9.5 percent to 160. Claims for jobless benefits climbed the most since December 1992 in July, the Office for National Statistics said today in London.

Britain's housing market is at a ``virtual standstill,'' the Royal Institution of Chartered Surveyors said yesterday. A squeeze on credit has locked out buyers and pushed property prices into their steepest decline for at least a quarter century in July, according to HBOS Plc.

Rising unemployment may exacerbate the housing slump and replace the credit squeeze as the main driver of weakness, Panmure Gordon & Co. analyst Rachael Waring said today.

M&S dropped 7.3 percent to 274.5 after it was downgraded to ``sell'' at Redburn, which said the company's share of the food market is declining while growth falters for Per Una fashions.

A weaker food market will make the next few years ``very challenging'' for London-based Marks, which is unlikely to increase its dividend over the next five years, Redburn said in a research note today.

The following stocks also rose or fell in the U.K. market. Stock symbols are in parentheses.

U.K. companies:

Anglo American Plc (AAL LN) added 127 pence, or 4.7 percent, to 2,806. The world's fourth-biggest diversified mining company plans to invest $3.36 billion in two iron- ore mines in Brazil.

Balfour Beatty Plc (BBY LN) added 4.5 pence, or 1.1 percent, to 414.75. Britain's biggest builder said first- half profit rose 77 percent as a U.S. acquisition boosted military housing orders and it won civil engineering and maintenance contracts in Dubai.

Benfield Plc (BFD LN) increased 10.25 pence, or 4 percent, to 267.5. Execution Ltd. noted ``rumors of a bid from either Goldman's private equity or Aon Corp. have resurfaced.''

``Benfield have always staunchly maintained they wish to stay independent'' but ``given that results are likely to stagnate for the next 18 months, a premium bid could be attractive for shareholders who may pressure management,'' Execution wrote in an e-mail to clients.

Separately, Merrill Lynch & Co. raised its recommendation to ``buy'' from ``underperform.''

British Energy Group Plc (BGY LN) gained 3 pence, or 0.4 percent, to 708. British Energy reported better-than- estimated profit for the first quarter and said reactor repairs are proceeding to plan.

DSG International Plc (DSGI LN) decreased 8.07 pence, or 13 percent, to 53.25 pence. The U.K.'s largest consumer- electronics retailer was downgraded to ``underweight'' from ``neutral'' at JPMorgan Chase & Co., which said it believes investor hopes for asset sales are ``misplaced.''

Friends Provident Plc (FP/ LN) slid 3.7 pence, or 4 percent, to 88.5 pence. The 176-year-old British insurer was cut to ``underperform'' from ``neutral'' at Merrill Lynch & Co., which cited the ``stalling disposal program.''

Imperial Tobacco Group Plc (IMT LN) gained 33 pence, or 1.8 percent, to 1,831. Europe's second-largest cigarette maker expects stronger sales of lower-priced products to enable it to keep expanding in Europe as tobacco consumption stagnates, FT Deutschland reported.

Micro Focus International Plc (MCRO LN) jumped 22 pence, or 8.2 percent, to 290.5. The U.K. business software maker whose clients include Accenture Ltd. said revenue excluding acquisitions and profit margins for the first quarter met its forecasts.

Misys Plc (MSY LN) fell 8.25 pence, or 4.7 percent, to 168. The U.K.'s third-biggest software maker was cut to ``sell'' from ``neutral'' at UBS AG, which cited possible risks from the merger with Allscripts Healthcare Solutions Inc.

Thomas Cook Group Plc (TCG LN) lost 7.25 pence, or 3 percent, to 237.75. Europe's second-biggest travel company said third-quarter sales remained ``strong'' after consumers maintained spending on vacations.

``While the 4-to-2 industry consolidation has so far proved a complete success,'' said Collins Stewart analyst Andrew Fitchie, the ``real test lies ahead, with the consumer squeeze building up momentum in the U.K. and increasingly now, in Europe.'' He sees ``risk surrounding full-year 2009 estimates.''

Irish companies:

Anglo Irish Bank Plc (ANGL ID) added 14.5 cents, or 2.4 percent, to 6.165 euros. Ireland's third-biggest bank by market value said fiscal full-year earnings will rise 15 percent even as lending growth slows.

Elan Corp Plc (ELN ID) lost 32 cents, or 4.3 percent, to 7.15 euros. Ireland's largest drugmaker declined to comment on a report that it received first-round bids for its medicine delivery unit.

To contact the reporter on this story: Sarah Thompson in London at sthompson17@bloomberg.net.