U.K. Stocks Decline, Led by Banks; Lloyds, Barclays, RBS Drop

By Sarah Jones

Feb. 27 (Bloomberg) -- U.K. stocks fell for the first time in three days, led by banks after Lloyds Banking Group Plc said it hadn’t reached an agreement on its participation in the government’s asset insurance program.

Lloyds, which also reported a drop in full-year earnings, slumped 20 percent, paring some of yesterday’s 31 percent advance. Royal Bank of Scotland Group Plc and Barclays Plc lost at least 10 percent. AstraZeneca Plc fell on reports the company “buried” unfavorable studies about its antipsychotic drug Seroquel and after President Barack Obama said generic-drug makers should be allowed to sell cheaper biotechnology medicines in the U.S.

The FTSE 100 Index dropped 118.45, or 3 percent, to 3,797.19 at 12:33 p.m. in London, extending the benchmark’s decline this month to 6.9 percent. The FTSE All-Share Index lost 2.8 percent today. Ireland’s ISEQ Index slipped 0.7 percent.

Banks shares rallied yesterday after RBS said it will put 325 billion pounds ($462 billion) of investments into a state insurance program and shift toxic assets to a new unit.

“The lack of conclusion over Lloyds’s participation in the government’s asset protection scheme” is weighing on the market, said Martin Slaney, head of derivatives at GFT in London. “Until we see the terms agreed this may throw a few questions over the cost of participating for other banks.”

European stocks extended declines after the U.S. Treasury said it will help Citigroup Inc. raise capital by converting up to $25 billion of preferred stock into common stock, provided the company can make similar exchanges with private investors.

Lloyds Slumps

Lloyds declined 20 percent to 60.2 pence. The biggest U.K. banks by customers said talks with the government were “progressing” but the Treasury said an announcement is not expected today.

The lender reported a 75 percent drop in full-year profit to 819 million pounds and said it expects to report a loss for 2009 as writedowns and loan impairments increase.

The bank’s HBOS Plc unit posted a 2008 loss of 7.5 billion pounds after bad loans at its corporate lending arm rose.

Barclays, the U.K.’s third biggest lender, fell 10 percent to 101.7 pence. RBS, the largest bank controlled by the government, dropped 14 percent to 25 pence.

AstraZeneca declined 6.4 percent to 2,206 pence. The drugmaker failed to publicize results of at least three clinical trials of Seroquel and engaged in “cherry picking” of data from one of those studies for use in a presentation, an AstraZeneca official said in an internal 1999 e-mail unsealed as part of litigation over the medicine.

Separately, President Obama yesterday proposed spending $634 billion to expand U.S. health care while spending less government money for some drugmakers and health insurers. He also announced, under the proposed budget, that copies of costly biotechnology medicines would be allowed in the U.S. with few delays.

Eli Lilly & Co. of the U.S. and AstraZeneca said they would lose “several hundred million” dollars each in drug sales if the health-care plan was approved.

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

Charter International Plc (CHTR LN) gained 20 pence, or 5.4 percent, to 389 after Europe’s biggest maker of welding gear reported a 10 percent increase in full-year profit to 158.7 million pounds.

Marks & Spencer Group Plc (MKS LN) declined 9.25 pence, or 3.5 percent, to 255.25. Deutsche Bank AG lowered its recommendation for Britain’s largest retailer to “sell” from “hold” and downgraded shares of Next Plc (NXT LN) to “hold” from “buy,” citing weak consumer demand which it expects to last through 2010. Shares of Halfords Group Plc (HFD LN) and DSG International Plc (DSGI LN) also fell after their ratings were downgraded by Deutsche Bank. Next shares slipped 24 pence, or 2 percent, to 1,166.

Rio Tinto Group (RIO LN) fell 64 pence, or 3.4 percent, to 1,810. Goldman Sachs Group Inc. downgraded the world’s third- largest mining company to “sell” from “neutral,” after the bank reduced forecasts for prices of industrial metals. Kazakhmys Plc (KAZ LN) declined 11 pence, or 4 percent, to 267.25 after Goldman Sachs cut its rating for the copper producer to “neutral” from “buy.”

William Hill Plc (WMH LN) dropped 13 pence, or 5.3 percent, to 233.75. The U.K.’s second-biggest bookmaker announced plans to raise about 350 million pounds by selling new shares as part of its debt refinancing. The shares will be offered at 105 pence each, a discount of 57 percent to the stock’s closing price on Feb. 26.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net.