Banking stocks gain on revised capital rules, FTSE ticks lower

Reuters

By Atul Prakash

LONDON (Reuters) - UK-listed financial stocks advanced in relatively thin trading on Friday after the country's banking regulator relaxed a new rule determining the quality of assets banks must hold to cover risks from pension liabilities.

UK banks rose 0.5 percent to top the leaderboard, after the Prudential Regulation Authority (PRA) said at least 56 percent of supplementary capital to cover mainly pension risks should be in top quality assets, not all of it, as originally proposed.

"The fact that UK regulators didn't push up the leverage ratio from 3 to 4 percent is a positive for UK financials because it means they won't be squeezed so much on liquidity. Many people had feared that the ratio would rise," said James Butterfill, global equity strategist at Coutts.

The PRA said eight major lenders and building societies, including Barclays, Lloyds and Standard Chartered, must hold a core capital buffer equivalent to 7 percent of their risk-weighted assets from January 2014.

They must comply with a leverage ratio of 3 percent.

Barclays rose 2.3 percent, the top FTSE gainer. Lloyds was 0.7 percent higher and Standard Chartered gained 0.4 percent.

However, the blue-chip FTSE 100 index edged down 0.06 percent, or 3.90 points, to 6,650.57 points at the close, dragged lower by weaker mining stocks, which fell on profit taking after rising more than 3 percent in the past two sessions. FTSE volumes were 83 percent of their 90-day daily average.

The index ended weaker on the month after gaining in both September and October. It is down about 2 percent from highs of around 6,800 points in October and some 3 percent below a 13-year peak of 6,875.62 hit in late May.

However, the FTSE remains up 13 percent this year, with several traders saying they believed it would rally again in December and could touch the 7,000 mark by the end of the year, which would mark an all-time high for the index.

Over the past 29 years, the benchmark index has risen in December in 23 of those years.

"The market has consolidated well and is in a much better position to challenge the previous highs. The 7,000 level is a reasonable target to achieve by the end of the year," said Dominic Hawker, technical analyst at Messels.

"If we see a rally in sectors such as mining and banking, we could easily hit those target levels."

Broader market sentiment remained positive, with equities supported by the British economy's rebound and predictions of further improvements in economic indicators.

Goldman Sachs' chief UK economist Kevin Daly gave a positive assessment on the economy, arguing that a recovery in the banking sector - which was hit hard in the 2008 financial crisis - would further support it.

On the downside, credit data company Experian fell 2.8 percent, making it the worst performer on the FTSE 100, after Goldman Sachs downgraded the stock to "sell" from "neutral".

(Additional reporting by Sudip Kar-Gupta; Editing by Catherine Evans and Susan Fenton)

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