Miners may be booming but banks are letting the side down at the moment, following reports that Lloyds Banking Group plans to raise up to £25bn to avoid the government's asset protection scheme.
Lloyds is currently down 2.38p at 93.28p, leading the FTSE 100 fallers, as investors baulk at the prospect of a swathe of Lloyds paper hitting the market. The suggestion is that Lloyds is considering a £15bn rights issue, with the rest of the necessary coming from asset sales and possibly converting some of its hybrid debt instruments into bonds or equity.
Commenting on the reports, Jonathan Pierce at Credit Suisse said:
Overall, we still think that Lloyds will struggle to escape APS altogether, with a marked reduction in participation most likely. But it is increasingly difficult to analyse this bank right now and hence we stand by recent comments - that watching this evolve from the sidelines is probably sensible.
Not everyone is negative on the prospect, however. Joe Dickerson, an analyst at Execution, said:
Opting out of the asset protection scheme would be hugely positive for the group, provided the bank is able to raise adequate capital from the market. Opting completely out of APS and raising fresh capital from the market has been the key driver of our buy call on Lloyds. Our view is that, in leaving the scheme, Lloyds' cost of term wholesale funding should decline materially because fixed income investors favour banks with de minimis government ownership. Our belief in this was also supported by price signals in the CDS market where Lloyds and RBS have been the only UK banks trading wider than their pre-Lehman levels.
Royal Bank of Scotland, however, is following Lloyds down on the theory it will tap investors for cash as well. If £15bn worth of Lloyds shares are up for sale though, that may well leave investors with little appetite for other cash calls.
The falls are not limited to banks with large government stakes. Barclays is down 3.75p to 366.5p while HSBC has slipped 4p to 702.1p.
But with the miners still moving higher, the FTSE 100 has held onto much of its gains, and is currently 27.71 points better at 5136.61.