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RISING levels of bad debt and a slowdown in new mortgage lending has prompted one of the Square Mile's big players to turn bearish of the banking sector.
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US securities house Goldman Sachs has downgraded the ratings of most of the big lenders and is telling clients to go underweight in the sector, regardless of the strong yields boasted by some of the banks.
Barclays rose 18 3/4p to 416 1/4p despite being dropped from Goldman's recommended list with a market perform rating as it urged punters to switch into Royal Bank of Scotland up 67p at 1302p.
Bradford & Bingley, 3 1/4p better at 291p, has also been dropped from the recommended list while HBOS, up 8p at 628 1/2p, and Alliance & Leicester, 25p better at 820p, have been lowered from market perform to underperform.
Lloyds TSB advanced 18p to 512p although broker UBS Warburg has slashed its target price from 650p to 507p. Abbey National also rose 7 1/2p to 557 1/2p despite reports that the mortgage lender has been forced to pump up to £300m into its life assurance subsidiary Scottish Mutual because the slump in the stock market had begun to affect its solvency levels.
Goldman says bad-debt levels are rising, with new mortgage lending expected to slow by 39% to £40 billion next year.
Goldman and Warburg's bearish comments had little immediate impact as the market rallied from the new six-year lows struck earlier this week.
The FTSE 100 index was up by as much as 128 points, but with Wall Street opening lower this afternoon on the back of more profits warnings, the rise was pared to 107.8 points at 3905.2.
Still reeling from yesterday's news of a proposed dividend cut, Six Continents shed a further 9p at 522p.
Bargain-hunters were nibbling away at the rest of the financial sector with Prudential adding 13p at 371p while Aviva jumped 20 1/2p to 393 1/2p following yesterday's reassurances by the Financial Services Authority about solvency levels among the life assurers.
Turnover in electrical retailer Dixons was boosted by a line of 13m shares that went through at 175 1/4p as part of an unprotected trade. It was followed by a line of 8m at 172p. The price dipped 6p to 168p.
EMI Group fell 1 3/4p to 167 3/4p after finally renewing its contract with singer Robbie Williams. The contract is reckoned to be worth £80m - covering four albums - making it one of the music industry's most lucrative contracts.
Former Footsie 100 high-flyer British Airways climbed back briefly above the 100p level before settling 1p better at 98 1/4p, ahead of tomorrow's September passenger numbers - a year on from 9.11.
Covent Garden Soups and Pret A Manger supplier S Daniels rose 2 1/2p to 9 1/2p after saying it had received a bid approach.
Arm Holdings plummeted 79 1/2p to a low of 46 1/2p on the back of a profits warning. The company, which designs and develops chips for use in mobile phones, warned that market conditions had deteriorated in the third quarter with little prospect of a significant upturn until next year.
The market had been looking for pre-tax profits of £17m but the figure will be nearer £8m. Arm was kicked out as a constituent of the Footsie earlier this year. The shares peaked at 1001p.
The Daily Mail's Geoff Foster on yesterday's trade
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