The FTSE has shown a sharp drop from the open this morning, negating yesterday’s late resurgence off the back of encouraging US economic data.
The FTSE was down 1.46% at 10am after BP continued its long descent, while rumours that President Obama might order an embargo on oil exploration in the Gulf of Mexico saw oil prices sinking – and dragging energy stocks right down with them.
With a US criminal investigation into the Gulf of Mexico oil crisis kicking off in the wake of BP’s latest failure to contain the spill, the company’s shares have shed another 2.85% this morning, compounding yesterday’s 13% dive and further fuelling concerns that the much-reduced company could become the target of takeover bids. ‘There is a 10% to 20% chance of BP being taken over,’ said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA. ‘The only real candidate, in size and with similar operations globally, would be Royal Dutch Shell.’
Even if BP does manage to retain its independence, the damage to its reputation and finances could leave the oil giant a shadow of its former self. Analysts estimate the total costs of the relief effort may reach $22 billion, more than swallowing up the company’s entire last-year profit – and that’s without taking into account the potential costs of the criminal investigation and subsequent lawsuits.
The other big story contributing to the FTSE’s decline this morning is Prudential’s abandonment of plans to take over AIG’s Asian branch, AIM. The insurer had been in negotiations to cut their offer price from $35 to $30 billion after shareholders protested at the cost, but talks collapsed yesterday when AIM refused to consider the revision.
While Prudential’s share price rose yesterday as rumours of the AIM deal’s collapse circulated, this morning’s trading has seen its price fall 3.04% as the costs associated with pulling out of the deal were revealed. Prudential announced the failed transaction would cost them approximately £450 million, cutting a third off 2009’s operating profit. ‘Even if they claw back some costs for the deal, it’s still a massive waste,’ said Ben Collet, head of equities at Hong Kong broker Louis Capital Markets. ‘Is anyone in the mood for that in Europe?’
National Grid and Marks & Spencer were the lowest performers on the FTSE this morning, losing 3.94% and 3.53% respectively after going ex-dividend. Vodafone did the same, meanwhile, burning 3.07% off its share price in the process. The other big losers were miners, for the most part, as data indicating China’s economy might be slowing down led to speculation of a shortfall in demand for commodities.
The top of the FTSE was home to the usual defensive safe-havens, with pharmaceuticals Shire (+0.71%), AstraZeneca (+0.72) and GlaxoSmithKline (+1.38%) all among the few companies showing growth this morning. Service group Compass was the biggest winner, with a relatively modest 1.77% rise in its share price.
Outside of the markets UK Mortgage deals for April are on the up, showing a 2% increase on the previous month and continuing the trend of solid – if unspectacular – growth in the UK housing market. This afternoon’s mortgage and housing data from the US is predicted to show similarly steady growth on that side of the Atlantic, but keep an eye out for any upset which could indicate that the US economic recovery is faltering.
