Tuesday, 21 February: Capita did its best to lead the FTSE 100 higher, but HSBC and other stock specific news weighed on the index. The FTSE closed -0.34% as it was outperformed by both French(CAC 40 +0.49%) and German(DAX 30 +1.18%) indices. Brent crude climbed $1.20/bbl higher to c.$57.10/bbl over the last couple of days, though this did little to move oil majors in London, with only Royal Dutch Shell trading higher(+0.81%).
HSBC, the second biggest constituent of the FTSE 100 by market capitalisation, traded -6.54% lower after releasing lacklustre results. HSBC reported pretax profit of $7.1bn for 2016, down 62% from $18.9bn in 2015, well below a consensus estimate of $13.3bn. The fall was reportedly due to significant items totalling $12.2bn, including a $3.2bn impairment of goodwill in its Global Private Banking business in Europe, costs to achieve of $3.1bn and adverse fair value movements of $1.8bn arising from changes in credit spreads on HSBC debt. The bank announced adjusted pretax profit at $19.3bn, down 1% from the prior year’s $19.5bn, noting this was “broadly unchanged following solid performances from our global businesses “. These results read across to peers in the banking sector, as RBS closed -1.30% and the FTSE bank index slumped -3.80% lower.
Capita(+3.61%) escaped the wrath of investors despite announcing it was booking a total impairment of £90m after a comprehensive review of contracts. It was announced that £50.0m in historic assets will be impaired, written-off as a non-underlying charge, while accrued income of £40.0m will be written down as a charge to underlying results. It was noted that the impairments will not hit its cash balances or future trading, as it also kept guidance unchanged for its 2016 results, apart from the accrued income write-down.
The Office for National Statistics said the U.K. government received £9.4bn more in revenue in January than it spent on public services, accounting for the highest January surplus in nearly two decades. This was as public finances were boosted by higher income and capital-gains receipts. The surplus was £0.3bn wider than in the same month of 2015, but significantly smaller than that expected by analyst polled by The Wall Street Journal, a consensus surplus of £13.9bn. The discrepancy between the ONS data and market consensus arose due to a change in methodology used to book corporate tax revenues. These revenues are now spread out through the fiscal year, as opposed to a bulk booking in January.