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June 16, 2015

Sussex & the City: Banks back under the spotlight


in Research

Chancellor George Osborne revealed the government would start selling its £32bn, or 80%, stake in Royal Bank of Scotland. The bank was bailed out during the financial crisis at a cost of £45.8bn. Some analysts believed the timing of the announcement was somewhat premature and possibly dictated more by politics rather than, necessarily, an exercise in optimising market timing.

A new turnaround plan from Europe’s biggest bank, HSBC, failed to impress investors. The bank will cut 25,000 jobs globally, of which 8,000 will come from the UK, as Stuart Gulliver, HSBC chief executive, revealed fresh cost-saving measures. Industry analysts described the investor update as uninspiring.

The banking sector has had quite a volatile week amid the possibility that George Osborne could change the levy on the British banking industry in his Mansion House speech, although such hopes were subsequently dashed.

BT’s decision to make Champions League football matches available for free to its television customers sent shares higher. It is the group’s latest attempt to up the stakes in its battle with its arch-nemesis Sky.

J Sainsbury may have posted another quarter of declining sales, but it didn’t deter investors, as they continued to support the company. Mike Coupe, chief executive, insisted there were signs of improvement as shoppers’ average spend per supermarket visit had not decreased for the first time in five years. In March, Britain’s third biggest supermarket posted its first annual loss in a decade, after writing down the value of its stores and property assets. J Sainsbury is also axing 800 employees.

Separately, a study by Moody’s predicted the current supermarket price war which has engulfed the sector is set to continue for the next 12 to 18 months. The credit ratings agency also forecast Britain’s four biggest supermarkets will lose 4% of their market share by 2020, as discount grocers such as Aldi and Lidl continue to expand at an astonishing rate.

Elsewhere, the government’s sale of half its 30% stake in Royal Mail wasn’t met with much investor enthusiasm. The sale raised £750m, after the government sold the shares at 500p a piece – a discount to the previous closing price – adding it saw no reason to keep any holding in the postal company. Shares of the 500-year-old postal service, which was wholly state owned until 2013, fell further on the news.

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