Banks keep FTSE in check as Deutsche loss casts shadow

Mon Jan 20, 2014 7:27am EST

* FTSE 100 flat near 8-month high

* Deutsche Bank loss a bad omen for UK bank results

* Weir rises as data, Redburn point to sector pick-up

By Francesco Canepa

LONDON, Jan 20 (Reuters) - Britain's top equity index was flat on Monday, held back by falls in banking shares as a surprise loss by Germany's Deutsche Bank was seen as a bad omen for UK lenders' results.

Royal Bank of Scotland and Barclays shed 2.2 percent and 1.3 percent, respectively, by 1148 GMT, the top fallers on the FTSE 100, after Deutsche Bank announced a pre-tax loss for the fourth quarter.

The German bank blamed the loss on a fall in revenue at its debt-trading divisions as well as costs for litigation and restructuring.

Barclays and RBS, both due to report fourth-quarter earnings next month, derive around 20 percent and 15 percent respectively of total group income from trading in fixed income, currencies and commodities (FICC), according to Shore Capital estimates.

Shares in the two UK banks had risen 6.1 percent and 7.6 percent respectively since the start of the year before Monday's falls, boosted by healthier prospects for the British economy.

"It would be sensible to expect weak performances from the likes of Barclays and Royal Bank of Scotland in Q4," Gary Greenwood, an analyst at Shore Capital, said. "The risk (for the stocks) is to the downside given the rise that we've had."

Analysts at Goldman Sachs also warned that so called non-recurring items such as fines, provisions and charges, have become a persistent feature of UK banks' results and raise question marks over lenders' return on equity targets.

Commercial banks knocked a combined 6 points off the FTSE 100, which was up 2.63 points after ending at an eight-month high on Friday. The index has risen 1.2 percent so far this year.

"We maintain that the markets will continue to push higher through January," Atif Latif, director of trading at Guardian Stockbrokers, said.

"Equities still remain in an uptrend and we have continued to maintain our bullish bias."

Helping buoy the FTSE on Monday was oil & gas engineering firm Weir, which rose 3.7 percent in heavy volume after data showed an increase in the number of U.S. natural gas and horizontal rigs last week and Redburn Partners initiated coverage of the stock with "buy", citing improving activity in the sector.

Volume on Weir's shares was 67 percent of its full-day average for the past three months, compared with FTSE volume of just over a quarter of the index's own average. Trading on the index was expected to be quiet with U.S. stock markets shut for a holiday.

Gold miners Fresnillo and Randgold were the top FTSE risers as gold hit a six-week high and data showed hedge funds and money managers raised their bullish bets on the metal for a third consecutive week.