Britain's FTSE knocked back by RBS, Ukraine

Thu Feb 27, 2014 7:07am EST

* FTSE 100 falls 0.8 pct

* RBS leads financials lower

* Russia jet report spooks markets

* Capita among companies to report good results

* WPP hit on margin concerns

By Joshua Franklin

LONDON, Feb 27 (Reuters) - Britain's top share index was on track for its biggest daily drop in a month on Thursday, led lower by a sharp sell-off in Royal Bank of Scotland and increasing tension over Ukraine that has spooked global markets.

The FTSE 100 fell 56.54 points, or 0.8 percent to 6,742.61 points at 1131 GMT, having been steady earlier in the session.

Royal Bank of Scotland led the fallers, down 9.4 percent after its new chief executive outlined plans for a large-scale overhaul after the mostly state-owned lender reported an 8.2 billion pound ($13.64 billion) loss.

"As the RBS story has unfolded we've seen continued selling in that and I think that's just dragging a few of the heavyweights down," said Will Hedden, sales trader at IG.

Peers Barclays and Lloyds Bank were also both lower with the financial sector the day's biggest weight on the blue chip index.

Also unnerving investors and weighing on world stocks was a report from Interfax news agency that Russian aircraft had been put on high-alert on the Ukrainian border.

"The involvement of Russia would be the bigger worry, that it's going to lead to frosty ties with the EU and for the U.S. with Russia," said IG's Hedden.

EARNINGS SEASON

Troubled British insurer RSA was also down as it sought to move forward with a restructuring programme, with ex-RBS CEO Stephen Hester at the helm.

It dropped 3.2 percent after Hester launched a plan to boost capital by up to 1.6 billion pounds, half of which will be tapped from shareholders and the rest from disposals and money saved from a dividend cut.

But some firms managed more encouraging earnings reports on Thursday, with a 5.2 percent surge in Capita leading gainers.

The British outsourcing group posted a 14 percent rise in annual profits on Thursday and said it was confident on 2014 after winning 588 million pounds ($978.3 million) worth of new contracts so far this year.

In the earnings season thus far, 69 percent of FTSE 100 companies that have reported results have come in ahead of or in line with expectations, Thomson Reuters StarMine data shows.

"As a whole, we haven't had too many bad shocks with regards to results," Toby Morris, senior sales trader at CMC Markets, said. "However, it's a little bit concerning how many firms are coming out and being a little bit tentative about 2014 ... it puts a bit of a dampener on things."

One such firm was the world's largest advertiser WPP , down 5.4 percent despite reporting strong trading, with Liberum and Numis both raising concern over a hit to margins and lower margin guidance moving forward.

"Full-year results were below our expectations due to a margin miss ... However, the main reason for the downgrade is that WPP has taken down its longer-term margin improvement targets," Liberum said in a note, cutting the stock to "hold" from "buy".

"While January has started well and the share buyback programme has increased, this does not offset the disappointing message on margin improvement."

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