Markets in Europe have opened slightly higher this morning largely as a result of the residual effects of a late rally in US stocks from their lowest levels on Friday.
Most of this Friday rebound is set to unwind sharply when US markets reopen later today as both the US and China showed little sign of backing away from further confrontations with a lot of the weekend headlines devoted to either side staking out their positions.
On the companies front British Gas owner Centrica (LON:CNA) has outlined that it expects to keep full year guidance unchanged, an update that has been well received by the markets, despite concerns over future profitability.
Management did warn that they could see further pressure on the outlook for the full year, due to the difficult trading environment, which is probably why we saw the shares hit 20 year lows at the end of last week. The company announced that it has lost 20,000 consumer accounts in the first four months of this year, while citing the negative effects of the newly imposed tariff cap.
In a further effort to cut costs the company has already completed the sale of its Home Services business in North America for £230m in the last quarter.
Metro Bank (LON:MTRO) has also been in the news over the weekend over speculation around its £350m capital raising, as it wrestles with the problems brought about by the disclosure of a misreporting of its financial risk weightings, with respect to how its commercial property, and buy to let loans were classified.
The bank confirmed this morning that the capital raising was well advanced, however the shares have continued to come under pressure, falling below 500p this morning, dragging the banks market capitalisation below the £500m level.
This misclassification meant that the bank was undercapitalised in terms of risk weighting, and in order to improve that weighting would have to either raise more capital, or sell off some of the loans in question.
Not surprisingly shareholders are furious having already been tapped for £300m last summer and while the bank has announced this morning that the £350m capital raising is well advanced, they haven’t answered any of the questions around why the error happened in the first place.
No-one has been held accountable despite the fact that the error was only spotted by the Bank of England, and not by the bank, or its own auditors.
This clearly raises questions over the banks risk management procedures, as well as its corporate governance, something that investors are likely to raise later this month at the banks AGM.
In order to restore confidence in the wholesale governance of the bank it is highly probable that shareholders will insist on some management changes as a quid pro quo for any new capital, with Chairman Vernon Hill, as well as CEO Craig Donaldson in the firing line of some investors, on the back of a share price dive from £35 12 months ago to under £5 now.
US markets look set to open sharply lower later this morning as the end of week optimism that caused the late Friday rally underwent a sharp reality check over the weekend as both China and the US ramped up the rhetoric about the prospects of an imminent deal. Such a deal is looking much less likely with concerns over Chinese retaliation targeting key US companies like Apple (NASDAQ:AAPL), as well as semiconductor and other tech stocks who do a lot of business in the China region..
Dow Jones is expected to open 282 points lower at 25,660
S&P500 is expected to open 32 points lower at 2,849
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