Sector movers: Utilities downgraded, banks hit by FSB capital rules

The utilities sector was the worst performer on Monday, with banks starting well but losing ground and fund managers well bought.

Banks got off to a good start early in the session, with Barclays, RBS, HSBC and Standard Chartered all powering higher as, following last week’s robust US jobs data, the chances rose of a US rate-rise in December, with investors expecting better lending margins once rates rise.

However, the sector lost ground as the session wore on, with Asia-focused HSBC and STAN both falling into the red, as the new needs for debt fundraisings coupled with a downbeat global trade forecast from the OECD. The latter may also have fallen foul of a downgrade from analysts at Nomura.

Confirmation from the Financial Stability Board of its requirements for the amounts of capital banks hold, increasing their total loss-absorbing capacity (TLAC), will result in the world's biggest banks needing to raise as much as €1.1tn by 2022.

Fund management groups Jupiter, Henderson and Aberdeen were also on the up. A likely extra boost was Sunday newspaper reports that US banking giant Wells Fargo was eyeing potential acquisitions of a City of London asset manager. The UK fund management industry is seen by some as an attractive long-term bet due to recent pension reforms, the Sunday Times said, while Wells large American market share is leading it to look elsewhere.

Utilities took hits from several analyst downgrades, including Societe Generale cutting its rating for United Utilities from 'buy' to 'hold', citing the recent strong share price performance and the recent rise in bond yields.

Centrica was the biggest of the utility fallers as it was also downgraded to 'hold' by HSBC from 'buy', and also had its target price lowered to 250p from 300p. Analysts at the bank said that the recent stock underperformance reflected a news vacuum for the company and a slide in commodities.

Water company Severn Trent dropped as Exane lowered its price target from 2240p to 1900p and downgraded it from 'neutral' to 'underperform'.