London midday: FTSE nudges up but Lloyds, NatWest in the red

(Sharecast News) - London stocks had nudged into the black by midday on Friday, but Lloyds Banking Group and NatWest remained under pressure following reports that chancellor John Healey will raise taxes on the banking sector in his Budget later this month.

The FTSE 100 was up 0.1% at 10,854.73.

According to the Guardian, one option being discussed is reversing cuts to the bank surcharge made by Jeremy Hunt, which would raise upwards of £2bn a year. The Guardian said industry figures believe that will probably mean raising the surcharge back to 8% from 3%, to help bolster the government's fiscal headroom.

Meanwhile, senior banking executives told the BBC they expect the sector to be "on the menu" when the chancellor announces his Budget.

Russ Mould, investment director at AJ Bell, said: "Banking shares took a hit after speculation that Chancellor John Healey would increase tax on the sector.

"Barclays, Lloyds and NatWest all saw their share prices fall after reports that Healey might increase the current 3% surcharge on top of corporation tax back to the 8% level last seen in 2023. Doing so could potentially raise around £2 billion a year for public finances.

"Banks joined gambling firms and oil and gas producers in protesting against the idea of higher taxes in the UK, arguing such action could discourage investment and lead to job cuts. That would be counterproductive to the government's drive to grow the economy.

"The government might argue that banks are doling out significant amounts of money in dividends to shareholders, implying there is plenty of scope for them to pay a little bit more tax. The flipside is that any hit to dividends to offset higher taxes would penalise the large number of people in retirement who invest in banking shares for income.

"The pullback in banking shares acted as a drag on the FTSE 100, leaving it lagging other parts of Europe. Fortunately, the FTSE 100's downward movement was only marginal at a 0.1% decline, meaning the week didn't end on a completely sour note."

Mould added that the lack of action across markets on Friday is "a massive win in the context of the drama seen earlier in the week". "The tech stock wobble was felt globally as the sector is a favourite among many investors given it has been a source of strong returns in recent years."

In equity markets, Lloyds and NatWest were among the worst performers on the FTSE 100. Asia-focused Standard Chartered and HSBC fared better, up 0.9% and 0.6%, respectively.

Lloyds was also in focus after RBC Capital Markets downgraded the shares to 'sector perform' from 'outperform'.

"Whilst structural hedge repricing should provide the bank with a material NII tailwind, today's downgrade reflects our more cautious view on competition in the UK deposit market and second order implications for NIM, a dynamic we believe is underappreciated," RBC said. It noted that despite being 6% below consensus adjusted pre-tax profit in FY28, an undemanding valuation keeps it from downgrading to 'underperform'.

On the upside, Computacenter was among the risers, having slumped on Thursday amid the tech selloff.

Man Group was little changed as it said assets under management increased to $270.9bn as at 30 September from $253.6bn three months earlier.

Market Movers

FTSE 100 (UKX) 10,854.73 0.13%

FTSE 250 (MCX) 24,577.38 0.62%

techMARK (TASX) 6,278.76 0.43%

FTSE 100 - Risers

WPP (WPP) 419.20p 4.75%

Babcock International Group (BAB) 963.80p 3.81%

Weir (WEIR) 2,684.00p 2.68%

Autotrader Group (AUTO) 544.40p 2.48%

Melrose Industries (MRO) 488.70p 2.26%

Balfour Beatty (BBY) 839.00p 1.88%

BAE Systems (BA.) 1,973.50p 1.86%

Relx plc (REL) 2,938.00p 1.80%

St James's Place (STJ) 1,075.00p 1.75%

Pershing Square Holdings Ltd NPV (PSH) 3,838.00p 1.70%

FTSE 100 - Fallers

Lloyds Banking Group (LLOY) 103.90p -1.84%

Antofagasta (ANTO) 3,371.00p -1.83%

Severn Trent (SVT) 3,158.00p -1.80%

AstraZeneca (AZN) 12,502.00p -1.58%

NATWEST GROUP (NWG) 664.00p -1.45%

Coca-Cola HBC AG (CDI) (CCH) 4,366.00p -1.40%

GSK (GSK) 1,851.50p -0.99%

Coca-Cola Europacific Partners (DI) (CCEP) 8,240.00p -0.72%

Games Workshop Group (GAW) 16,970.00p -0.70%

Haleon (HLN) 372.20p -0.69%

FTSE 250 - Risers

THG (THG) 34.06p 6.44%

Hays (HAS) 60.40p 4.85%

CMC Markets (CMCX) 711.00p 4.57%

Baltic Classifieds Group (BCG) 2.43p 4.03%

Trustpilot Group (TRST) 273.00p 3.94%

Chemring Group (CHG) 541.00p 3.85%

Energean (ENOG) 737.50p 3.80%

ITV (ITV) 66.60p 3.74%

Rightmove (RMV) 550.60p 3.73%

Globaldata (DATA) 67.00p 3.49%

FTSE 250 - Fallers

Fidelity Emerging Markets Limited Ptg NPV (FEML) 1,400.00p -1.96%

North Atlantic Smaller Companies Inv Trust (NAS) 417.88p -1.68%

Schroder Asian Total Return Investment Company (ATR) 656.00p -1.50%

Ocado Group (OCDO) 294.80p -1.47%

JPMorgan Emerging Markets Growth & Income (JMGI) 160.40p -1.23%

Fidelity China Special Situations (FCSS) 231.50p -1.07%

SDCL Efficiency Income Trust (SEIT) 34.35p -1.01%

JPMorgan Emerging Markets Dividend Income (JEMI) 202.00p -0.98%

Cranswick (CWK) 5,160.00p -0.96%

Safestore Holdings (SAFE) 518.50p -0.96%