Banks toil but GSK rallies in FTSE 100

Heavy falls for NatWest Group (LSE:NWG) and Lloyds Banking Group (LSE:LLOY) today offset an advance by GSK (LSE:GSK) as the FTSE 100 index underperformed European markets by some distance.

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Lower metal prices also contributed to the top flight staying near to its opening mark, whereas benchmarks in Paris and Frankfurt were at least 0.5% higher by mid-afternoon.

Alongside Antofagasta (LSE:ANTO) and Fresnillo (LSE:FRES) on the FTSE 100 fallers board, Lloyds gave up 1.5p to 57.7p and NatWest reversed by 14.3p to 335.1p as sentiment towards the UK lenders continued to suffer in the wake of Keir Starmer’s Downing Street speech yesterday.

The prime minister said the country would have to accept short-term pain for long-term good and that those with the broadest shoulders should bear the heavier burden. The speech signalled a planned fiscal tightening at the Budget on 30 October.

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City firm Peel Hunt said today: “While it is normal for a new government to emphasise bad news early on as a way to provide cover for unpopular policy decisions, it is no longer clear whether Starmer’s hawkish tones are standard political theatrics or a genuine shift in policy direction.” 

The banking sector mood was also impacted by the Financial Conduct Authority’s (FCA) disclosure of a market study into how pure protection insurance products are sold.

The watchdog will focus primarily on the sale of four types of products – term assurance, critical illness cover, income protection insurance and whole of life insurance including policies for over 50s that offer guaranteed acceptance. 

The products are mainly sold through intermediaries such as independent financial advisers or mortgage brokers. The FCA has concerns that the design of commission arrangements may not allow firms to deliver good outcomes to policyholders.

The regulator is also concerned that some products may be providing poor value, for example if the total premiums paid over a lifetime far exceed the maximum conceivable payout.

Today’s reverse for the banking sector follows strong gains in the year to date, with NatWest currently 52% higher and Lloyds up by 21%. Barclays (LSE:BARC) also lost 6p to 224.2p in today’s session but is up by more than 40% across 2024. 

Elsewhere on the FTSE 100 fallers board, shares in B&Q owner Kingfisher (LSE:KGF) fell by 5.3p to 281.5p after Citi analysts removed their Buy recommendation following a strong run for shares.

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Blue-chip risers included pharmaceuticals group GSK, which lifted 26.5p to 1644.5p after a positive courtroom development in the long-running Zantac litigation.

The boost for GSK and three other firms came as Delaware’s supreme court agreed to review an earlier ruling that allowed the introduction of plaintiffs' expert evidence at trial. 

The claims that the now discontinued heartburn drug caused cancer have weighed on shares since summer 2022, despite a number of upgrades to company guidance in recent months.

Shore Capital, which has a price target of 2200p, called the ruling another ray of light for the drugs firm on Zantac. It added: “We still view the current discount to peers as unwarranted and largely attributable to misguided assumptions around the potential cost of litigation.”

It notes that GSK trades on a forward looking price earnings multiple of 9.1 times, below the 12 times that the company has historically commanded.

Shore added: “Our thesis remains that GSK offers a decent period of near-term growth with a realistic prospect of fulfilling its longer-term ambitions, which taken together look wholly unbecoming of single-digit earnings multiple.”