Royal Bank of Scotland heads the risers as markets welcome long delayed agreement on Greece
Banks are among the leading risers, as markets give a cautiously positive reaction to the late night agreement on Greece's aid package.
The FTSE 100 is up 32.14 points at 5818.86, but that does not mean it will be plain sailing from now on. Even though Greece's problems are seemingly resolved for the moment, there are other issues to concern investors, not least the US fiscal cliff - the tax rises and spending cuts due to come in next year. And the situation in Spain, which many believe will have to ask for some kind of bailout, is still far from clear.
But the Greek news has helped banks recover some of Monday's losses. Royal Bank of Scotland has risen 11.6p to 296.7p, also benefiting after an upgrade from UBS. It raised its rating from neutral to buy in the wake of Monday's announcement of the new Bank of England governor:
The narrative surrounding RBS has been depressing over the last 18 months as ever greater efforts by management to deliver a bank that is fit for purpose in a Basle III world have been met with market indifference and an increasingly hostile regulatory and political agenda. However, we think the appointment of Mark Carney as the new governor of the Bank of England provides the opportunity for the UK regulatory environment to be recast with a more conciliatory tone.
The end destination may be the same in that Carney has acknowledged that banks need to be robustly capitalised with equity but we think the speed of travel and the economic impact of delivering that result are likely to be more broadly balanced under Carney's governorship than we suspect would have been the case under the current trajectory. This helps reduce the "tail-risk" associated with investing in UK banks and we reduce our cautious stance on the sector by upgrading RBS to buy.
Our preference for RBS is driven by 1) its lower valuation relative to domestic peers; 2) high state ownership driving heightened regulatory/political risk which should ensure it is a better beneficiary of mood change; and 3) it is the European bank that is closest to completing its restructuring.
Lloyds Banking Group is 1.28p higher at 46.38p and Barclays - hit on Monday by news that Qatar was cashing in the last of its warrants in the bank - is 3.35p better at 243.85p.
But Severn Trent has slipped 2p to £15.54 despite a 1.6% rise in half year profits, as a 5.2% price rise offset lower usage during the wet summer. It said it was on track to meet full year earnings, and it has also said it was minded to accept changes to its operating licence, although it wants further clarity from regulator Ofwat.
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