Member Article

First Group shares plunge on franchise win

Standard Chartered reached a settlement with New York’s banking regulator overnight, over the alleged Iranian money laundering practices. In the deal with New York’s Superintendent of the Department of Financial Services, the bank agreed to pay $340 million although it is likely there will be additional fines levied by the four other regulators that have been investigating its activities. The retention of the groups banking license, previously a cause for concern as its removal would have seriously damaged the bank’s operations, also provided an uplift in sentiment. Shares in the emerging market focused bank closed 4.1% higher.

Shares in First group closed down 6.1% today, following their contract win to run the West Coast rail franchise until 2026. The operator won the bid from Richard Branson’s majority owned Virgin Trains, who have operated one of Britain’s most profitable routes since 1997. Mr Branson cautioned that the high price paid by First Group’s is reminiscent of previous overbidding, alluding to the bankruptcies of GNER and National Express on their East Coast main line operations. First group’s £5.5billion successful bid will mean, over the duration of the franchise, premiums of £390m per year will be paid to the government, compared to the £160 million paid by Virgin. The market’s reaction was also evident from Stagecoach’s 1.9% gain today, the operator with a 49% stake in Virgin Trains.

The FTSE100 lost 0.5% to finish at 5833, pretty much erasing yesterday’s gains and still trading in a narrow trading range with no significant news flow to catalyse further rises, or cause a more significant correction. Stock indices in Europe and the US were similarly pretty flat.

This was posted in Bdaily's Members' News section by James .