European shares mixed banks lower on Lloyds and Schroders results

European indices moved higher early on Thursday as traders looked to pick up some of the more badly beaten stocks that they perceive to be bargains after heavy stock falls. Most activity was however restrained, with an eye towards the BoE and ECB rate decisions due out at lunch time and as the morning progressed, Indices swung between positive and negative territory.

Having seen the oil and mining sectors fall by 4% and 5% respectively this week alone, it is not surprising that investors have started to look for what they perceive to be bargain stocks within these sectors. Interest is being kept on a leash however, with copper and crude oil prices continuing to trade to the downside this morning, and silver prices having lost 20% this week already.

Lloyds and Schroders’ shares tumble
Lloyds and Schroders’ have both suffered heavy stock selling today after both banks disappointed investors somewhat with their earnings.

Lloyds, 41% owned by the government, shocked investors by setting aside £3.2 billion to cover compensation claims for miss-selling its debt repayment insurance policies. The amount set aside is far graver than the market had expected and also raises fears that other banks embroiled in the insurance issue could also expect to pay out more than was first perceived. The bank also announced it took an additional £500 million hit than expected from Irish debt woes, which pushed the bank into a loss of £3.5 billion for the first quarter. Lloyds’ shares were down by 5.7% within the first hour or trading as a result.

Shares in Schroders also tumbled 5% after the investment firm reported an 11% rise in pre-tax profits for the first quarter to £103.8 million. The market had been expecting a number closer to the £116 million mark and so these numbers are well short of consensus. As a result, the firm’s shares have taken a hit this morning.

BoE and ECB rate decisions eyed
Traders eyes remain transfixed on interest-rate decisions due out of the Bank of England and European Central Bank. Whilst the market is not expecting a change in rates from either decision, the market is of course wary of surprises.

Both central banks are expected to hike rates soon, with the ECB expected to hike rates again in July. Debate ranges on a first UK hike in two years to take place between August and early next year.

The focus today will be on the rhetoric from ECB President Jean Claude-Trichet, and whether he insinuates the next ECB hike will come in June or July.