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* FTSE 100 drops 1.1 pct
* Financials weigh as Deutsche worries intesify
* Capita hit by downgrades
* FTSE set for strong quarterly gain
By Alistair Smout
LONDON, Sept 30 Britain's top share index
dropped on Friday, taking the shine off a strong quarter, as
banks fell on renewed uncertainty over Deutsche Bank's financial
health and as a spate of broker downgrades hit outsourcer
The FTSE 100 was down 78.33 points, or 1.1 percent, at
6,841.09 by 0820 GMT, with financials taking 25 points off the
Banks followed the European sector lower after Germany's
largest lender admitted it had an image problem with investors,
although the bank played down a report that counterparties are
wary about doing business with it.
"It's mainly speculation at the moment, so there aren't
material concerns (for UK banks) yet. The counterparty risk for
Deutsche Bank is tremendously high though," London Capital
Group's senior market analyst, Ipek Ozkardeskaya, said.
"If something happens to a bank as big as Deutsche Bank ...
there is systemic risk. But for now, if the negative mood in the
market can be managed, it shouldn't lead to anything more
serious in the short term."
In all, FTSE 350 banks were down 2 percent,
with Barclays, Royal Bank of Scotland and
Lloyds down between 2.2 percent and 3.2 percent.
RBS unveiled sweeping structural reforms ahead of
new UK rules to separate its retail operations from riskier
parts of its business, in an overhaul set to confine its
historic RBS retail brand to Scotland.
Top individual faller was Capita, down 4 percent and
slumping for a second straight day.
It has fallen 30 percent since a profit warning on Thursday,
and Friday saw a swathe of target price cuts on the stock.
However, while Panmure cut the stock to "sell" from "hold",
other analysts who had been bearish on the stock raised their
Goldman Sachs removed the stock from its "conviction sell"
list, upgrading it to neutral, although it slashed its target
price for the outsourcing firm.
Britain's FTSE was set to end September up 5 percent for the
quarter, with a monthly gains of 0.9 percent.
It was up for a second straight quarter, with its
international exposure and sterling weakness helping to shield
the index from the effects of uncertainty surrounding Britain's
vote to leave the European Union.
The mid-cap FTSE 250, which has more domestic
exposure, has rebounded strongly this quarter.
After ending the second quarter down 3.9 percent following
the vote, the FTSE 250 rose 8.5 percent this quarter, after data
suggested that the initial fall-out from the referendum had not
had the negative economic impact that was widely expected.
(Editing by Louise Ireland)