FTSE heads for weekly rise but Experian drops on US data breach

Leading shares are moving higher ahead of the US jobs data, with banks boosted by news of a deadline being set for consumers to claim for mis-sold payment protection insurance.

But Experian has dropped more than 4%, down 49p at £10.26, after news of a data breach in the US affecting 15m people who applied for service with T-Mobile. Analysts at Barclays said:

In the near term, the greatest hit to Experian is the damage to its reputation and its effort to establish the “Experian.com” brand in the direct to consumer credit monitoring space. Unlike [recent data breach victim] Target (a retailer), Experian’s business is that of handling data, which makes this incident particularly embarrassing.

Undoubtedly a breach of this magnitude is a major setback, especially to a company that takes data security very seriously. T-mobile is obviously reviewing its relationship with Experian. In itself the loss of one client is fairly immaterial (a few million $ in our view) but if it triggers other account reviews, it could become more significant.

In addition we would expect to hear comments from the regulator (CFPB) who could launch a review of Experian’s security policies.

But they added:

Data breaches/cyber attacks are becoming increasingly commonplace. Though this one impacts Experian we don’t sense Experian’s competitors will be singing from the rooftops as any large data play is at risk from hackers and ID theft.

Whilst unfortunate we don’t think it will trigger a mass exodus of clients, although that will depend on the robustness of Experian’s response and the steps it takes to shore up security. It will of course make Experian’s task of rehabilitating its consumer business much more difficult.

In terms of financial cost, we would expect some one-off expenses in relation to this ($10m is our initial estimate) as well as likely further incremental spend on data security going forward (which has been rising anyway). As a rule of thumb, an additional $10m on ongoing expenses is just under 1% of group pre-tax profit, other things equal. Even a Target-like result (although unlikely as no credit/ bank data was stolen, in our view) would only represent a 1% hit to market cap. The longer-term reputational damage is harder to ascertain, but we think Experian’s B2B customers will be supportive as long as Experian moves quickly to restore confidence in its data security.

Despite the drop in Experian, the FTSE 100 is currently 57.17 points higher at 6129.64, heading for its second weekly rise in a row despite the recent negativity and volatility surrounding shares. Upbeat UK construction data has also helped sentiment.

Among the banks, Barclays is 4.6p better at 251.75p and Lloyds Banking Group has been lifted 1.88p to 77.10p following the Financial Conduct Authority setting a possible deadline of 2018 for making PPI claims, potentially drawing a line under the mis-selling scandal.

Legal & General has been lifted 7.1p to 243.7p following news of an annuity agreement with a US subsidiary of Royal Philips.

With equities back in demand, the normal havens of precious metals are slipping back, pushing Mexican miner Fresnillo down 8.5p to 596p and Randgold Resources 89p lower at £38.43.