Shares in Britain’s banks plunged again amid panicky trading following emergency talks with the government over a possible injection of billions of pounds of taxpayers’ money into the banking sector.
Royal Bank of Scotland nosedived by almost 40% to 90p in morning trading – its lowest point since the recession of the early 1990s. Barclays, Lloyds TSB and HBOS were also hit, as the lack of a coordinated rescue plan for the banking sector alarmed the City.
By 3pm RBS shares were 32.5% lower at 112p, giving it a market capitalisation of £15.98bn – down from over £75bn a year ago.
Last night Britain’s bank bosses met with chancellor Alistair Darling, to discuss a possible £50bn injection of equity. They are due to meet again at the Treasury this afternoon.
The talks centre on the idea of a part-nationalisation of the banking system through the injection of capital into the banks via preference shares, which take precedence over ordinary shares during a liquidation, but do not give the holders any voting rights.
John Varley, the chief executive of Barclays, insisted this morning that he had not sought any capital from the government. RBS later issued its own denial, telling the London stockmarket that “contrary to press speculation, RBS did not make a request to government for capital.” HBOS has also denied it is asking for fresh funds while Lloyds TSB declined to comment.
But it is clear that the bank executives are anxious for the government to press on with any plan to recapitalise the sector and attempt to restore confidence in the high street banks.
Darling disappointed investors when he did not make an announcement during his appearance in parliament yesterday, and analysts have warned that the continued uncertainty is undermining the sector.
“Alistair Darling keeps saying that he won’t take a rushed decision. But we need to see decisive action,” said Manus Cranny of MF Global Spreads. “We are at a crisis moment.”
The CBI piled the pressure on the government to provide a “circuit-breaker” to bring relief to the troubled banking sector.
“There are three separate but related problems: a continued lack of liquidity in money markets, the erosion of bank capital resulting from the devaluation of their assets, and the loss of confidence among depositors that their money is safe,” said CBI deputy director-general John Cridland.
And veteran City commentator David Buik said the markets were “running scared” after last night’s talks were reported.
He blamed the government for its handling of the crisis talks. “I’ve never seen more disgraceful financial management,” he said. “All we’ve got now is speculation and fear. The market has collapsed.”
In a further sign of the turmoil sweeping the world’s financial markets, the Icelandic government seized control of Landsbanki, the second largest bank in the country, as it sought to avert a financial meltdown.
The FTSE 100 index of leading shares rose by 133 points, or almost 3%, in the first few minutes of trading. But investors were again gripped with fear following yesterday’s 391-point slump – the worst day’s trading in over 20 years, with £93bn wiped off the value of Britain’s top 100 companies.
By 3pm the London index was up 60.2 points at 4649.4.
There was a late recovery in Asia thanks to a shock interest rate cut in Australia. Heavy selling pushed Japan’s Nikkei index down by 5% to its lowest point since December 2003, before it later recovered somewhat to close 2.2% lower at 10155.9 points
The Federal Bank of Australia astounded the markets by cutting interest rates by a full percentage point overnight, to 6%. Australia’s central bank said it was relaxing its monetary policy in an effort to stop economic growth deteriorating as the mayhem in the financial markets continues. The move raised hopes of combined action by the world’s central banks to try to stimulate the global economy.
“But if that is what the market is hanging its hat on, then it could be sorely disappointed,” cautioned Cranny.
The Bank of England will set UK interest rates on Thursday, and business groups are already demanding a half-point cut to 4.5%.
European finance ministers are meeting in Luxembourg today to discuss the crisis. Europe’s failure to agree a coordinated rescue package for its banks was a major factor behind yesterday’s sell-off, so there is pressure for progress.
“Until such time as the banking sector is not totally reliant on central bank intervention and until trust is restored among the banks, there can be no measurable improvement in equity prices,” warned David Buik of Cantor Index.
Graeme Wearden and Jill Treanor
Tuesday October 07 2008 15:15 BST
Source: The Guardian