Bank shares soar on $700bn bail-out

SHARES soared ahead of the US government agreeing a $700billion (£380billion) rescue package for the global financial sector.

00:00, Fri, Sep 26, 2008

CHEER Wall Street traders were full of hope of Bush s plan to prop up the banks CHEER: Wall Street traders were full of hope of Bush's plan to prop up the banks

The FTSE 100 index closed up 101.5 points to 5197, adding more than £24billion to the value of Britain’s biggest companies, as US lawmakers neared agreement on a deal. Wall Street ended 196.89 points up at 11022.06.

In the UK, the banks were the main beneficiaries, led by Barclays and Royal Bank of Scotland, with their shares rising 24dp to 370p and 10dp to 220dp respectively. HSBC rose 15dp to 881p.

All three banks have extensive American operations and hope to be able to offload some of their toxic assets under the plan being proposed by the US Treasury.

The FTSE’s late surge followed another day of chaos and uncertainty in the world’s money markets amid signs banks were hoarding cash in case the rescue plan was delayed or significantly watered down by US Congress.

The rate banks charge each other for dollar loans for three months endured its biggest daily jump since 1999, leaping from 3.48 per cent to 3.77 per cent,

while the sterling rate rose from 6.2 per cent to 6.3 per cent. Analysts said the increases were a sign that banks had stopped lending to each other.

They are also cutting back on loans to customers as they seek to conserve cash for further emergencies.

The US Treasury’s rescue package is designed to allay those concerns by giving banks somewhere to offload their bad assets.

This should then give banks the confidence that it is safe to lend to each other again.

But analysts said the scheme would not address another fundamental concern, which is that banks have too much debt and not enough capital.

JP Morgan said earlier this week British banks were facing a £38billion capital shortfall, a view echoed by others.

The US rescue package will not help Bradford & Bingley. Its shares fell 3fp to an all-time low of 21bp as it announced a further £134million in writedowns. Analysts said it had no long-term future, and nobody appeared willing to buy.

Insiders said a regulator-brokered rescue package was possible over the weekend, with buyers being urged to pick up pieces of the bank out of a sense of “national duty”. Another option is public ownership.