Libor Rate Up, Banks Fall

123jump.com Staff
14 Mar, 2008
New York City

UK banks and financial stocks fell sharply after the Fed orchestrated emergency loan to the fifth largest investment bank Bear Stearns. The stock of the investment bank traded as low as 50% during the day in New York trading. FTSE 100 index fell 1.07% or 60.7 to 5,631.70.

[R]1:00AM New York, 6:00PM London – Emergency loan to the fifth largest investment bank Bear Stearns sent financial stocks in London lower.[/R]

Stocks in London declined led by financial stocks on the news that the Federal Reserve of New York and JP Morgan Chase had arranged an emergency facility for troubled investment banker Bear Stearns.

Market Sentiment

In London trading FTSE 100 fell 1.07% or 60.7 at 5,631.70.

Of the 102 FTSE 100 stocks 24 gained, 77 declined and 1 was unchanged. Shire Plc led advancers in the FTSE 100 stocks with a rise if 4.98% followed by Tullow Oil increasing 3.81%.

Fed and JP Morgan in emergency funding for Bear Stearns

Bear Stearns said today it has sought short term credit facility for emergency funding from the Federal Reserve Bank of New York and received the funding through JP Morgan because its liquidity position has “significantly deteriorated”. The news of the emergency financing sent the Bear Stearns stocks lower by 47% at the close of UK trading hours.

JP Morgan Chase said in a statement today the company will provide short term financing up to 28 days to Bear Stearns as long as the Federal Reserve guarantees the payment. The Federal Reserve also said the “board voted unanimously to approve the arrangement announced by JPMorgan Chase and Bear Stearns this morning.”

JP Morgan will lend to Bear Stearns, taking the collateral, and then refinancing the collateral with the Fed at the discount wind.

Libor rate rises

The British Bankers Association reported today that the London interbank offered rates rose 9 basis points to 5.93%, raising the specter that conditions in the credit markets will further deteriorate.

The development also damped expectations that the alliance of G-10 central banks will be able to ease conditions in the credit markets.

Gainers & Losers

Shire Plc led the gainers in the FTSE 100 stocks with a rise of 4.98% followed by increases in Tullow Oil of 3.81%, in BHP Billiton of 3.65%, in International Power Plc of 2.95%, and Liberty International Plc of 2.30%.

Tullow Oil increased after the price of oil remained above $100 per barrel.

HBOS led decliners in the FTSE 100 stocks with a fall of 6.05%, in ICAP Plc of 5.68%, in Prudential Plc of 4.89%, in Barclays Plc of 3.94%, in Sainsbury Plc of 3.90%.

Alliance & Leicester rose 3.67% and the Royal Bank of Scotland advanced 2.48%.