Record Libor, UK Deposit Insurance Raised

123jump.com Staff
04 Oct, 2008
New York City

UK increased its deposit insurance coverage to

[R]1:40AM New York – UK stocks closed higher on a rise in financial stocks. Transportation stocks declined. The Bank of England offered to take wider loan collateral. Libor rate hovers near record level.[/R]

UK stocks closed higher after three days of a decline in a row. The FTSE 100 index rose 2.3% or 109.91 to 4,980.25 and for the week the index declined 2.1%. The benchmark index declined to the level last seen in May 2005.

The benchmark index has lost 22.8% for the year.

Banks and insurance stocks gained on the hope that the U.S. House will approve the amended bank bailout bill that will purchase up to $700 billion of most mortgage bonds from banks and brokerage and help to unlock tight credit markets. The faith in the plan may be misplaced and the plan is likely to not solve the current U.S. credit crisis which has shaken the global financial markets.

After the close of trading in London, the House passed the vote and President Bush signed the bill into the law.

Libor, the London interbank offered rate, jumped to a record high for euro deposits and reached to the previous peak last seen in January. The rate for deposits in euro rose to 5.33% and for dollar deposits closed at 4.5%. The elevated rates in the interbank markets suggest that crisis of confidence is likely to persist in the months to come.

The UK bank regulators raised the limit on bank deposits that it insures to £50,000 from £35,000 The Financial Services Authority, the regulating arm of the banking and brokerage industry was forced to increase the insurance coverage after Ireland decided to guarantee all the deposits and debts of its six largest banks.

Banks in trading rose sharply on the hopes of bailout bill passage in the U.S. and sharply higher offer for Wachovia Corp from Wells Fargo & Company, trumping the offer from Citigroup.

Barclays PLC led the gainers with a rise of 9% to 368 pence and comments from analysts suggested that the company is looking to raise more capital after it raised 4.5 billion in June. The troubled mortgage lender HBOS surged 18% to 200.5 pence and its acquirer gained 10.7% to 290.25 pence.

Insurance companies in London fell sharply after stocks in the sector declined in Paris, Frankfurt and in New York. Fitch rating agency put Hartford Financial Services in the U.S. on a negative credit watch. Zurich Financial booked $275 million of charge related to a debt fund Sigma Finance that collapse last week. Prudential in London declined 0.4% to 498 pence and Friends & Provident fell 3.6% to 83.4 pence. Old Mutual Plc gained 6.5% to 77.4 pence.

Insurance stocks in New York fell sharply too. Principal Financial, Hartford Financial and MetLife have dropped between 30% and 50% in the last one week of trading on the worries that the current financial markets volatility and the persistent housing market declined will force the companies to record losses and raise more capital.

London Stock Exchange dropped 3% to 833.5 pence after Credit Suisse analyst downgraded the stock to ‘underperform’ and said that independent exchanges are gaining market share and trading volumes trend may be ‘mixed’ for the rest of the year.

Regal Petroleum PLC rose 50.6% or 42 pence to 125 pence after Daily Telegraph reported that company is likely to be acquired by Royal Dutch Shell Plc for $1.2 billion or 300 pence a share. The company denied the report and did not confirm merger talks with the oil giant.

Blacks Leisure Group Plc dropped 13.4% or 12 pence to 77.50 pence to a loss after the outdoor apparel and accessories retailer said that it expect to lose £4.5 million at the end of first half compared to a loss of £0.6 million. The company in an interview with Reuters said that it has 40 million pounds of debt facility with Royal Bank of Scotland, nearly twice the level of its capital requirement last year.

John Menzies Plc dropped 15% or 40.75 to 229.25 pence after it said that Menzies Aviation is ‘unlikely to meet current market expectations’ and estimated earnings for the division in the range of £14 million to £16 million. On the news, BAA Aviation dropped 8.5% to 104.75 pence.