UK Offers

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

UK stocks surged after the European goverments took aggressive steps and offered $1.7 trillion in capital to loan to banks and take direct stakes as well. The broad action emerged after a meeting of European leaders in Washington and in Paris. UK also took stakes in RBS, HBOS and Lloyds TSB.

[R]1:00PM New York, 6:00PM London – The U.K. government to invest £37 billion in RBS, HBOS and Lloyds TSB.[/R]

After a tumultuous week of stock market trading followed by hectic meetings among financial leaders in Washington and European political leaders in Paris the details of broad framework of financial rescue plan emerged. The common framework among fifteen nations using euro focused on the purchase of troubled loans and take selective direct stakes in the banks.

However, UK limited its action to taking direct stake in banks and encouraged other well capitalized banks to increase its bank reserves.

The common action across the region and governments commitment to rescue banks lifted the euro and pound, which most people still consider as bailout of rich bankers. But, investors welcomed the action and bid up stocks in UK and Europe in historic one day gains.

Further, central banks in the region including, the ECB, the BoE, Swiss National Bank and the U.S. Fed acted together to provide unlimited dollar liquidity to banks for short term loans. The historic move by regulators hopes to bolster confidence in interbank lending and lower interest rates. The London Interbank Offered Rate fell, but hovered near record level.

Market Sentiment

In London trading FTSE 100 surged 8.26% or 324.84 to 4,256.90.

Of the FTSE 100 stocks 96 rose and 6 declined. Schroders Plc led advancers in the index shares with a rise of 32.3% after the government announced bold measures to rescue the country's troubled financial institutions.

U.K. Injects Capital in RBS, HBOS and Lloyds

UK banks appear weaker than first anticipated.

The UK through its Bank Reconstruction Fund will inject in Royal Bank of Scotland £20 billion, £15 billion in common and £5 billion in preferred stocks in exchange for 63% stake in the bank. The stake is valued at 65.5 pence and the government will appoint three independent board directors, including Prime Minister Gordon Brown.

All directors pay and bonus will be paid in stocks to align their interest with that of the company and taxpayers.

UK will invest £17 billion in HBOS and Lloyds TSB Group Plc. After the merger between the two financial institutions, HBOS will receive £8.5 billion and £4.5 billion in Lloyds. The government will also invest £4 billion in preferred stock in the merged institution.

Chief executives and chairmen at RBS and HBOS will step down.

HSBC announced on Friday that it has raised £750 million from private investors and Standard Chartered confirmed that it meets capital requirements. Barclays Plc plans to raise £6.5 billion without the help of the government.

Bank of England Amends Swap Lines with Fed Reserve

The Bank of England, European Central Bank and Swiss National Bank will conduct tenders of U.S. dollar funding at 7-day, 28-day and 84-day maturities at fixed rates. The new loan facilities will not be capped and unlimited amount of money will be available from the central banks.

The move is designed to unlock the current tight conditions in the interbank lending market and improve the crisis of confidence between banks. The BoE amended its swap line with the Fed Reserve to ensure that there is no fixed limit to the amount of dollar liquidity that can be supplied to the banking system.

Also to maintain supply of U.S. dollar liquidity from the Bank of England dollar operations, a variable auction will be held on October 14 for $30 billion, same day settlement, for maturity on October 17.

Gainers & Losers

Schroders Plc led advancers in the FTSE 100 index shares with a rise of 32.25% followed by rises in Kazakhmys Plc of 22.12%, in TUI Travel of 20.96%, and Standard Life of 20.51%.

The London interbank offered rate, or Libor, for three-month dollar loans fell 7 basis points to 4.75% according to the information released by British Bankers’ Association.

Commodity stocks also increased. Anglo America gained 14.64%, Xstrata edged up 12.92% and Vedanta Resources spiked 10.20%.

HBOS Plc led decliners led decliners in the FTSE 100 stocks with a fall of 27.54%, in Lloyds TSB Group of 14.47%, in Royal Bank of Scotland of 8.37%, in Fresnillo of 0.95%, and Hammerson Plc of 0.80%.