Stock markets give mixed response following bailouts

Shares on the FTSE 100 index recovered this morning on the news that the UK Government is to pump £37 billion into three of the country’s largest banks.

The Government is to inject £20 billion into RBS (RBS) while a further £17 billion will be pumped into Lloyds TSB and HBOS.

However, at the end of trading today, shares in RBS closed 8.4% down, Lloyds TSB closed 14.5% lower, while HBOS closed down 27.5%.

Meanwhile, shares in Barclays, which announced plans to raise £6.5 billion via private investors, not from the Government, saw its shares close 3.7% higher at 215.25p, while HSBC, which is not involved in the capital injection, closed 7.5% higher to 849.25p

According to Paul Kavanagh, at the brokers Killik & Co, the rescue plan is good news for the banking system, but not necessarily good news for share prices of the banks.

However, it was announced today that the terms of Lloyds TSB’s takeover for HBOS have been revised, possibly having an affect on share prices.

HBOS shareholders will now receive 0.605 shares for each HBOS share they own, revised from the original offer last month of 0.833.

Despite the falls, the FTSE 100 closed 324.8 points higher at 4,256.9.

Meanwhile, European leaders unveiled plans to spend billions of euros to guarantee loans in leading banks in a bid to fight off financial meltdown.

France’s CAC 40 index closed up 9.7% at 3471.4 today, while Germany’s Dax rose by 10.8%.

Across the Atlantic, the Dow Jones industrial average rose by 504.41 points to 8,955.60 in midday trading following the news of the UK and European rescue plans.

Last week, Wall Street lost 20% of its value and suffered its largest weekly fall since the Dow Jones index was created in 1896.

Discuss this in the Finance Markets forums

Story link: Stock markets give mixed response following bailouts