Growing fears about the health of American monoline bond insurers and further credit rating downgrades for sub-prime mortgage bonds sparked another big sell-off of financial stocks yesterday, with banks and mortgage lenders feeling the pain.
It took comments from Gary Dunton, the chief executive of MBIA, the monoline insurer, to help the FTSE 100 to stage a late rally. He told investors in a US conference call that the business of packaging debt will bounce back.
Barclays, HBOS and Royal Bank of Scotland all fell heavily during a morning that saw Friends Provident, the insurer, lose more than 10 per cent of its value with a warning that profits would almost evaporate this year.
Sandy Chen, an analyst at Panmure Gordon, reiterated his “sell” advice on Barclays, RBS, HSBC, Standard Chartered, Bradford & Bingley and Northern Rock.
He said that even massive rate cuts would not help matters as the falls in house prices in the UK and US were leading to bad debt. This would force banks to tighten their lending criteria, however low the Bank of England set interest rates, he said.
Advertisement
But Mr Dunton’s comments sparked a rally on Wall Street and in London. Having lost almost 150 points at one stage, the FTSE 100 closed 42.5 higher at 5,879.8.
Barclays closed 8½p lower at 470p, HBOS finished 8½p down at 694½p, while RBS ended 3¼p down at 382p.
Standard Chartered worried investors by announcing that it was taking the $7 billion (£3.5 billion) of securitised credit card and student loan debt in its structured investment vehicle, Whistlejacket Capital, on to its balance sheet.
It has agreed to provide a “backstop facility” of up to this amount should no other institutions refinance loans to the vehicle that are coming due. Standard Chartered emphasised that the sum was only 2 per cent of its balance sheet and ended 13p higher at £16.65.
Mitchells & Butlers was among the worst performers in the FTSE 250 as analysts cautioned investors that a takeover was by no means certain. Punch Taverns denied speculation that it had approached the company and Morgan Stanley cut its target from 460p to 400p. Having gained 67p yesterday when it revealed that it had received approaches, Mitchells & Butlers fell 27¼p to 445¾p.
Advertisement
Among the miners, Rio Tinto surged 137p to £49.56 amid speculation that BHP Billiton of Australia would increase its $130 billion offer.
Xstrata gained 109p to £38.27 on reports from Brazil that its predator Vale had provided details of a possible offer to President Luiz In?cio Lula da Silva in a phone call. He will discuss the bid and tell Vale whether the Government supports the offer. Approval from the Government is needed as it holds a golden share in Vale. A bid is estimated at between $80 billion and $90 billion, with key Xstrata shareholder Glencore said to be willing to accept $30 billion in Vale preferred shares for its 35 per cent stake.
New York: Shares on Wall Street ended a frenetic January with a huge advance after investors grew more optimistic that the Federal Reserve’s interest rate cuts would help to spur the economy back to solid growth. The Dow Jones industrial average closed at 12,650.40 points, up 207.60.