Banks lead massive rally in European markets

BRITISH and Irish banks led an incredible European financial sector rally yesterday as authorities banned short selling of financial stocks.

Moves by regulators in the US and other European to tighten trading conditions in banking shares also steadied investor nerves and the US markets also opened up strongly.

In London, the FTSE in Londonhad the biggest daily gain in its 24-year history.

Shares in Britain’s Royal Bank of Scotland Barclays, Lloyds TSB and Halifax Bank of Scotland (HBoS) all jumped by between 30% and 40% after the Financial Services Authority (FSA) imposed a four-month ban on short-selling financial stocks.

Irish banks also surged, with Anglo Irish Bank up as much as 125% in early trade before settling up 28.7% on the day at €5.6.

Anglo was boosted by reports that it was interested in taking control of Irish Nationwide Building Society whose credit rating was downgraded last week by two leading agencies.

Overall, in a hectic day’s trading the ISEQ 100 Index closed up 10.22% as the market gained almost €5bn in value.

At the end of the day’s trading the value of Irish stocks was €56.46bn, but a look back over the past 12 months shows the recovery process still has a long way to go.

This day last year the Irish market was worth over €102bn, nearly double yesterday’s closing value and at its peak that was closer to €140bn before doubts about the Irish economy and the banks started to erode confidence.

Analysts are optimistic the ban on short selling, which was a factor in undermining Irish financial shares in particular, will help stop the erosion of financial share values.

Stuart Draper, head of research at Dolmen Stockbrokers said short selling had been a huge negative as hedge funds in Britain tried to undermine the banking sector here.

But a one-day bounce is not necessarily the start of a new dawn for the Irish market.

Last Monday week the Irish index rose the most when it jumped almost 7% boosted by the rescue of Fannie Mae and Freddie Mac, but had lost most of those gains before the weekend.

This week has ended on a very positive note however with huge gains in the banks globally after the US government announced a plan to cordon off the debt and toxic investments at the heart of the credit crunch.

After a week of heavy losses. Bank of Ireland jumped over 37.5% to close at €5.20, while Irish Life and Permanent jumped 20% to €6.13 and AIB added 19% to end at €6.23.

London’s FTSE 100 index rose 8.84% to close at 5,311. The Paris CAC 40 jumped over 9%, its largest one-day gain, to end at 4,325.

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