European stock markets react badly to Hester quitting as RBS chief

European stock markets reacted badly to the resignation of the Royal Bank of Scotland chief executive, Stephen Hester, and the indication that central banks may end their support of economies.

RBS was down over 4% after Mr Hester said he would step down by the end of the year.

“This announcement increases the uncertainty around the shares and potentially delays further any return of the bank to private ownership,” Gary Greenwood, analyst at Shore Capital, says while cutting his rating on RBS to “sell” from “hold”.

In Dublin, the Iseq fell after it emerged that Elan shareholders were unlikely to support any takeover bid by Royalty Pharma. Shares in Elan fell by 5% as chances of the takeover dwindled.

Worries over political stability in Greece, as workers began a nationwide strike in protest against the “sudden death” of state broadcaster ERT, did little to settle investors’ nerves.

Peel Hunt’s equity strategist Ian Williams, however, said the concerns over when stimulus withdrawal will occur in the US remained the key focus for investors.

“Low volumes and high volatility will remain the order of the day at least until next week’s FOMC (Federal Open Market Committee) meeting, with technical considerations set to dominate,” he said.

The threat of higher bond yields particularly in emerging economies, a likely result of central banks scaling back their stimulus measures, continues to weigh on financials given their exposure to bond markets.

“Given the present economic conditions (policymakers) felt uneasy with the financial asset inflation, so they have put attention on the possibility that they might diminish quantitative easing (QE),” said Ronald Doeswijk, chief strategist at Robecco. “From here on I expect they will send signals that it is still a mixed picture and they are still neutral (on QE) and that could relax financial markets.”

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