London’s leading shares index closed nearly 3% higher today after a favourable stockbroker’s note triggered a strong session for Britain’s beleagured banking shares.
Taxpayer-backed Royal Bank of Scotland ensured the FTSE 100 Index saw its biggest rise in more than a fortnight after the bank’s shares lifted 8% when Deutsche Bank introduced a buy rating on the stock.
The London market, which was closed for the bank holiday yesterday, was also playing catch up with gains overseas after positive consumer spending data in the US and reports of a merger of two major banks in debt-laden Greece helped ease fears of a global recession.
While the London market was closed yesterday, the Dow Jones Industrial Average in the US made gains of more than 2% and Asian markets also pushed higher overnight.
There was also relief in the US after it became clear tropical storm Irene had caused far less damage than had been feared, giving a lift to insurance stocks.
RBS, which is 82% owned by the taxpayer, was upgraded by Deutsche Bank, which said recent falls in its share price meant the stock now represented good value.
It added that while the bank still faced risks, including its exposure to Ireland and potential regulation, its earnings would ultimately be stronger than expected.
Shares in RBS rose to nearly 24p today, having dipped below 20p for the first time in two years earlier this month amid the market chaos sparked by fears that the US and eurozone debt crisis would plunge the world economy back into recession.
Despite today’s gains, RBS’s share price is still less than half the 50p per share paid to bail out the bank, meaning the British government is currently still facing a loss of some £23.4bn on its investment.
Banking stocks in the UK were also boosted after business body the CBI joined the British Bankers’ Association in calling for proposed reforms to the banking sector to be delayed.
The Independent Commission on Banking is due to give its full report next month detailing proposals to force banks to ringfence their retail and investment arms.
However, the industry has warned the reforms would weaken UK banks’ profits and make them less competitive.
Lloyds Banking Group was ahead nearly 8%, Barclays advanced nearly 7% and HSBC added 4%.