Global banks gain on stress test hopes

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Global bank shares have gained ground on hopes that United States banks will not face huge shortfalls in the amount of money they need to raise.

 

In the US, Citigroup rose five per cent and Bank of America gained 4.6 per cent, the British Broadcasting Corporation News said on Tuesday. In the United Kingdom, Lloyds Banking Group closed up 10.5 per cent while Standard Chartered added 8.5 per cent.

 

Shares in Swiss bank UBS rose by 2.3 per cent despite reporting further losses.

 

US banks are being tested to see if they have sufficient cash reserves to cope should the recession worsen.

 

The gains in banks helped to push up the UK‘s FTSE 100 index. It rose 2.2 per cent, or 93.72 points, to close at 4,336.94.

 

Markets have been anxiously anticipating the results of the stress tests, which are due to be released on Thursday.

 

And, while reports suggest that about half of the 19 largest US banks will be instructed by regulators to raise more capital, investors are betting that sums needed will be manageable, analysts said.

 

However, there was still plenty of uncertainty, according to Howard Wheeldon, senior strategist at BGC Partners.

 

”Justifiable though the market recovery is, there are some huge bumps ahead. Thursday may be one of those big bumps, in the devil in the details of what US banks require,” he said.

 

There had been some scepticism about the US stress tests and what useful information they will offer.

 

US investor, Warren Buffett - whose Berkshire Hathaway company holds stakes in three banks that underwent the tests - said the tests did not properly assess the industry‘s health and ignored differences in business models.

 

US Federal Reserve chairman, Ben Bernanke said that the tests would allow regulators to gauge the potential losses, revenues and reserve needs for the US‘s largest banks in a scenario in which the economy declines more steeply than is generally anticipated.

 

He told Congress that banks would be required to develop plans to make sure they have enough capital to act as a buffer and the Treasury would offer capital as needed.

 

”The purpose of the exercise is to ensure that banks will have a sufficient capital buffer to remain strongly capitalised and able to lend to creditworthy borrowers even if economic conditions are worse than expected,” he said.

 

He added that markets still had ”substantial concerns” about the banking industry.

In a trading update, Standard Chartered, which focuses on emerging markets, said it had recorded record income and profit during the first three months of 2009, although it did not release figures.  -Punchng

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