Bank shares bounce after fears fall

Published on Friday 27 November 2009 19:44

BANKING shares rebounded yesterday as fears over exposure to the debt problems in Dubai receded.

• Uncertainty still surrounds Dubai World's lenders after the firm asked for a six-month repayment freeze over its $59bn debt

Royal Bank of Scotland, which plunged by 7.7 per cent on Thursday, led the banking sector higher, climbing 5 per cent as it became clear than further write-downs are unlikely in the short term.

Markets tumbled across Europe on Thursday after Dubai World, a state-owned company with liabilities of $59 billion, asked lenders for a six-month repayment freeze, sparking fears of a new debt crisis.

Analysts at JP Morgan said that while European banks – led by RBS – had organised billions in loans to Dubai World, almost all of the exposure would have been sold on to subordinated lenders.

The US bank estimated that part-nationalised RBS has a direct exposure to Dubai World of $230 million, less than was feared.

Attention turned to Standard Chartered, the London-based bank which operates mainly in Asia and the Middle East.

Figures from the Emirates Banks Association showed the bank had loans of $7.78bn, more than Barclays and RBS combined, and 43 per cent of its net asset value.

BNP Paribas said Standard Chartered was the most exposed bank in Europe, although it added that it was "not overly concerned" about the overall impact.

A spokesman for Standard Chartered declined to comment.

Shares in Standard Chartered recovered only marginally yesterday, up 6p to 1,520p. Barclays and HSBC also clawed back some of Thursday's losses.

Prime Minister Gordon Brown predicted the problems springing from the Middle East could be contained. "While it is a setback, I think we will find it is not on the scale of previous problems we have dealt with," he said.

The FTSE 100 index of the UK's leading companies opened around 1.5 per cent lower, following the lead of Asian markets which had earlier tumbled.

But as fears eased markets bounced, boosted by banks and commodities. Wall Street opened lower, but the fall was less than expected, boosting sentiment in Europe.

The FTSE 100 index ended the day up 51.6 points at 5,245.73 points. The German Dax and the French Cac 40 both rose by more than 1 per cent.

Veteran City commentator David Buik, of BGC Partners, said Thursday's panic may have been exacerbated by technical troubles on the London Stock Exchange, and that emerging clarity allowed the market to put the events in perspective.

"Markets cope very well with good news, quite well with bad news, but they hate uncertainty."

Uncertainty remains over whether Dubai World's lenders will grant it the requested repayment freeze, with most of the Middle East currently celebrating the Eid al Adha festival, closing the region for business.

US crude prices plunge as Dubai debt news bites

SHADES of the volatility in energy markets that followed last year's crisis on Wall Street emerged yesterday with crude oil seeing its largest percentage price drop since January.

The sell-off followed troubling news from Dubai on Thursday, which said it has asked lenders for a six-month reprieve on payments for about $60 billion (36bn) in debt.

Benchmark crude prices dropped 7 per cent in early trading, though declines eased as investors weighed the chances Dubai's problems would spread to Europe, Asia and the US.

It was the fear of frozen credit markets last year that sent crude prices from $147 per barrel in July to about $32 by December.

The New York Mercantile Exchange was closed on Thursday for the Thanksgiving holiday; benchmark crude for January delivery fell $2.20 to $75.76 on Nymex by midday yesterday. At one point, prices had dropped $5.57, the largest dollar decline since 20 April, when crude tumbled $4.45 to $45.88.

Any decline in the price of crude would help consumers in the short term in the shape of lower fuel prices.

Dubai has seen unprecedented growth over the past decade, spending billions of dollars on sprawling man-made islands and the world's largest tower.

Its main funding vehicle, Dubai World, said it would ask creditors for a "standstill" on paying its debt until at least May.

That helped send the US dollar higher, which added to the pressure on oil prices – crude is traded largely in dollars, so investors holding major currencies would have to pay more to buy oil when the dollar rises.

"The strengthening dollar is dislodging a huge amount of speculative capital," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. He added that energy demand weakness also threatened recovery.