Bank shares dive amid turbulence

Click to follow

Banking shares tumbled today as fears that more financial institutions would look for Government cash caused fresh turbulence in the sector.

Barclays shares were down more than 24 per cent at one point, while Royal Bank of Scotland - which is almost 60 per cent owned by the UK taxpayer - saw declines of more than 16 per cent.

The falls come on a day that US financial giant Citigroup announced it had suffered a quarterly loss of 8.29 billion US dollars (£5.5 billion), following news that Bank of America was granted 20 billion dollars (£13.7 billion) in State aid.

In Ireland, Anglo Irish Bank is to be nationalised by the Irish Government after a dramatic announcement last night, while the UK is reportedly thrashing out proposals for another round of bank rescue measures.

UK banking stocks had earlier shown signs of recovery having suffered a week of steep falls, but those reversed towards the end of the day.

The falls come on the day that the ban on short-selling - imposed by the Financial Services Authority last September - expired.

Confidence in the financial sector has collapsed recently, with fears ahead of the forthcoming results season.

There are concerns that the sector is set to announce yet more hefty writedowns on bad debts which could wipe out the Government's £37 billion capital cash injection.

Both RBS and Barclays lost around 40 per cent of their share price this week.

And there was speculation in the market that Barclays might not benefit from UK Government help after turning it down last year.

HSBC, which also snubbed the bail-out but is widely rumoured to be next in line to call on State aid, has sunk 16 per cent in the past week.

Meanwhile, Lloyds TSB saw its shares topple 30 per cent this week as it gears up for the finalisation of its merger with HBOS on Monday.

It is understood that ministers are planning an urgent bank package, which could pave the way for more taxpayer money to be pumped into the sector to offset losses on soaring bad debts.

The measures could also include a relaxation of the rules on balance sheet strength and Government guarantees for so-called toxic assets.

Today's US bail-out of Bank of America was aimed at helping it absorb losses from the takeover this month of struggling rival Merrill Lynch, which also reported a loss of 15.31 billion dollars (£10 billion) for the period.

The handout will see the firm offered guarantees against losses on up to 118 billion dollars (£79.5 billion) in troubled assets.

The US Government will take a stake in the bank in return for the aid, which comes on top of the 25 billion dollars (£16.8 billion) handed to the group in last October's phase of bank bailouts.

Escalating credit losses have prompted the bank to report a 2.39 billion dollar (£1.5 billion) loss, although it had seen a 4 billion dollar (£2.7 billion) profit for the year.

Citigroup has already received 45 billion dollars (£30 billion) in US government loans and benefited from a State pledge to guarantee some 300 billion dollars (£201 billion) in mortgages and other assets.

The scale of Citigroup's fourth quarter loss - which amounts to around 1.72 dollars per share - represents its fifth straight quarterly plunge. Analysts were surprised by the fall, having expected a figure closer to 1.31 dollars per share.

Citigroup said it now plans to split into two companies. One business, Citicorp, will do traditional banking, and the other, Citi Holdings, will hold the company's riskier assets.