RBS shares bounce back slightly

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Royal Bank of Scotland shares opened higher today as the ailing bank clawed back a small slice of the 67 per cent slump seen yesterday.

RBS shares were up 20 per cent at one point in early trading after yesterday's huge sell-off in the wake of the Government's latest rescue bid for the financial sector and news that the bank faces the worst loss in UK corporate history.

Yesterday's trading saw RBS's market value slump below £5 billion after shares plummeted as much as 70 per cent at one stage.

The bank said it estimated that bad debts and write-downs on the value of past acquisitions could put it as much as £28 billion in the red - higher than the current record of £15 billion set by mobile phone group Vodafone in 2006.

Investors were astounded by RBS's potential losses and were further spooked when the bank admitted that more credit write-downs "seems certain", but was unable to say when or by how much.

David Buik, of BGC Partners, said: "This shattering news shook the rafters of the City of London as well as the UK's entire financial infrastructure."

RBS was the worst of the banks hit as the market gave a poor reception to the Government's second bank bail-out.

The bank will be about 70 per cent Government-owned after the Treasury agreed to replace £5 billion of preference shares with new ordinary shares.

Other banking stocks also plunged in the sell-off, with the newly created Lloyds Banking Group shedding more than 30 per cent in a rocky start to life after the merger of Lloyds TSB and HBOS. Its shares were up by around 2 per cent in early trading today.

The group is minority owned by the State and is not currently set to follow RBS with a preference share swap.

Barclays and HSBC, the only major high street banks not yet to receive state aid, also fell heavily, seeing double-digit falls. Their shares were up 5 per cent and 1 per cent respectively today.

Mr Buik said he believed the sell-off was prompted by RBS's losses as investors anticipated further trading updates from other banks.

"Cold beads of sweat trickled down the backs of investors, in the knowledge that they had another month to wait before all the banks present their audited accounts," he said.

Trading volumes for RBS shares accounted for around 40 per cent of all trades on the FTSE 100 yesterday.

Price movements were so marked in stocks such as RBS that they triggered price monitoring measures throughout the session, according to the London Stock Exchange.