Shares in banks rise as credit fears ease

Feb 26 2008 by Our Correspondent, Western Mail

BANKS saw shares surge ahead yesterday as takeover rumours gathered pace and hopes grew that the major players were coping with the credit crunch.

Alliance & Leicester soared 8% after a weekend report suggested “big five” banking giant Lloyds TSB was on the prowl for takeover targets weakened by the credit crunch. FTSE 250 rival Bradford & Bingley also made strong advances, up 7%.

And shares across the sector enjoyed a lift amid a swirl of positive speculation surrounding NatWest parent Royal Bank of Scotland ahead of its results out later this week.

RBS shares rose 8% at one stage as reports over the weekend said the bank was planning a dividend hike in a sign that it may be weathering the credit squeeze and meltdown in the US sub-prime mortgage market better than first feared.

Lloyds and Barclays – the first of the major UK banks to report 2007 results – both upped their dividend payout last week, by 5% and 10% respectively.

RBS is expected to follow suit, with analysts also forecasting that the firm will post a 10% increase in underlying pre-tax profits to £10.3bn.

This rise would be achieved despite hefty losses from the credit market troubles.

Reported interest in the bank from the Qatari Government also buoyed RBS in trading. The Qatar Investment Authority is said to be eyeing a stake in the group to take advantage of the bank’s recent share price pressures.

Alex Potter, banks analyst at Collins Stewart, said the results so far from the big banks indicated they were faring better than expected despite the credit turmoil.

However, he cautioned RBS was not out of the woods yet.

“The results from the big banks so far have surprised positively, but RBS is very short of capital and there are rumours it will need to go about asset sales to improve its capital position,” he said.