Bank shares up over bail-out hopes

12 April 2012

The UK's biggest banks gathered stock market momentum amid revived hopes of a revamped 700 billion US dollar (£392 billion) financial salvage plan.

Expectations of Congressional approval for a deal in the US saw Halifax Bank of Scotland, Barclays, Royal Bank of Scotland and Lloyds TSB all gain ground as the FTSE 100 Index lifted 1.5%.

HBOS was 4% higher after a 14% fall on Tuesday as traders cast further doubt over the terms of its rescue takeover by Lloyds TSB.

Despite HBOS's modest recovery, its shares have fallen almost 30% below the point at which the bank's rescue takeover by Lloyds TSB was announced less than two weeks ago.

Under the terms of the deal, Lloyds TSB will pay 0.83 of its own shares - currently equivalent to 195p - for each HBOS share, which is trading around the 125p mark.

The wide gap between these two figures implies that the market is dubious about the prospects of a deal on the current terms, as Lloyds TSB shareholders, who have to approve the takeover, may not be keen to pay such a big premium for struggling HBOS.

David Buik of BGC Partners said it was "surely nonsense" to suggest a deal would not be done.

"Perhaps the price may be altered, and maybe Lloyds TSB will need to sell Scottish Widows to make room, but the deal must stand. Failure to consummate would be viewed as horrific for the market," he said.

The wider FTSE 100 Index was also buoyed by commodity stocks such as oil and mining firms, as the hopes for a rescue of creaking US financial firms staved off fears of a demand slump in a global economic meltdown.

Crude oil, which had been trading below 100 US dollars a barrel on Tuesday, rose to almost 102 dollars a barrel overnight although some experts remained sceptical over whether the package would be enough to arrest a deepening slowdown.

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