US 'stability' plan fails to kickstart buying

Investors holding out hope for a quick fix were clearly disappointed by details of the US financial stability plan, sending UK stocks heading south

Holly Cook 10 February, 2009 | 5:52PM
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The UK’s leading indices had already been trading in negative territory before the US Treasury unveiled its bank rescue plan but stocks fell further into the red in late afternoon deals as details of the US financial bail-out emerged.

Unveiling the bank rescue package, which has had a face-lift and is now to be known as the “financial stability plan”, US Treasury secretary Tim Geithner revealed that a Public-Private Investment Fund is to be created to bring in private money aimed at buying $500 billion-worth of banks’ distressed assets. This figure could later be raised to $1 trillion.

Having waited with bated breath to hear details of the rescue plan, investors on both sides of the Atlantic immediately expressed disappointment following the announcement, sending markets into freefall. The FTSE 100 index closed down 2.2% or 94.53 points at 4,213.08 and the FTSE 250 index fell back 2.5% or 164.02 points at 6,495.66.

“They were going to have to say something pretty special to kickstart trading today,” a London-based trader commented on share price reactions to the US news.

UK banking stocks were, understandably, under the cosh, with Lloyds Banking Group closing down 5.6% at 94.9p, Standard Chartered losing 5.4% at 846p and Royal Bank of Scotland off 4.0% at 23. Also weighing on the financial sector was an apologetic session in front of a UK Treasury committee hearing for former RBS and HBOS executives.

Former HBOS chairman Dennis Stevenson, former RBS chairman Tom McKillop and former RBS chief executive Fred Goodwin all expressed how sorry they were for their banks’ troubles.

The UK also had domestic economic concerns to deal with today after a new survey showed the fall in house prices accelerated between December and January and the number of completed home sales declined.

Mid-cap housebuilders were markedly lower on the news. Barratt Developments dropped 9.2% at 81p, Bovis Homes Group lost 7.7% at 403p and Bellway eased 6.2% at 640p.

Returning to the top line, commodities plays were out of favour as WTI oil prices fell back below $40 per barrel on NYMEX and metals prices also headed downwards. Kazakhmys, which had surged 45% over the last five sessions on the back of the devaluation of the Kazakh currency, today closed 9.5% weaker at 291p, while all other blue-chip miners lost between 4% and 9% of their market value.

On the reporting front, Cable & Wireless was hit by profit-takers after the communications firm issued a trading update in which it reiterated full-year guidance and said it is trading in line with management’s expectations. C&W shares ended the day 7.8% behind at 151p.

Only a handful of stocks managed to make any headway and this list was dominated by those with defensive qualities. Pharma groups GlaxoSmithKline and AstraZeneca added 1.4% at 1,250.5p and 1.0% at 2,613p, respectively, while utilities Centrica and Scottish & Southern Energy Group gained 4.0% at 284.75p and 0.5% at 1,235p.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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