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Lloyds leads bank rally on flagging FTSE 100
Markets
by Chris Marshall, Gavin Lumsden on Oct 10, 2012 at 16:48
Lloyds was the biggest riser on a falling FTSE 100 towards the end of Wednesday trade, buoyed by a report that the City regulator was set to relax its tough stance on banks' finances.
Lloyds Banking Group (LLOY.L) leapt 4.64% to 38.7p after Andrew Bailey, head of the FSA's prudential business unit, told the Financial Times that banks would not be required to hold extra capital against new UK loans they made under the Bank of England's 'funding for lending' scheme.
Under the FSA plans, banks will also no longer be required to achieve a 'core ratio' equal to 10% of their assets by the end of next year. Instead, each bank will be given a specific and undisclosed target of their own. 'The goal is to avoid rapid deleveraging that would harm activity in the economy,' Bailey told the paper.
The FSA's softer stance makes it less likely that banks will need to resort to rights issues to raise more capital from shareholders.
Lloyds was also the subject of a Bloomberg news report that US investment firms Lone Star Funds and Kennedy-Wilson Holdings are among remaining bidders for parts of about €2 billion of mainly Irish real estate loans the government-backed group is selling.
Royal Bank of Scotland (RBS.L) rallied 2.5% to 263p despite separate reports that the bank has had to cut the listing price of its Direct Line insurance subsidiary to between 170p and 177.5p. Barclays (BARC.L) gained 0.8% to 223p.
Cormac Leech, banking analyst at Liberum Capital, pointed to last night's speech by Mervyn King in which the Bank of England governor said it might be right for the central bank to 'aim off' its 2% inflation target to avoid future financial crises. 'The FSA and Bank of England shift to a more reflationary macroeconomic stance is likely to support banks' return on equity and valuations,' Leech said in a note to clients.
Miners led the FTSE 100 lower for its third session in a row, down 0.3% to 5787, after US aluminium giant Alcoa warned overnight of slowing demand from China. A warning from Goldman Sachs that China’s high demand for copper and aluminium would ‘crash’ in 2014 also weighed on the sector.
Vedanta (VED.L) dropped 2.5% to 1,062p, Fresnillo (FRES.L) was 2% lower to 1932p and Polymetal (POLYP.L) fell by 1.8% to 1135p as metal prices retreated.
Anglo American (AAL.L) bucked the trend gaining 0.9% to £18.30 after falls in recent days.
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