Partner Article

Banks suffer as verdict delivered on RBS

The optimism from last week’s ECB press conference and EU summit faded this morning ahead of
key debt auction from France and Italy. It appeared that once again the summit did little to solve
the current problem facing peripheral and increasingly core eurozone countries, and left questions
unanswered (the legal basis for the sanctions and central powers to reject national budgets is yet
to be worked out). It is evident that the move towards closer fiscal integration is a step in the right
direction, but does little to help Italy and Spain in the short term who are suffering still elevated
borrowing costs.

On the latter point, there was some relief following the Italian 12 month bond auction this morning,
in which Italy sought to borrow €7 billion worth of debt. The auction went rather successfully with
an average yield of 5.952%, considerably lower than the 6.087% paid for on the 10th November.
Despite this, it failed to improve sentiment with European indices opening lower and remaining
under pressure throughout the day.

RBS was one of the biggest movers following a long-awaited FSA report into the bank’s failures
during the financial crisis. Whilst the 490 page document concluded that its near collapse in 2008
was caused by poor management, inadequate regulation and a flawed supervisory system were also
blamed. Many analysts commented that the findings did little to affect the investment case on the
bank, the implication may be more apparent in changes to the regulatory environment and oversight
of the financial services industry. It has been suggested that Britain’s regulator should be granted the
powers to block banking takeovers. This comes as the report found that RBS’s acquisition of divisions
of the Dutch bank ABN Amro contributed to the near collapse of the group in 2008 due to the size
of the deal and the lack of due diligence prior its completion. Shares in RBS ended lower by 6.5% to
20.56p.

The usual suspects of banking stocks, energy companies and miners led the FTSE lower; Lloyds the
biggest loser with a 8.6% loss to 24.4p. The index initially opened around 0.4% in the red, holding
this level until midday before losing considerable ground. The UK’s blue-chip finished 1.8% lower,
losing 101 points to 5427.9. European Indices suffered to a greater extent, the CAC and DAX were
lower by around 2.4% and 3.4% respectively.

This was posted in Bdaily's Members' News section by John Dance .