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Lloyds, Barclays & RBS suffer on Vickers changes

Asian markets closed lower this morning, most noticeably on the South-Korean Kospi which lost 3.4% following news of the death of the North Korean leader Kim Jong-il. Concerns spilled over into other Asian indices on worries regarding the succession plans and a potential ensuing power struggle.

In a similar fashion European markets opened lower, before stabilising and finding positive ground, following further concerns over the euro-zone debt crisis, a topic I am afraid that is providing difficult to overlook in our daily analysis. It came ahead of a conference call between euro-zone finance ministers today in which a text of the new fiscal compact will be drafted in anticipation of its finalisation in January.

Fitch warned on Friday that an overall solution to the debt crisis may now be technically and politically beyond reach. It came as Mario Draghi, the ECB president, warned of the pain involved in a euro-zone breakup in an interview published by the Financial Times. Once again he highlighted the limited mandate of the ECB stating that monetary policy cannot do everything and appeared to rule out the quantitative easing that has been adopted by the central banks of the UK and the US.

We also learnt that domestically, the coalition government is to accept all of the proposed regulatory changes outlined by John Vickers following the Independent Commission on Banking (ICB) report earlier this year. The ring fencing of riskier investment banking activities from high-street/retail banking and the higher capital ratios, as is proposed, have been criticised by Britains banks who point out that it will increase funding costs and put them at a disadvantage compared to European, Asian and US banks who do not face the same requirements. The news weighed on banking stocks with Lloyds, Barclays and RBS amongst the worst performers on the index with 4.2%, 3.2% and 3.0% losses respectively.

The index, having fought its way into positive territory in the morning, gave up its gains following a testimony by Mario Draghi to the European Parliament during which suggestions of further ECB support (above what has already been proposed) were firmly dismissed. The FTSE 100 finished at 5365, down 22 points or 0.4%.

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