Thursday February 26, 11:56 AM
European equities rally despite record RBS bank loss
LONDON (AFP) - European stocks rallied Thursday on bargain-hunting, with the focus on the financial sector as traders digested a record loss at Royal Bank of Scotland (LSE: RBS.L - news) which was less than feared.
On the downside, Asian markets were weaker as cautious investors weighed the prospect of more grim corporate earnings against increasing evidence of a worsening global recession, dealers said.
US Federal Reserve Chairman Ben Bernanke meanwhile said overnight that US President Barack Obama's government was not seeking to take control of the banks as it tried to put them back on their feet.
"The markets have climbed well, largely on the back of RBS's results and the banks have certainly bounced back," said Joshua Raymond, market strategist at City Index in London.
"Bernanke's reassurance that the nationalisation of major US banks is not an immediate plan and the news that RBS is reporting smaller losses than expected, have lifted the burden of concern off investors' shoulders and they are now much more willing to part with their cash."
In European morning trade, London's FTSE 100 index gained 0.93 percent to 3,844.61 points, the Paris CAC 40 rose 0.59 percent to 2,712.81 and in Frankfurt the DAX 30 (Xetra: news) added 0.32 percent to reach 3,858.50 points.
"Investors are bargain hunting this morning, pure and simple," said Raymond.
In London, RBS shares jumped 22.51 percent to 28.30 pence after the bank reported a net loss of 24.1 billion pounds (34 billion dollars, 27 billion euros) in 2008 -- the largest in British corporate history.
The disastrous results for the embattled bank, 70-percent owned by the state after a massive bailout in the wake of the global credit squeeze, contrasted with a net profit of 6.8 billion pounds in 2007.
However, they were better than the 28 billion pounds loss some had feared, helping the stock.
At the same time, the British government agreed to insure RBS "toxic" assets worth 325 billion pounds in its Asset Protection Scheme (APS) and will cover 90 percent of losses stemming from such holdings.
RBS will pay 6.5 billion pounds to take part in the scheme which is aimed at stimulating bank lending in recession-hit Britain.
"Net losses, whilst a blot on the UK landscape as a new record loss, were not as bad as expected, and participation in the APS looks more favourable than initial estimates," said Martin Slaney, head of derivatives at GFT.
Meanwhile, Britain's Lloyds Banking Group (LSE: LLOY.L - news) , which is 43-percent state owned, said it was in talks to take part in the scheme.
LBG, whose share price rallied nearly 26 percent to 72.30 pence, said it would provide further information on Friday with its annual results.
In the same sector, French bank Natixis (Paris: FR0000120685 - news) on Thursday announced a net loss of 2.8 billion euros (3.6 billion dollars) in 2008 after a punishing fourth quarter and said it would pay no dividend for the year.
Natixis, which specialises in investment and asset management activities, said its 2008 loss compared with net earnings of 1.1 billion euros in 2007.
After early losses in Paris, Natixis shares turned sharply higher in late morning trade to show a gain of 6.43 percent to 1.11 euros
Meanwhile, bailed out Franco-Belgian bank Dexia (Brussels: DEXB.BR - news) on Thursday announced a larger than expected 3.3 billion euro (4.2 billion dollar) net loss for last year thanks to US sub-prime toxic assets.
Dexia suffered 3.33 billion euro losses in total, due largely to a 2.6 billion net loss in the fourth quarter.
Adding to the corporate gloom, German insurance giant Allianz posted a worse-than-expected 2008 loss owing in large part to a huge charge in connection with the sale of its Dresdner Bank subsidiary.
Allianz said its net loss amounted to 2.44 billion euros (3.1 billion dollars). The group's share price, however, jumped 8.22 percent to 53.18 euros.
In earlier Asian trade, equities slid after Wall Street sank 1.09 percent lower overnight in reaction to a weaker-than-expected report on US home sales and details of the Obama administration's bank rescue.
Japanese share prices were little changed amid worries about the rapidly weakening economy.
Investor sentiment was also depressed by a warning from credit ratings agency Standard & Poor's that Japan's recession looks set to be the worst since World War II, with the economy expected to contract 4.0 percent in 2009.
In Hong Kong, shares dipped 0.9 percent on disappointment over the lack of stimulus measures in the Hong Kong government's latest budget.
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