Banks rally but City frets over ringfence

BRITISH banks’ share prices rallied dramatically yesterday as London played catch up with world markets after Monday’s holiday.

Analysts said that investors were pricing in the possibility of further quantitative easing due to the Federal Reserve’s September meeting being extended from one to two days.

But UK lenders were also helped by a bullish note from Deutsche Bank’s Jason Napier. Calling the sell-off in British banks “overdone”, he upgraded RBS and rated Barclays a “top pick”.

RBS gained most, rising eight per cent, while Lloyds gained 7.8 per cent, Barclays 6.7 per cent and HSBC 4.2 per cent. In total the banks’ value swelled some £12.5bn.

Barclays also took advantage of a surge in the bank covered bond market to issue €2bn of the instruments.

However, there are growing concerns in the City that an over-zealous approach from the Independent Commission on Banking (ICB) in its final report could erode UK banks’ values.

In recent days both the British Bankers Association (BBA) and the CBI have lashed out at the ICB’s plans for a ringfence around banks’ retail operations.

And City analysts are increasingly concerned about their inability to model the impact of any ringfence if the ICB, led by John Vickers (pictured), does not provide a detailed blueprint of precisely how it will work in its final report on 12 September.

Investec’s Gareth Hunt told City A.M. that concern over the ICB is particularly acute because it will be a unilateral British measure: “At some point in time we [in the UK] need to stop convincing ourselves that we’re brilliant at regulation and just do what everyone else is doing,” he said. Investec has modelled a £400m net income hit for RBS from a ringfence, but says that the figure is uncertain.