Banking stocks lifted the FTSE this morning after winning concessions from the Basel Committee over capital requirements, while better-than-expected earnings from UBS and Deutsche Bank also boosted confidence in the sector.
The Basel Committee, which recommends guidelines for best practice in banking supervision, announced yesterday that it will ease some of the capital and liquidity conditions that would be applied to banks. The panel agreed that it would allow banks to consider certain assets as part of their capital, including minority holdings in other financial firms and deferred tax assets. These concessions will make it easier for banks to meet the tougher capital requirements when they are eventually introduced. The committee is also planning to recommend new liquidity ratio rules, however the details are yet to be determined. The final reforms are expected to be presented at the G20 meeting in November.
The banking sector also received a boost this morning after UBS and Deutsche Bank unveiled earnings that topped analysts' forecasts. Third-quarter profit at UBS came in at 2.01 billion Swiss francs, ahead of the median estimate of 1.12 billion Swiss francs forecast by analysts surveyed by Bloomberg. Unlike most of its rivals, UBS reported a smaller decline in their investment banking business, while their wealth management and Swiss bank division also performed strongly.
Deutsche Bank, Germany's largest bank, reported second-quarter net income of €1.16 billion. This was ahead of analysts' expectations of €1.05 billion according to Bloomberg. The bank saw a slump in their sales and trading activities but posted gains across their retail and transaction banking business. CEO Josef Ackermann was confident on the future outlook stating, 'Global economic activity is likely to strengthen.'
The better-than-expected results saw banks gain broadly this morning. UBS rose 9.6% to 17.20 Swiss francs, while Deutsche Bank gained 2.8% to €51.81. On the FTSE 100, Barclays was the best performer rallying 6.42% to 335.90p, followed by Lloyds and RBS which advanced 5.3% and 4.3% respectively. HSBC and Standard Chartered were also stronger, rising between 1.5% and 2%.
By 11am (London time) the FTSE 100 index had gained 39.34 points (+0.73%) to 5390.46 while the FTSE 250 rose 36.75 points (+0.36%) to 10174.87.
BP released its second-quarter results this morning, with the embattled oil giant reporting a $17 billion loss for the quarter. Were it not for a charge of $32.2 billion related to the clean-up for the Gulf of Mexico oil spill, the company would have reported a replacement cost profit of $4.98 billion, in line with average expectations from analysts' surveyed by Reuters.
The company also appointed a new CEO, Robert Dudley, who will be taking over the helm after previous CEO Tony Hayward lost support over his handling of the oil spill disaster.
'I believe that it is not possible for the company to move on in the United States with me remaining as the face to BP,' said Mr Hayward. 'So I think that for the good of BP, and particularly for the good of BP in the United States, it is right for me to...step down.'
BP is hoping that American-born Robert Dudley will be able to repair relations with the US so that business can continue in the American market. Shares in BP rose 0.52% to 419.10p.
Meanwhile, Intercontinental dragged the FTSE lower after one of its biggest investors was looking to sell its 10% stake in the company. Shares in Intercontinental fell 8% to 1103p.
On the foreign exchange market, the euro was trading over $1.3000 against the US dollar this morning. Supporting the euro was a GfK survey which showed consumer confidence in Germany rising higher than anticipated. An increase in the M3 money supply also boosted the euro as it suggests there is more money in circulation which may have an inflationary effect. The Aussie dollar has also been making strong gains against the US dollar and is currently trading near $0.9050. The rally across equities this past week has improved investors' appetite for riskier assets, which has benefitted the Aussie dollar. The Aussie dollar is also finding support ahead of the July Consumer Price Index (CPI), which will be announced tomorrow. If the CPI figures come in higher than expected, it may push the Reserve Bank of Australia to lift interest rates when it next meets in early August.
