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Private investors back banks

Created:
18 July 2008
Updated:
30 July 2008
Written by:
Jonathan Eley

If you thought bank shares were cheap before this week, there even cheaper now. Both HBOS and Bradford & Bingley shares have spent most of this week mired below their rights issue prices, and only a fifth of Barclays investors have taken up its share offer.

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Santander of Spain appears to have decided that prices are unlikely to fall much further, swooping in with a 299p a share bid for Alliance & Leicester. And, judging from stock broker data, many private shareholders agree.

TD Waterhouse, one of the UK's biggest execution-only brokers, said earlier this week that five out of the ten most-bought shares over its trading platform were those of banks. That activity has been reflected in share prices, which have been amazingly volatile.

For instance, HBOS shares closed on Monday at 272p. By Tuesday, they were down to 260p, and come the close on Wednesday were fetching 254p. However, yesterday they perked up to finish at 268p and today they're up at 285p. If they can hold that level, the underwriters of the company's rights issue (priced at 275p) will be jumping for joy, as they'll be able to get rid of the unsold shares at a profit.

According to Barclays, another major online stock broker, this pattern has been replicated across the market generally. Among private investors, buyers outnumbered sellers on both Monday and Tuesday, although its figures don't include Wednesday, when the FTSE100 fell by more than 2 per cent.

Whether private investors have caught the bottom of the market is another matter. The charts still look pretty negative (see our City Trades item on the FTSE100), and our own Simon Thompson won't be satisfied until the FTSE100 gets down to 5,000.

However, that could happen and still leave those who've backed banks this week in the money. Commodity stocks hold the key. Over half the FTSE100 is accounted for by mining and oil and gas stocks, so if oil and metal prices fall, these stocks could tumble and force a sharp retreat in the index as a whole - even if other sectors, like banking, are holding up.

This just reinforces the idea that it's vital to back the right sectors - and for more on that, see this week's feature: Recession-beating sectors.

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