Trading the Banking Sector
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Trading the Banking Sector

Trading the Banking Sector


Trading Features / Strategies from Simon Denham of Capital Spreads.

An exceptionally strange day with European markets pluming the depths in the morning only for the US to come in and completely alter the sentiment.

Markets are expected to open substantially to the good this morning with financials especially favoured (for once). RBS hit 144p during the morning session with the board presumably thankful to have the rights issue out of the way already. No such luck for the underwriter of the Barclays and HBOS cash call. At one point HBOS hit 225p, 50p below the 275p strike price which presumably means that HBOS will now have two investment banks as major shareholders as nobody in their right minds would take the rights when they can buy the stock much cheaper. Barclays (low of 238p) closed at 266p still well below the Plimsoll line.


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The problem here is that the underwriters are not natural holders of the stock. Morgan Stanley and Dresdner Klienwort have, presumably, no real interest in owning 40% of HBOS unless they wish to mount a takeover bid. This means that the market knows that there is a big seller out there and it also knows that even a takeover bid would not need much of a premium as a huge minority stake is easily available. They are believed to have offloaded a substantial portion of the underwriting but must have traded a good few favours to do so. The same argument can be made for the Barclays issue with the book closing this morning the chances of anyone deciding today (even if the stock rallies strongly in early trade) to take up the rights is low. Our brokers effectively bought our rights in the open market yesterday well below the 682 mark and I would expect most major players to have done the same.

The relief rally in the States will be eyed with suspicion by the markets today as the fear of being caught up in a ‘dead cat bounce’ will weigh on traders minds. Looking back at recent history even the precipitous fall over the past seven weeks has had the odd big plus day and the natural tendency will be to eye yesterdays price action as just such a trap. Longer term investors will be picking over the most shell shocked of the stocks to try to find some potential diamonds in the mud as they know that there is little chance of picking a bottom but every chance of getting in at level which, in a few years time, will look very attractive. Unless we believe in an Armageddon scenario many financial stocks would appear to be well oversold. Most of the big players are now saying that they need no more cash calls to bolster their balance sheets which, if it is true, would make yields and potential price growth very attractive indeed. Unfortunately, as we can see from the slumping values, more people are currently worrying about continued dilution of equity in the shape of further rights issues than believe in any recovery.



The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.


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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.

'Trading the Banking Sector' edited by SD, updated 17-Jul-08



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Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

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