Bloomberg News

U.K. Stocks Climb for Second Day; RBS, Barclays, Tesco Advance

September 26, 2011

Sept. 26 (Bloomberg) -- U.K. stocks rose for a second day, rebounding from last week’s slump, as banks rallied amid speculation European leaders are moving toward providing more support for the region’s financial companies.

Royal Bank of Scotland Group Plc, the biggest U.K. government-controlled lender, rose 3.2 percent and Barclays Plc gained 6.9 percent. Tesco Plc advanced 1.7 percent as billionaire investor Warren Buffett raised his stake in the U.K.’s largest supermarket chain.

The benchmark FTSE 100 Index advanced 22.56, or 0.5 percent, to 5,089.37 at the 4:30 p.m. close in London, having earlier lost as much as 1.8 percent. The gauge has slumped 14 percent since the end of June amid concern global economic growth is slowing and Europe’s debt crisis is spreading. The FTSE All-Share Index gained 0.4 percent today and Ireland’s ISEQ Index climbed 1.5 percent.

German lawmakers in the lower house of parliament will vote on changes to the European Financial Stability Facility on Sept. 29. The enhanced powers of the 440 billion-euro ($595 billion) EFSF, which were approved at a July 21 meeting of European leaders in Brussels, take effect when all euro-area countries have ratified them.

“Euro-zone governments are actively looking for ways of leveraging the EFSF in order to increase its firepower once it has been voted, so as to address both the issue of bank recapitalization and an eventual problem with Greece,” Laurence Boone, a London-based economist at Bank of America Corp., wrote in a report today.

Bear Market

More than $3.5 trillion was wiped from equity values last week, driving the MSCI All-Country World Index of 45 nations into a bear market as speculation grew that policy makers are struggling to contain a debt crisis that has engulfed Europe and has Greece teetering on the edge of a default.

The slump in stocks has dragged the price-earnings ratio on the FTSE 100 to 8.9 times the estimated profits of its constituent companies, according to data compiled by Bloomberg. This is below the average multiple of 11.4 during the past five years, the data show.

Policy makers can make the EFSF more “efficient” by leveraging it without involving the ECB, German Finance Minister Wolfgang Schaeuble said over the weekend. He also raised the prospect of bringing in the fund’s permanent successor before 2013.

EFSF Expansion

The German government sees no need to expand the EFSF beyond the current plans to boost the rescue fund, Finance Ministry spokesman Martin Kotthaus told reporters at a regular press conference in Berlin. Dutch Prime Minister Mark Rutte said there are no plans in the Netherlands or Finland to raise the amount of money in the EFSF. Rutte spoke to reporters in The Hague today after meeting his Finnish counterpart Jyrki Katainen.

There will be little-to-no economic growth in industrial nations in the coming 12 months as Europe’s economy shrinks by 1 percent to 2 percent and the U.S. stagnates, said Mohamed El- Erian, chief executive officer of Newport Beach, California- based Pimco. That will leave worldwide expansion at about 2.5 percent, less than the 4 percent forecast by the International Monetary Fund this year and next.

U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the IMF that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.”

Solution Needed

Bank of Canada Governor Mark Carney estimated 1 trillion euros may have to be deployed while U.K. Chancellor of the Exchequer George Osborne said a solution is needed by the time that Group of 20 leaders meet in Cannes, France, on Nov. 3-4.

Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default.

RBS advanced 3.2 percent to 23.57 pence. Barclays gained 6.9 percent to 156 pence.

Legal & General Group Plc advanced 6.4 percent to 97.45 pence. Aviva Plc climbed 6.4 percent to 295 pence. Insurers posted the biggest gains among shares in western Europe today.

Tesco gained 1.7 percent to 371.4 pence. Buffett raised his stake in the retailer to 3.64 percent, a person familiar with the matter said. Buffett’s Berkshire Hathaway Inc. increased the holding from 3.21 percent, according to the person, who declined to be identified because the information hasn’t been made public.

Fresnillo Plc slumped 6.9 percent to 1,524 pence, its tenth slide in eleven days, as silver had the biggest three-day drop since 1980 in London.

--Editors: Srinivasan Sivabalan, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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