Shares in European banks fell sharply before rallying after several countries imposed a ban on short selling of financial stocks. European equity markets initially tumbled as banks came under attack in spite of the joint ban on short selling, through which investors aim to benefit from falling share prices, by France, Italy, Spain and Belgium.
The FTSE Eurofirst 300 was down more than 1 per cent in the first minutes of trade, undermined by the very banks that were supposed to derive protection from the ban. Regulators said they had put the ban in place in an effort to “restrict the benefits that can be achieved by spreading false rumours”.
After nearly an hour of trade, however, most indices were back at positive levels, banks had recovered much of their losses and the shorting ban appeared to be doing its job. French banks were broadly higher: Société Générale gained 0.1 per cent to €22.94, BNP Paribas climbed 0.2 per cent to €35.80 and Crédit Agricole rose 1.3 per cent to €6.47.
In Italy, UniCredit added 2.1 per cent to €1.01, while Intesa Sanpaolo climbed 0.8 per cent to €1.21. Spain’s largest two lenders, however, remained lower. Santander shed 0.9 per cent to €5.95, while BBVA lost 1.6 per cent to €5.94. Belgium’s Dexia climbed 5 per cent to €1.61. London’s banks have recently been under pressure and they too rallied. Barclays climbed 3 per cent to 183p, Lloyds Banking Group gained 2.3 per cent to 32.95p and Royal Bank of Scotland added 1.5 per cent to 25.65p.
Meanwhile, in Germany, which also refused the ban, Deutsche Bank rose 2.5 per cent to €29.83 and Commerzbank gained 2.4 per cent to €2.14. Most analysts, however, believed the ban would have little impact on overall market direction and the position of the banks.
“With deteriorating investor confidence in eurozone debt likely to continue driving reduced investor confidence in the ability of European banks to withstand the fall out from the eurozone debt crisis we doubt that downward pressure on European financials will now dissipate,” said Lee Hardman at Bank of Tokyo Mitsubishi UFJ.
Atif Latif at Guardian Stockbrokers agreed: “We think that although short sellers are active in the market there has been selling also due to uncertainty on fiscal and monetary policy issues that are yet to be resolved which results in natural selling of asset classes.”
An hour and half after the market open, the Eurofirst index was up 0.5 per cent at 939.09, France’s CAC 40 was up 0.1 per cent at 3,092.4, Italy’s FTSE MIB climbed 1 per cent to 15,423.45, while Spain’s Ibex index added 0.3 per cent to 8,276.2. Belgium’s BEL 20 index gained 1.4 per cent to 2,174.96.
Of the markets that declined to impose short-selling restrictions, London’s FTSE 100 climbed 0.5 per cent to 5,186.5, while Germany’s Xetra Dax added 0.7 per cent to 5,835.69.