MARKET JITTERS : DÉJÀ VU OR DÉJÀ SENTI ? / THE FINANCIAL TIMES LEX ( HIGHLY RECOMMENDED READING )

Market jitters

Published: September 3 2009 09:25

It was not so much déjà vu, as déjà senti. Investors have recently suffered a familiar frisson as concerns about banks once again gripped markets. Global equities have faltered after a euphoric six-month rally led by financials, although the week’s 8 per cent drop in the KBW index of US bank stocks barely makes a dent in its 155 per cent rally since mid-March. Still, it is ironic that rumours of a bank collapse returned just as Bank of America, Wells Fargo and Lloyds Banking Group reckoned they could stand on their own feet.

It is barely nine months since BofA rushed to accept another $20bn, plus protection from spiralling losses, from the US government. Lloyds’ change of heart comes within six months of agreeing to participate in the UK’s asset protection scheme. For these banks, wriggling free of government support and its strictures should not even be under consideration. Both countries remain – for now – in recession, with house price falls slowing but hardly stable. More importantly, the strength of the rebound is in doubt. An anaemic recovery, or worse a Roubini-esque double-dip recession, would spell further losses. Meanwhile, there remain concerns that banks’ reluctance to confess in full to needed writedowns, estimated by the International Monetary Fund at about $2,700bn, means that balance sheets will start the next cycle still soiled.

Heading for the exit is inevitable after some banks, such as Goldman Sachs, left government programmes by repaying early support. A major difference is that this crop of would-be escapees are still digesting – in Merrill Lynch, Wachovia and HBOS – deeply troubled acquisitions. If they go it alone now, they must give up any hope of coming back for state help they may yet need. An unusual way to celebrate the first anniversary of Lehman Brothers’ collapse.