It was the best of times, it was the worst of times for the UK banking industry this week.
As macroeconomic developments helped boost stock prices on the one hand, comments from central bankers, politicians and an analyst, on the other hand, dampened the party in the equities market.
Shares in all major British banks were up substantially for the week. Top U.K. bank Barclays (London: BARC) was the best performing stock in the sector for the week, up a frothy 20.81 percent to £184.82 ($288.28). The Royal Bank of Scotland (London:RBS), a concern owned in large part by the British government, was up 14.91 percent to end the week at £21.53. Lloyd's Banking Group (London:LLOY) and HSBC Holdings (London:HSBA) were up more sedately, 9.49 and 9.07 percent for the week respectively.
Banco Santander (Madrid:SAN), the largest foreign bank in British finance, was up 11.32 percent to €7.57 on the Bolsa de Madrid.
The substantial gains were boosted by two main breaks: news of a coordinated stimulus action by the world's most important central banks early Tuesday, which prompted some of the biggest gains in years, and exceedingly good macroeconomic data from the United States, which seemed to alleviate fears the Eurozone crisis is spreading across the Atlantic.
Yet as good as those news might have been for the banks and their shareholders, more direct developments were mostly negative.
On Tuesday afternoon, U.S. credit rating agency Standard and Poor's downgraded the debt of 37 of the world's largest banks, including the five mentioned above, as the agency implemented new rules to measure the creditworthiness of banks. While the action was expected, it still hurt the downgraded banks, as a lower rating immediately forces many banks to post additional collateral against certain counterparty transactions.
The rating action by S&P came after the European markets had closed for the day. Earlier, bank stocks had been down on news the U.K. government was raising the special tax introduced earlier in the year meant to raise money for future bailouts.
Wednesday's central bank action was an unquestionable boon for the banks. Yet, a day later, the same central bank that finance chiefs had been praising the day before, the Bank of England, was noting the current state of the economy was an "exceptionally threatening environment." And British central bankers continued making statement that weighed down on the banks Friday, as Mervyn King, the governor of the bank said Friday banks should look into cutting bonuses in use the cash to help boost capital reserves.
Indeed, in spite of the soaring share price, banks seemed to be only noting bad news themselves. Santander said in a letter released Thursday it was considering scaling back its British operations due to new regulations to be imposed on the banking industry. Lloyd's revealed, after a leak to the media, it was preparing to claw back a £1.45 million bonus it paid a former chief executive for a controversial unemployment insurance program.
Adding to that was a report from Japanese investment giant Nomura Holdings saying it believed Barclays, the Royal Bank of Scotland, and Lloyds were "only breaking even" in the current economic climate and rating only Barclays and HSBC a "buy."
With all the volatility, who knows what next week will bring?