European Trade: European shares surged higher at the opening bell, while U.S. futures advanced on the news that the U.S. government might reach a 40% stake in Citigroup. Helped by the same news, Asian shares advanced from the lows set in the first minutes of trading.
The banking sector is again under scrutiny from investors. During the overnight session, rumors surfaced that the U.S. government is preparing to swap its preferred stock to common Citigroup stock, something that will increase its share up to 40%, and will dilute shareholders’ stakes. However, these rumors have not been confirmed.
If the Government does actually take such a large stake in Citigroup, authorities may be tempted to use it to alter mortgages and at the same time backstop any other losses the bank would take from any declines of its assets. Some suggest that this is a positive thing for the financial system, as it will reduce overall risk.
In the U.K., people familiar with the matter said that state-controlled RBS would split into two units. The bank plans to save up to $1.4 billion by reducing its global workforce by 20,000, and sell parts of its Asian and Australian businesses. Even though the rumors were not confirmed through any official channel, rumor has it that the division will see one entity, including the “core” unit, and the second entity including non-essential activities. The bank’s investment unit is also set to shrink over the next period, after earlier this year, it was accused (unofficially) of trying to devalue some Eastern European currencies.
The Nikkei fell 40.22 points (0.54%) to 7,376.16. The Australian S&P slid 51.20 points (1.50%) to 3,351.00. The U.K. Ftse gained 68.88 points (1.77%) to 3,957.94, while the German Dax rose 75.12 points (1.87%) to 4,089.78.
Crude oil advanced, on speculation the U.S. economy will eventually pick up again. Crude oil for March delivery rose $0.45 to $40.00
Gold was sold tonight, after almost reaching a one year high. Bullion for immediate delivery fell $17.00 to $985.20.