The FTSE 100 share index has closed more than 400 points higher, its biggest one-day rise, after the US confirmed a financial bail-out plan.

It ended the day 8.8% higher at 5311.3 points. But after a turbulent week on the markets, the FTSE was 105 points lower than its value on Monday.

Banking shares were amongst the biggest gainers, with Royal Bank of Scotland up 32% and Barclays and HBOS both up 29%.

They were helped by a ban on short-selling of financial shares.

“The breathtaking rises in the price of bank shares this morning are symptomatic of a stock market that is bereft of reason and is being driven almost purely by fear and momentum.” BBC Business Editor Robert Peston

What is short-selling?
See banking sector shares

The restriction was announced late on Thursday by the Financial Services Authority (FSA) which banned short-selling in a number of financial shares.

Short-selling involves traders profiting from falling share prices. The technique works when investors borrow shares from another investor, and then sell them hoping the price will fall.

The aim is then to buy back the asset at a lower price and return it to its owner, pocketing the difference.

Previously anyone could short a position in a company’s shares, but typically hedge funds were the main players.

The temporary ban on short-selling applies to 29 financial stocks.

It was introduced by the FSA due to concerns that short-selling had been a contributory factor in the sharp falls in HBOS shares before it was rescued by Lloyds TSB.

The ban, which came into force at midnight on Thursday, will last until 16 January but the FSA will review its operation in 30 days.

Short-selling in layman’s terms
“While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets,” said FSA chief executive Hector Sants.

Paul Edmondson of City lawyers CMS Cameron McKenna said he wasn’t sure if the ban on short-selling had been “fully thought through”.

“The move is obviously intended to stop further speculative attacks on bank share prices,” he said.

“Politically that must make sense – a perception of stability in the markets has to be a good thing and speculators’ profits are not a political priority.

“Unfortunately, the fact is that short sellers provide a lot of the liquidity in the market which will now disappear.”

The UK short-selling ban applies to shares in the following companies – Admiral, Alliance & Leicester, Alliance Trust, Arbuthnot, Aviva, Barclays, Bradford & Bingley, Brit Insurance, Chesnara, European Islamic Investment Bank, Friends Provident, HBOS, Highway Insurance, HSBC, Islamic Bank of Britain, Just Retirement Holdings, Legal & General, Lloyds TSB, London Scottish, Novae, Old Mutual, Prudential, Resolution, Royal Bank of Scotland Group, RSA Insurance, St James’s Place, Standard Chartered, Standard Life, and Tawa.

News reported by The BBC

A New York bankruptcy judge has backed a $1.3bn (£700m) plan for Barclays to buy the core business of collapsed US investment bank Lehman Brothers.

The deal gives the UK bank ownership of Lehman’s Manhattan skyscraper – worth nearly $1bn – as well as responsibility for some 9,000 former staff.

Lawyers for what was the fourth biggest US bank said they were confident the deal would safeguard thousands of jobs.

Lehman collapsed on Monday sparking a week of turmoil on financial markets.

A US bankruptcy judge approved the sale after a seven-hour hearing that ended past midnight, saying he had found no better alternative for the assets Lehman sought to sell.

‘Tsunami victim’

“I have to approve this transaction because it is the only available transaction,” the judge, James Peck, told a packed Manhattan court.

He said he was saddened by the case, which he called the “most momentous bankruptcy hearing I have ever sat though”.

“Lehman Brothers became a victim, in effect the only true icon to fall in a tsunami that has befallen the credit markets,” the judge added.

The demise of Lehman – which collapsed having incurred huge bad debts related mainly to the US mortgage market – prompted the largest US bankruptcy case in history.

Earlier this week, Barclays had agreed to buy the bank’s North American investment banking and trading unit for $250m, as well as its New York headquarters and two data centres for $1.5bn.

But the final figure was reduced after Lehman’s lawyers said new property valuations were less than expected and that the company’s trading accounts had shrunk.

The deal will free up cash to fund operations while the rest of the company unwinds. A lawyer for Lehman’s said accounts worth around $138bn were dependent on the sale.

News reported by The BBC

UK bank Barclays has bought some of the core assets of US investment bank Lehman Brothers for $1.75bn (£1bn).

Barclays bought Lehman’s North American investment banking and trading unit for $250m, and paid $1.5bn for its New York headquarters and two data centres.

Lehman – the fourth-largest investment bank in the US – filed for bankruptcy protection on Monday.

The deal, which comes after a weekend when Barclays refused to buy all of Lehman, needs bankruptcy court backing.

BBC Business Editor Robert Peston had said earlier that Barclays would not be interested in acquiring Lehman’s “toxic investments in the residential and commercial property markets”.

‘Growth opportunity’

As well as the investment banking and trading operations, Barclays is also acquiring Lehman’s fixed income, equities sales, and research departments in North America.

The deal could safeguard the jobs of about 10,000 employees working in the divisions.

The agreement was made not long after Lehman’s first bankruptcy hearing in a US bankruptcy court in Manhattan.

John Varley, chief executive of Barclays, said the proposed acquisition was part of a policy of “profitable growth on behalf of our shareholders”.

Lehman Brothers chief operating Herbert McDade said: “We have the opportunity to continue the growth and development of our US investment banking and capital market franchises with one of the leading financial institutions in the world.”

News reported by The BBC

British bank Barclays is in talks to buy the core assets of Lehman Brothers – the US broker-dealer business and the mergers-and-acquisitions team.

Lehman – the fourth-largest investment bank in the US – filed for bankruptcy protection on Monday.

BBC Business Editor Robert Peston says Barclays does not want Lehman’s “toxic investments in the residential and commercial property markets”.

Nor, he says, does it want Lehman’s surviving, unsettled transactions.

However, our correspondent adds that Barclays does want the 8,000 to 10,000 US employees of Lehman – which it sees as formidable profit generators. But for the 5,000 Lehman staff in London, the outlook remains uncertain.

Market turmoil

In a statement, Barclays confirmed that it was discussing with Lehman Brothers the possible acquisition of certain assets “on terms that would be attractive to Barclays shareholders”.

“There can be no assurance that the discussions will result in an agreement. A further announcement will be made in due course,” Barclays added.

The collapse of Lehman, which had incurred billions of dollars of losses from the failing US mortgage market, has led to big falls on the global equity markets, with banking shares especially hard hit on worries that there could more victims.

There have also been fears that AIG, once the world’s largest insurer, could face collapse. On Monday, the State of New York announced a “multi-billion dollar financing plan” to help stabilise AIG’s finances.

In August, Barclays reported a 33% drop in pre-tax profits for the first half of 2008 following more credit crunch related write-downs.

The bank made £2.75bn, down from £4.1bn, which it said at the time was “acutely disappointing”.

Barclays said last month it had taken charges of £2.45bn for bad debts, including exposure to US sub-prime mortgages and other credit market problems.

News reported by The BBC

Bradford & Bingley (B&B) has said that more than a quarter of the shares offered under its £400m rights issue have been bought by shareholders.

The bank said that 27.8% of its new shares, which were on offer at 55p each, had been taken up by investors.

Other UK banks, including HBOS, Royal Bank of Scotland and Barclays, have sought to raise extra cash after being hit by the credit crunch.

Separately, B&B announced Richard Pym as its new chief executive.

Lacklustre performance

Despite B&B’s rights issue proving more successful than some recent rights issues by other banks, almost £300m of its new shares will be left with underwriters.

The underwriters – Citi and UBS – will now try to place the remaining shares by Friday.

The two investment banks are being supported by four major shareholders and six banks – HSBC, Lloyds TSB, HBOS, Barclays, Abbey and Royal Bank of Scotland. This could mean that some of the UK’s main High Street banks will end up owning a chunk of B&B.

The news comes as B&B announced it had appointed Richard Pym its new chief executive with immediate effect.

Mr Pym was a former group chief executive at Alliance & Leicester and retired in July 2007.

He is currently an independent non-executive director of asset management group Old Mutual and a non-executive chairman of car parts retailer Halfords.

Despite Mr Pym’s credentials, he is likely to face a tough ride at B&B, observers say.

“[Mr] Pym is a safe pair of hands, in our view, to try to shepherd B&B through the coming asset quality problems we feel it will suffer. However, we also feel he can do little to avert said problems,” said Collins Stewart analyst Alex Potter.

Troubled rights-issue

B&B’s rights issue has been restructured twice. The bank first announced an attempt to sell shares at 82p in May.

Then, as trading took a turn for the worse, B&B announced it had decided to sell a 23% stake in the firm to Texas Pacific, but the private equity firm later backed out.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Earlier this year, the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue of around 95%.

Barclays secured £4.5bn in new funding from a range of foreign investors, but only 19% of its new shares were taken up by existing investors.

Last month, HBOS said that only 8% of the new shares on offer were taken up in its £4bn rights issue.

In its statement, B&B added that there had been “no material change” in either current trading or the outlook for the company.

It is scheduled to release its six month results to 30 June on 29 August.

News reported by The BBC

A £400m rights issue at Bradford & Bingley (B&B) has closed, with analysts expecting that some of the deal’s underwriters will end up with shares.

Shares in B&B were trading at 55.25p when the deadline for the cash call finished on Friday – just above the 55p offer price for existing investors.

The take-up is forecast to be modest – though higher than the 8% seen last month in a rights issue by HBOS.

B&B, a buy-to-let loans specialist, has been hit hard by the credit crunch.

It is not expected to reveal how many shareholders took up the offer to buy extra shares until Monday.

The rights issue was underwritten by banks including Citi and UBS, along with HSBC, Lloyds TSB, HBOS, Barclays, Abbey and the Royal Bank of Scotland.

WHAT IS A RIGHTS ISSUE?
Companies issue extra shares to raise money
They are offered to existing shareholders, usually at a discount to the current share price
Shares are offered in proportion to existing holdings, so if you own 10% of the old shares you are offered 10% of the new ones

Rival cash calls

B&B’s rights issue has been restructured twice. The bank first announced an attempt to sell shares at 82p in May. Then, as trading took a turn for the worse, B&B announced it had decided to sell a 23% stake in the firm to Texas Pacific, but the private equity firm later backed out.

Earlier this year the Royal Bank of Scotland raised £12bn from its shareholders with a strong take-up in its rights issue.

Meanwhile Barclays has secured £4.5bn in new funding from a range of foreign investors.

Barclays announced last month that 19% of its new shares had been taken up by existing investors.

News reported by The BBC

Northern Rock has appointed the vice chairman of Barclays, Gary Hoffman, as its new chief executive.

Mr Hoffman replaces current chief executive Andy Kuipers, who will leave on August 31 after 20 years at the Newcastle-based lender.

Mr Kuipers is the final member of Northern Rock’s original board to leave the bank after last year’s crisis.

Northern Rock was nationalised in February following the first run on a British bank in more than a century.

Mr Hoffman’s basic salary is £700,000 and he will also receive three separate payments of £400,000 in compensation for the loss of his participation in Barclays’ long-term incentive plans.

“I am excited by the prospect of leading the company back to a position of strength,” Mr Hoffman said.

Educated at Cambridge University, Mr Hoffman, 47, joined Barclays 1982 and previous roles include chairman of UK banking and chairman of Barclaycard.

Shake-up

Since being nationalised in February, Northern Rock has said it will cut about 2,000 jobs by 2011 and reduce its residential mortgage lending by half.

Ron Sandler, the former Lloyds of London boss appointed by the government to run the bank as executive chairman when it was nationalised, will became non-executive chairman when Mr Hoffman takes up his role in October.

Northern Rock’s previous chief executive, Adam Applegarth, resigned in December following fierce criticism of his role in expanding the former building society too quickly.

Northern Rock doubled its share of UK mortgage lending under Mr Applegarth, but ran into difficulties in September when it was no longer able to fund that mortgage lending by borrowing in wholesale money markets.

News reported by The BBC

Investors based in Qatar own 8% of Barclays after the bank’s existing shareholders shunned its £4.5bn fundraising.

The Qataris were sitting last night on a £200m profit after bank shares staged a sudden rally after a week in which shares were battered by fears over the state of the US banking sector.

However, the rally came too late to help HBOS, which completed its £4bn rights issue yesterday. The bank will reveal on Monday how many of its shareholders supported its cash call at 275p a share. The City is braced for a low uptake, suggesting that the investment banks Morgan Stanley and Dresdner Kleinwort and the sub-underwriters they lined up could be left holding many of the £4bn of new shares.

Just 19% of Barclays’ shareholders participated in its fundraising. In contrast, the record-breaking £12bn rights issue by Royal Bank of Scotland was supported by 97% of its existing shareholders. HBOS is not expected to achieve anything near this level of success, particularly as 25% of its investor base are retail investors who traditionally sit on the sidelines during fundraising exercises.

Barclays avoided a rights issue. Instead it embarked upon a £4bn share-placing backed by four major investment houses – the Qatar Investment Authority and the Qatar-based fund Challenger, China Development Bank and Singapore’s sovereign wealth fund Temasek – and a £500m investment by the Japanese bank Sumitomo Mitsui.

Barclays’ existing shareholders were allowed to “claw back” stakes from the four investment houses but had little incentive to do so because its shares often traded below the 282p at which the placing was priced.

However, by the close last night, Barclays shares were up 10% at 320.25p and HBOS closed above its rights issue price of 275p at 282p, up 5%. At the 11am deadline for acceptances for the rights issue, HBOS shares were at 269p, below the subscription price.

Bank shares were buoyed yesterday by better than expected figures from the US bank Citigroup after a turbulent week following the bailout of the US mortgage lenders Freddie Mac and Fannie Mae. RBS, which sank to a new low of 145p this week, also jumped 10% to 197.6p – within a whisker of the 200p at which its investors were convinced to support its cash call.

Sentiment was also boosted by research from analysts at Morgan Stanley who regard 145p as the “bottom”. James Eden, banks analyst at Exane BNP Paribas, also called the bottom for RBS. “We see downside risk for every single bank apart from RBS,” said Eden.

He also admitted he was embarking upon a more pessimistic way to value banks by using the basis of a 1990s-style recession and then giving this scenario a 40% probability. To explain his change in methodology, he said: “As this author sits here today, watching his house plunge in value while the cost of his weekly food shop soars, booking advance supersaver train tickets to visit his grandparents in Cambridge because petrol is too expensive to travel by car, and with a greater sense of job insecurity than he would like, we are forced to admit that our base-case scenario is probably also our best case”.

Barclays shareholder register will undergo a radical change as a result of its fundraising. The QIA is expected to announce next week that it has a 6% share in the bank, while Challenger is expected to have a near-2% investment, taking the total Qatari investor base to 8%. The China Development Bank is maintaining its stake at 3%, while Temasek is raising its stake from 2% to about 3%. Sumitomo Mitsui will own 2.1%, while a variety of hedge funds such as Och-Ziff, Lansdowne and GLG will also be taking up Barclays shares.

News reported by The Guardian

New overseas investors including a Qatari sovereign wealth fund will own a 10% stake in Barclays after existing shareholders in the bank took up only 19% of new shares in a £4.5bn fundraising.

Shares in Britain’s third largest bank surged more than 10% to 320.25p, above the 282p price at which it placed shares with investors, as part of a banking sector bounce on Friday.

Barclays said last month that it was raising £4bn from “anchor” investors – the Qatar Investment Authority, the sovereign wealth fund, and Challenger, a vehicle headed by the chairman of Qatar Holding, Sheikh Hamad bin Jassim bin Jabr al-Thani. Barclays gave existing shareholders the chance to buy on the same terms, but most shunned the offer.

That means the QIA will end up with a 6% stake in Barclays while Challenger will hold just below 2%. Including the Japanese bank Sumitomo Mitsui, which has invested £500m in a 2.1% stake, the new overseas investors will own a tenth of Barclays.

“I’m pleased to welcome new shareholders to our register as a result of our capital raising,” said Barclays chief executive John Varley. “We look forward to building on our relationship with our new shareholders, QIA and Sumitomo Mitsui, and we appreciate the support of existing owners of our shares including China Development Bank, Temasek and other institutional holders.”

It has been almost a year since the credit crunch started. British banks including HBOS, Royal Bank of Scotland and Bradford & Bingley have been scrambling to raise fresh funds to shore up their balance sheets. The result of HBOS’s £4bn rights issue will not be known until Monday. It took B&B three attempts to get through a £400m fundraising, which was finally approved at a special shareholders’ meeting yesterday.

CDB and Temasek in Singapore – counted among the four “anchor” investors – put in enough cash to maintain their stakes of 3% and 2% – though Temasek’s stake is now set to rise to between 2.5% and 3%. This would bring the combined stakes held by overseas investors to 15.5-16%.

Existing shareholders in Barclays were able to buy shares at 282p in a “claw back” from the four big investors. With the bank’s share price below 282p for much of this week, many investors decided not to take up their options. Shareholders bought 267m shares for £753m, equivalent to 19% of the shares on offer. The remaining 1.14bn shares were placed with the Qataris, CDB, Temasek and other institutional investors.

Separately, Sumitomo Mitsui paid £500m to buy 169m shares at a higher price of 296p and signed a collaboration agreement with Barclays.

News reported by The Guardian