London: European stock markets rose modestly on Monday ahead of expected Wall Street gains on reports that the Obama administration was not planning to nationalize one or more big US banks and was instead looking at ways to raise its stake in Citigroup Inc.
The FTSE 100 index of leading British shares was up 16.67 points, or 0.4%, at 3,905.73, while Germany’s DAX rose 41.73 points, or 1%, to 4,056.39. The CAC-40 in France was up 34.44 points, or 1.3%, at 2,784.99.
On Wall Street, futures were higher. Dow futures rose 72 points, or 1%, to 7.424, while the broader Standard & Poor’s 500 futures were up 8.3 points, or 1.1% at 777.80.
The modest optimism in the markets at the start of the new week was generated by a Wall Street Journal report that Citigroup is negotiating with authorities to increase the US government’s stake in the teetering lender to as much as 40%.
Executives would prefer to keep the government’s stake closer to 25%, according to the Journal, which cited people familiar with the situation. The talks arose after Citigroup made the proposal to regulators.
The Obama administration has not indicated whether it would back the plan, the Journal said. Just last week, Obama officials voiced support for keeping the banking system private as widespread talk about nationalization led investors to unload shares in Citigroup and Bank of America.
“The world’s equity markets appear to like the idea that the Obama Administration is to follow the British approach in dealing with hard-pressed banks,” said Stephen Lewis, an analyst at Monument Securities. The British government has taken big stakes in Royal Bank of Scotland and Lloyds Banking Group PLC.
Last week, worries that major Western banks like Citigroup and Bank of America Corp might have to be nationalized because of mounting bad debts pulled global markets down last week.
Investors in Britain also breathed a sigh of relief on reports that Royal Bank of Scotland PLC, which is already majority owned by the government, was planning a major restructuring that would see 20,000 jobs cut.
News reports over the weekend said the bank was planning to isolate its bad assets so that the market can establish a value for its viable operations. The reports suggested that up to 20,000 employees, or about 10% of the work force, could be shed in the process.
The Sunday Telegraph said the restructuring would see RBS pull out of about half of the 60 countries in which it currently operates, including parts of eastern Europe, Indonesia and Malaysia.
Shares in RBS were up 14% on the London Stock Exchange.
Citigroup and other banking heavyweights in the US, Britain and other countries have already received hundreds of billions of dollars in government aid in hopes of saving the financial system from collapse. While providing a short-term of jolt of optimism, the measures have failed to put to rest fears that more institutions could follow in the footsteps of Lehman Brothers, which declared bankruptcy in September 2008, without governments assuming full or partial ownership.
Despite the modest bounceback Monday, most investors know that the economic newsflow around the world will continue to make for grim reading over the coming weeks and months.
“General consensus seems to be one of pessimism and the distressed state of the global economy doesn’t seem as if it’s about to change quickly,” said Matt Buckland, a dealer at CMC Markets.
Earlier in Asia, Japan’s Nikkei 225 stock average recouped some of its losses to end down just 40.22 points, 0.5%, at 7,376.16, while Hong Kong’s Hang Seng closed up 475.93 points, or 3.8%, at 13,175.10.
Elsewhere in Asia, South Korea’s Kospi was up 33.60, or 3.2%, at 1099.55 while the Shanghai benchmark added almost 2% amid expectations of further government measures to help the real estate sector. Markets in Taiwan, Singapore, Indonesia, Thailand and the Philippines also edged higher.
In currencies, the dollar rose 1.4% to 94.61yen, while the euro was down at $1.2798.