The pound slid to a six-week low against the US dollar yesterday after the British Government's announcement it would take a majority stake in Lloyds Banking Group in return for insuring up to 260 billion pounds of assets at the ailing bank.
The latest selling pressure on the pound was stoked by the news the British Government's stake in Lloyds was expected to rise from 43.5% to at least 65%. In exchange, Lloyds would get insurance for potential losses on its assets, most of which were acquired when Lloyds TSB took over Halifax-Bank of Scotland.
In addition, the pound slumped on an announcement from the Bank of England that it would buy up assets from the banks, mainly in the form of bonds in a "quantitative easing" strategy.
The bank's deputy governor Charles Bean hinted in a newspaper commentary that the central bank might have to pump more money into the economy if the initial outlay failed to encourage banks to start lending again.
Britain's Finance Minister Alistair Darling has given the bank the authority to spend up to 150 billion of its own money buying up assets from banks.
ABN Amro Craigs broker Chris Timms said the 150 billion equated to about 10% of Britain's GDP.
In a review of the trading performance of Australian-listed banks, Mr Timms said that, on average, they under performed the market last week, led by relatively poor news on the overseas banking markets and poor Australian GDP figure.
The major banks were down 7.7% in value versus the market which lost 6%.
NAB was the best performed, finishing the week down 6%, Westpac was down 7%, ANZ down 7.1% and CBA was down 9.4%.
The issues affecting banks in the United Kingdom, the United States and Europe were specific to those zones, Mr Timms said.
"They have a lot more toxic debt on their books that we have been made aware of with the Australian banks.
"There are no signs the [Australian] Government will go to the same extent of buying shares in banks. The issues here are around liquidity, guaranteeing deposits and providing funds for banks to lend to each other."
There had been bad debts but the Australian banks had not been exposed to the worst of the subprime market, he said.
"All of this won't help the sentiment towards banks. It's not a signal for investors to get back into the banking sector.
"Although the underlying business models are good, the banks do have the issue of bad debts and investors are wary. Sentiment is averse to the banking sector and sentiment drives the market."
Bank share prices were unlikely to improve in the short term, because as each bank reported, they reported rising bad debt levels.
Investors would not go back into the sector until the reporting of rising bad debts stopped, Mr Timms said.
