Having registered only minor movements to their stock prices over the last two weeks, bank stocks leapt Thursday backed by the European Central Bank’s (ECB) decision to initiate a government bond-buyback program. European banks rocketed over trading with Deutsche Bank (NYSE:DB) and Barclays (NYSE:BCS) recording an increase of around 7% in their share value, followed by an almost 6% leap in stock price for Credit Suisse (NYSE:CS). The shares of RBS (NYSE:RBS) and UBS (NYSE:UBS) also ended the day 5% higher. A positive U.S. private sector job report also boosted the share prices of U.S. banks, with Bank of America (NYSE:BAC) gaining 5%. The KBW Bank Index closed nearly 3% higher. [1]
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In a move that investors have been waiting for months now, the ECB announced its decision to take a more direct action to curb the deteriorating debt situation among European Union members by directly buying government-issued bonds from the market. The ECB will now buy back an unlimited number of government bonds as long as all the member nations adhere to stringent economic reforms program agreed upon in the previous Euro zone summits. To ensure that there are no major fluctuations in prices over the region, the ECB will pull out an equal amount of currency from the system to counter the effect of the large-scale bond buyback. Spain and Italy, who are in need of aid the most, should see the ECB’s assistance soon as long as they agree to certain conditions. And the plan also extends a lifeline to Greece – giving it another chance to avoid default.
Things also look brighter as the latest employment report by the U.S. Labor Department is expected to show an increase in the number of private sector jobs in August. This led to renewed confidence in the U.S. economy, with hopes that the unemployment rate would see a reduction this time around after hovering between 8.2% and 8.3% over the last three months.
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Notes:- Stocks jump on European bank plan, The Boston Globe, Sept 6 2012 [↩]
