The Credit Crunch - Is the Worst Over?

Yesterday, as the Easter bank holiday weekend drew to a close the stock market leapt to life for the first time in weeks, leading to hopeful speculation that the credit crunch is loosening its grip on global finances.

Spurred on by J.P Morgan Chase’s upped offer to buy out US ‘bank in crisis’ Bear Stearns for $10 a share, a 20% increase on their original offer of $2, confidence grew in the markets as value was added back into the banking sector.

In the UK, HBOS, finance giant and parent company to well known high street banks such as Halifax and the Bank of Scotland, saw a 70.75p boost in share prices, rising 15% to 544.5% in the biggest one-day jump seen since 2001.

While HBOS’s re-submergence into the market is largely thanks to the million shares purchased last week by company directors as a ‘make or break’ response to malicious rumours that they were the next in line for emergency funding, this strategy seems to have worked and has brought with it a boost for other UK banks.

Barclays shares saw a 7% increase, up 30p to 459p, while RBS shares rocketed 9.3% to 351.25p and Lloyds TSB shares increased in value by 6.3%, finishing at 461.5p. On a larger scale, the FTSE 100 as a whole ended up 3.5% at 5689.1 points while the FTSE Eurofirst 300 rose by 3.1%.

However, while this apparent regained confidence in the banking industry is an important first step in the stabisation of the fragile economic conditions currently spanning the globe, we may not be out of the woods yet.

The Libor rate (at which banks lend money to each other) still remains high despite large investment on the part of central banks, suggesting that while things are looking up inter bank confidence is still shaky. Until this situation improves and credit becomes more affordable, and readily available to the institutions that lend it, it's likely that we consumers will still feel the crunch.