Financial Betting Articles

Banking is top of everyone's agenda this week. The messy Northern Rock saga has reached a turning point with the stricken bank set for temporary nationalisation. Did someone say Clause IV? But what about the other banks? How are they weathering the credit crunch?

Bradford and Bingley got the reporting season off to a poor start last week. It announced £144.4 million of credit crunch losses that a few weeks ago it claimed would be zero.

With the heavyweights of British banking all waiting in the wings with their annual figures, Bradford and Bingley could be the bellwether of nasty times ahead. Barclays (Tuesday) Alliance and Leicester (Wednesday) and Lloyds TSB (Friday) are set to make announcements that will surely shake the FTSE. The bigger banks are far more exposed to CDOs (Crazy Debt Obligations or some such) and unless they've been very smart then their share prices could take a pummelling. Market watchers will anticipate the figures with a sensation familiar to any thrill-seeker who has been suspended above the void on the Oblivion ride at Alton Towers.

But rumours abounded over the weekend that Lloyds and Barclays were likely to come out fighting with bumper dividends and carefree grins on their faces. Have these smart chaps seen off the worst of the credit squeeze? Possibly in response, this morning's early trading had a spring in its step with buyers bouncing the FTSE up in to positive territory.

Banking makes up a hefty chunk of the FTSE 100 with 5 banks in the top 20 for size of market capitalisation, so expect the index to share in the sectors glories or ignominies. The composition of the major indices is a very interesting subject (well I think it is and this is MY weekly bulletin). Knowing the composition is a necessary starting point to understanding how "Events dear boy, events!" are going to influence the ticker.

There are two popular ways to work out an index from the value of its component shares. Some, like the FTSE, are worked out based on market capitalisation. That means the index is weighted according to the constituent companies' values (worked out as the value of all their shares). Therefore, the bigger a company is, the bigger the impact a change in its share price will have on the index as a whole.

Just to mix things up, some indices use the price-weighted method (including the DOW). This means the amount of influence that a company's share price has on the index as a whole depends on the value of that share compared to the value of the other shares in the index. So a share with a price of $100 will have ten times as much influence on the index than a share with a price of $10.

So to know your index, you need to know how it's worked out, who's in it and how much of a say they have. That way you can judge how important news is and take a market view. What to do with your market view? Visit ChoiceOdds.com and make it count.

Royal Dutch Shell has the greatest market capitalisation of any FTSE 100 firm, standing at £134 billion at the end of last year.

The DOW gained 1.36% last week (166.08 ticks)

The DAX has traded down more than 100 ticks on 19 of the 33 trading days this year.

The average human head has about 100,000 hair follicles.

Back to "Articles"

Open Account