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Goldman sparks bank shares rally Goldman sparks bank shares rally
(about 2 hours later)
Financial stocks across Europe have risen sharply after US banking giant Goldman Sachs announced surprisingly good first quarter results. Financial stocks across Europe have risen sharply after US banking giant Goldman Sachs announced surprisingly good first-quarter results.
The stronger-than-expected results led to hopes that the global financial crisis may finally be starting to ease.The stronger-than-expected results led to hopes that the global financial crisis may finally be starting to ease.
In London, Lloyds Banking Group and Barclays rose more than 10% before falling back in afternoon trading. The Royal Bank of Scotland also climbed. In London, Barclays and Lloyds Banking Group both closed more than 10% higher on the day. Major banks in France and Germany also made strong gains.
Major banks in France and Germany also rose strongly, before slipping back. But Goldman's own shares slid 5%, despite its return to quarterly profit.
Wall Street shares in general lost ground for the second day in a row, after evidence that US retail sales continued to fall in March.
On Tuesday, one day after unexpectedly bringing forward its results, Goldman Sachs sold $5bn worth of stock, saying it planned to use the proceeds to help repay the $10bn bail-out it received from the government's Troubled Asset Relief Program (Tarp).
Strong gainsStrong gains
By mid-afternoon, Barclays was up 7.4% with Lloyds 4.4% higher. In France, Credit Agricole shares climbed 9%, BNP Paribas rose 8.9% and Societe Generale added 4.8%.
In France, BNP Paribas rose 4.8%, Societe Generale added 3.2% and Credit Agricole shares climbed 4.5%. In Germany, shares in Commerzbank rose nearly 13%, while Deutsche Bank added 4.7%.
In Germany, shares in Commerzbank rose 9.2% while Deutsche Bank added 3.1%.
It's not going to be pretty reading on the corporate results front this quarter Justin Urquhart Stewart, Seven Investment ManagementIt's not going to be pretty reading on the corporate results front this quarter Justin Urquhart Stewart, Seven Investment Management
The strong gains were due to the $1.8bn (£1.2bn) net quarterly profit announced by Goldman Sachs on Monday.The strong gains were due to the $1.8bn (£1.2bn) net quarterly profit announced by Goldman Sachs on Monday.
The results were much better than analysts had expected. In the previous quarter, the bank had reported its first quarterly loss since going public in 1999.The results were much better than analysts had expected. In the previous quarter, the bank had reported its first quarterly loss since going public in 1999.
However, despite its strong performance, the bank said trading conditions continued to be tough.However, despite its strong performance, the bank said trading conditions continued to be tough.
"We continue to be cautious about the near-term outlook for our businesses," said chief financial officer David Viniar."We continue to be cautious about the near-term outlook for our businesses," said chief financial officer David Viniar.
The financial system still faces "extremely difficult macroeconomic conditions," he added.The financial system still faces "extremely difficult macroeconomic conditions," he added.
Goldman also announced plans to raise $5bn from shareholders in order to repay some of the $10bn emergency loan it received from the US government to help it through the financial crisis.
Last week, Wells Fargo, another big US bank, announced that it would make a profit of $3bn (£2bn) for the first three months of 2009. This also sparked a rally in banking stocks.Last week, Wells Fargo, another big US bank, announced that it would make a profit of $3bn (£2bn) for the first three months of 2009. This also sparked a rally in banking stocks.
Reality check However, Justin Urquhart Stewart at Seven Investment Management said the results from Goldman Sachs and Wells Fargo would not set the tone for further banking results expected later this month.
The results from Goldman Sachs have increased investor confidence that the worst may be over for financial firms and, by extension, the global economic downturn.
"The financials were the main reason behind the last 12 months of pain, so it is only right that investors look to these heavyweights to lead us back up," said Chris Hossain at ODL Securities.
However, some analysts cautioned against becoming too optimistic on the back of isolated results.
"The Goldman figures are remarkably good, but bank results are mercurial and you have to pick through them carefully," said Justin Urquhart Stewart at Seven Investment Management.
He believes the results from Goldman Sachs and Wells Fargo will not set the tone for upcoming results in general.
"It's not going to be pretty reading on the corporate results front this quarter," he said."It's not going to be pretty reading on the corporate results front this quarter," he said.