Markets vulnerable should banks offload equities - Moonraker

UK stock markets are vulnerable to a major correction should banks suddenly sell the equities they have been hoarding with Government bailout money, Moonraker's Jeremy Charlesworth says.

Charlesworth, the Moonraker CIO, says little of the bailout money given to banks has been passed on to businesses or consumers, with banks using the funds to purchase cheap stocks from the Market low in March.

"It (bailout money) must have gone somewhere and it might have gone to the proprietary desks of the banks to punt the markets. Given all the calls for more transparency, it would be good if the banks could clarify this," he says.

"The banks have every right to use the money they borrow in any way they choose. But it would be good to know how much of the bailout money has been used to buy equities. Clearly, someone has been buying, and given it has not been ordinary investors and the institutions this does just leave the banks."

Charlesworth says bank balance sheets will have benefited from the equity holdings and if they can sell into a rising market they will be in a better position to repay their debts.

"However, there will be a problem if the public and institutions do not join the rally and the banks have to sell equities into a vacuum," he adds.