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Banking shares rallied last week as the government announced it was working on a scheme to enable banks to swap mortgage-based ass-ets for government bonds.

This should help banks improve their balance sheets and hopefully stimulate the lending market.

Shares in Friends Provident fell as JC Flowers revealed that it was not willing to lift its bid above 150p.

It appears the main disagreement between the two is the valuation of Friends Provident’s stake in F&C Asset Management.

Bradford & Bingley was also un-der pressure following rumours of a rights issue, which it denied.

And at the end of the week there were reports that the Royal Bank of Scotland is planning a huge rights issue of between £5bn and £12bn.

RBS is expected to announce this in a trading statement coinciding with its annual shareholders’ meeting on Wednesday.

If successful, the issue could help to stabilise the market and it’s likely that other companies would follow suit.

Elsewhere, Prudential announ-ced strong Q1 figures with sales growth of 13%, ahead of forecasts.

John Goodall is a private client research analyst at stock broker WH Ireland.