Bank shareholders don't seem to be able to make up their minds. One moment, banks are regarded as little more than financial middens, piled high with toxic waste and other rubbishy loans and requiring dividend cuts, equity injections and years of TLC and handholding from central banks just to fend off the environmental health officers.

The next minute they are misunderstood victims, unfairly plagued by wicked bear raiders and offering fantastic returns to anyone with the cojones to ignore the tittle-tattle and buy. Yesterday was an up day. Most banks were marked steeply higher in the wake of the reworked Bear Stearns deal in the United States and the HBOS directors' sharedealings in Britain. HBOS shares soared by 15 per cent, their best day ever. News that its directors had been piling in with their own money proved much more potent rocket fuel than all the reassurance last week from both them and the Bank of England.

Yet it would be a brave forecaster to suggest that the bipolarity is over for banking stocks. Nothing better illustrates the violence in the swings of sentiment than the Bear Stearns tale. Three weeks ago the bank was valued by the market at $70 a share. A week ago it was deemed to be worth $2 a share. Then over the weekend, JPMorgan Chase rather mysteriously upped its offer to $10. Even allowing for the extreme volatility in securities prices over the past few days and the panic by Bear's counterparties, this makes little sense. Was the Bear board unnecessarily panicked a week ago? Has JPMorgan been bluffed into paying much more by a temporary improvement in sentiment and some sabre-rattling by Bear shareholders? Or even now is JPMorgan getting a steal?

The best case for JPMorgan is that financial markets recover some of their poise and that the deal dissuades Bear's rainmakers and biggest customers from defecting. Many of its lucrative hedge fund clients have already moved to other prime brokers. The worst case is that Bear proves worthless and that JPMorgan has to shoulder the first $1 billion of losses on the $30billion underwritten by the Federal Reserve Bank of New York. In total, the red ink could amount to $3.4 billion, while the episode would badly besmirch the golden reputation of Jamie Dimon, the chief executive.

The markets will give their verdict in due course. The one body in the three-way negotiations that does seem to have got the fuzzy end of the lollipop is the Fed, which is still on the hook for $29 billion.

For those who believe in the importance of addressing moral hazard, it would have been better if JPMorgan's newfound largesse had been directed less at pleasing Bear shareholders and more at releasing the Fed — and by extension American taxpayers — from its heavy obligations.

patrick.hosking@thetimes.co.uk

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