Thursday, 26 February 2009

RBS & LBG to the races

And so it was done. The Government has capitulated before the markets. RBS has been given another £13 billion to try and stave off full nationalisation (read bankruptcy), on quite generous terms. Darling is saying taxpayers will profit, just like Northern Rock, eh?

I can see the Government's view on wanting to keep a sliver of shares on the market, as this will let them know when to sell-out of their shareholding. Whisper it, but this is a big improvement on what has gone before. But really, RBS's end of term report today was actually worse than expected.

Massive losses, ABN acquisition not only written down but the remnants written off for sale. This is a corporate disaster worse than either Mannesman or GEC Marconi. Now that is going some.

Yet the share prices of the battered banks flew today (N.B. CU currently holds LLOY shares) and may well do tomorrow. I think the market wants good news and is not prepared to dig to view the long-term picture.

RBS, maybe LLOY, are zombiefied and we are following the Japanese plan for 10 years of economic stagnation at best. Now that the Government has put the debt of the banks on the national balance sheet, I can't see what is holding them back from full the US it seems momentum is behind the push to sort out Citi and BOA.

I am still against full nationalisation in the UK; not on pure ideological grounds, on competence grounds. The government have already proved with Northern Wreck that they can blow money just as well or better than the Bank executives. Plus the other key economic test as well, If Vince Cable is all for it, it is bound to be wrong.


Mark Wadsworth said...

To be fair, the Northern Rock thing was going really well until a week ago, NR was repaying its loan ahead of schedule, good borrowers were leaving in droves etc, what was left was becoming ever more toxic, but at least ring fenced.

This wasn't too far from the 'New Good Bank model' that you and I and others have proposed.

In hindsight, we didn't give them enough credit for this policy, but since the volte face, they don't deserve any.

CityUnslicker said...

MW - Hmmm, you do have a fair point. But they were always going to wreck it. NR was never a good candidate for good bank / bad bank - you need a good bit after all! NR too toxic and should have been liquidated.

RBS/LLOY/BARC are much better candidates and this plan is much better. After lots of scrabbling the govt are getting there.

Sadly the huge elephant in the room is that with the economy in meltdown the banks might go bust (i.e. get nationalised now) anyway as they can't cope with 2009 being as bad as 2008 - yet so far it looks worse.

Anonymous said...

Is Barclays really a candidate for going bust this year?

Anonymous said...

With Northern Crock, the government were hit by a problem unawares. It shouldn't have been that way, but it was.

NR had 20% of the mortgage market and was heavily into 125% mortgages. Completely reckless.

The gubmint shoved in cash and told NR to reduce the size of the mortgage book, and pay the cash back, which they did. They didn't say how or what NR shouldn't do.

NR just reduced the mortgage book, happily losing good customers and repossessing bad ones.

There wasn't any intention to quarantine the bad debts, it was a reaction to the run on NR and the thinking didn't go further than that.

However, 12 months down the line, the gubmint looks and now they are facing falling property prices and repossessions and this isn't good for votes at all, so it's bung Crock some more money and tell them to hit the accelerator again.

I think the gubmint has no long term plan, no understanding of what's happening or likely to happen and they just react to the latest crisis.

It doesn't cause much faith in anything else they are doing such as QE, which surely requires fine judgment.

There's no getting away from the fact that property has been hugely overvalued and correction is going to hurt a lot of people. I don't see a soft landing, unless it's paid for by future taxation; some soft landing and it rewards the profligate.

One panic measure after another.

Wolfie said...

"we are following the Japanese plan for 10 years of economic stagnation at best."

If that happens I will breath a massive sigh of relief! Frankly the government seem completely out of their depth.

This is my synopsis.

CityUnslicker said...

SW - All banks are in it if we keep losing GDP at 1.5% per quater.

Cosmic - Yup, no strategy is the strategy!

Wolfie - comments at yours

Jock Coats said...

"I can see the Government's view on wanting to keep a sliver of shares on the market, as this will let them know when to sell-out of their shareholding. Whisper it, but this is a big improvement on what has gone before."

Just out of interest, were not things like BLMC/Austin Rover not kept listed? I certainly remember Austin Rover having about 7% of shares in public hands long before they were sold to BAe. Same with Rolls Royce I think, no? Am I misremembering?

Mark Wadsworth said...

CU, of course NR was not a candidate for a Good Bank, it is the ultimate Bad Bank - a closed fund that is wound down and creditors repaid as far as possible.

This is the necessary flipside of there also being Good Banks.

The same filtration process should be applied to all banks who are in trouble - the crap gets left behind and the good risk borrowers and depositors start elsewhere with a clean slate.

Either way, they've shat on this plan.

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