Monday, 10 May 2010

Exclusive: Banks to be broken up in Con-Lib deal

A source who has been privy to the detail in the Con-Lib negotiations has told Cityunslicker that a deal to separate Investment Banking and Retail Banking organisation is one of the key policy platforms to have been agreed upon.

George Osborne has of course advocated this in the past as a solution to the long-term instability of the UK having four banks which are nearly as big in assets as the UK GDP. On the Lib Dems side, the City has been horrified at their smash the City mantra.

I would not like to own shares in the likes of Barclays or RBS when this news comes out, at it will be a big cost to share holders to split the businesses and lose all the benefits that the stable cash generative retail bits give to the high risk Investment Banks.

Quite how this will work for overseas institutions I do not know.

Some of the banking shares were the biggest benefactors of the stunning rally today; on the back of the EU debt Union which has been de facto announced. Seems like the people of Germany are going to pay for the Euro after all and subsidise the PIGS trough.

No prizes for guessing the effect when this gets out.


Nick Drew said...

This was in the Tory manifesto, in a fairly measured fashion:

"pursue international agreement to prevent retail banks from engaging in activities, such as large-scale proprietary trading, that put the stability of the system at risk"

it wouldn't be difficult to enforce it for overseas institutions operating here - but if done unilaterally it would impact adversely on liquidity in London, to say the least

the trick, of course, is ring-fencing the risk capital - but if we assume there is cross-subsidy going on between retail and spec-books, and we sort that out, prop liquidity will suffer anyway

Andrew B said...

The overnight short paid off nicely, thanks.
Bailed at market open - too uncertain

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