Sunday, 23 January 2011

Will they won't they for UK Banks?

The first impressions of the Vickers report do not make good reading for Bank shares in 2011. The Commission won't report until later in the year, but will make some meaty decisions. This means that one way or another Banks are goin to have to re-organise themselves going forward.

For HSBC and BarCap this will mean a costly re-organisation.
For RBS, maybe a sale of their Investment Bank?
For Lloyds - a sale of big chunks of HBOS (surely they would sue the Government if made to do this?)

All in all, there is no good news for their share prices this year. It won't be an exciting year for their investors either.


Mark Wadsworth said...

I've tried explaining QE again with proper bookeeping entries and actual facts and figures.

Quite clearly, the whole thing was smoke and mirrors and boils down to very little indeed.

Anonymous said...

I'd be expecting the Condem's to keep their 'bash a banker' rhetoric for closer to the election. Anything done now will long be forgotten by the punters, but as with tax-cuts, would make a useful pre-election narrative. The civil servants can bide their time and then cut the banks down.

Anonymous said...

The civil servants can, of course, still cut the banks down after having flogged off those currently on the books nowto some unsuspecting mug who believes he can trust an Englishman

Budgie said...

RBS share price peaked last May at 58p. Trend since then has been downward, but lots of spikes. Rising to 45p now. Lloyds rose last year to peak at 77.6p in Sept, after trough in May and June. Now 67p.

I saw John Redwood say that the liabilities to the taxpayer (for RBS & Lloyds) was £1.5 trillion. Presumably a lot of that is exposure to PIIGS and the Euro, especially their banks.

No wonder the BoE does not want to increase bank rate with that lot about to pop. And, of course, the government has already spent all the last QE money - it's gone into the real economy. So if the eurozone bank/sovereign debts default we must be looking at more QE to counteract the liabilities.

I tend to think that will come later in the year because the euro politicians won't go down without a fight - their whole powerbase depends upon it.

CityUnslicker said...

MW - Will look over at your piece.

Anon - the timing of this is too long for a future election thouhg. Plus I think osborne has form for wanting to actually do something - even if it is only a little it will be very popular at a time the coalition needs it.

Budgie - That is their whole balance sheets, but just one side. they have aseets of £1.5 trillion too. Now of course a big chunk of this is bad debt, but when we say a big chunk we are thinking maybe £100 billion odd. After all, most personal loans and mortgages are not bad debts, even in bad times only 5% of mortgages default. So John Redwood is being disengenuous; it is also likely the taxypayer can exit the whole scheme with a nominal profit or a small loss of maybe £20 billion odd. I don't imagine it will get worse that that overall. If it does it means armageddon is on us and the whole UK will be defaulting anyway.

I agree re teh bank share trends, they are not great and so I have them as a big avoid unless they happen to spike down (say after a Spain crisis has started and just before a resolution is announced)to a point where a healthy short term return is possible.

Budgie said...

CU, I am surprised that the potential bad debt is 'only' £100bn. Does this include potential eurozone sovereign, as well as bank, bad debt?

Don't forget we have already given £7bn to Eire and £9bn to the EU, before any problems from Portugal, Belgium, Spain and Italy. This is one sixth of the £100bn already.

Ps: John Redwood does say "These extra liabilities are of course offset by assets." I had no intention of misleading - I apologise.

CityUnslicker said...

Budgie, yes, unless there is default the sovereign stuff is paying out nicely. Also, our banks are trying to limit their exposure, most of the European banks are in a far worst state. Also Insurance companies hold much of the sovereign debt.

Don't forget the UK banks have already written off billions, another £100 billion to add to this ££150 billion (guess) would be getting on for 18% of all their lending; very high indeed.