Thursday 5 January 2012

RBS sale to mark the bottom of banking market?

More news out today on our taxpayer investment in RBS. What I can't believe is the timing of all this change. The story goes that in the Investment bank the foreign units are going along with all of Equities and Corporate Finance (a business called Hoare Govett). Now neither of these are the really big pieces of RBS Global Banking Markets - but without them RBS is left with a very sub-scale debt business that is only good in a few areas such as corporate bonds.

But really, selling now, in midst of the Euro crisis? RBS will be lucky to get any buyers at all, let alone a decent price for these units. So in the end it may well have to sack everyone and close them down. yet in the last 2 years these units have been profitable. of course in the Brown Boom this was the unit that blew the bank up with all its bad buys, but now these are more controlled. So instead now it seems we are to throw the baby out with the bathwater - for RBS is already selling down all of its Non Core assets quite successfully.

All I can see here is the split of a bank in the worst possible moment which will int he long-run hamper shareholder return  - which is rather crucial as the current share price of 20p is a long way off the 55p needed for the Government and ourselves to get out money back on the bailout.

Bizarre that this is being pushed now - there must be more to it? I have a feeling shedding the bankers with huge bonus' is clouding the issue here.

All in all though, Governments generally make the worst decisions with te worst market timing possible, see Gordon Brown's sale of the UK gold reserves. So perhaps this knifing of RBS will in time mark the nadir of Investment Banking in the current crisis.

8 comments:

Anonymous said...

CU, I never understood why NatWest reversed into a bank (RBS) many times smaller I think things started to go wrong about that time.

Anonymous said...

You could take the cynical view, but you could also say that perhaps the government considers the downside risks in the banking sector in the event of a Euro collapse to be too great and wishes to limit its liabilities in that eventuality. In the end it is not the governments job to run banks, possibly for decades and taking on the risks of running such banks.

Demetrius said...

One interesting question is that someone somewhere must be making money on the deal, so who?

CityUnslicker said...

Anon - that would be one view - but equities is not going to be the business that loses the money there and neither is corporate finance - it will be the bond side, which, um...they are keeping. I totally agree re Government and Banks, but posit they would get out of bankign quicker if RBS could recover more quickly - perhaps they know it can't....

Demetrius - Well Lazards are getting paid to try and sell it, the lawyers will get paid for the redundancies - I don't see how this is so great in the grander scheme of things

BlackRaven said...

investment banking did not blow up RBS, a shit loan book did. the report on RBS and its financial results make the clear.

BlackRaven said...

i'll just clarify that with some figures, over the period 2007-2010 trading pnl's were +1.3,-8.4,+3.1,+4.5. So over the four years they made £1.3bn.

whereas they dropped £35bn on loans.

CityUnslicker said...

true BlackRaven - but the loans were made out to the GBM unit - huge commercial real estate and leveraged loans, as well as the CDO's and sub prime - all originatted in GBM. but your point is well made, not the trading bit of GBM.

Steven_L said...

The bottom? Well if Barclays and Lloyds can suddenly put a couple of dozen per cent on that'll help my summer holiday fund along nicely.

But German stocks seems to have gained some momentum now and I'm quite hopeful for infineon making it back north of 700c.

Still reckon BP is the steal of 2012 though, sell/leverage those BTL's and pile in there (as I keep telling the BTL guy at work).