Monday 4 March 2013

How's that UK Financial investment portfolio looking?

Not great is it. On the day that HSBC announces near-record returns and even scandal-hit Barclays managed to stay in the black this year. Santander will be fine too.

Lloyds Banking Group and RBS managed to make huge losses - in fact RBS managed the biggest loss since 2008. Now partly the way banks account for profit and loss on the value of their own debt is having too big an impact on results. Last year they all benefited to the tune of a couple of billion and this year they have given it all back.

So the banks are right to say this plays a big role in obscuring their underlying performance. This year what really killed Lloyds and RBS were the big fines for PPI and Derivatives mis-selling combined with the still ongoing process of unwinding all their poor loans from the boom.

HSBC and Barclays have more or less finished this process, so regulatory fines aside and a bit of re-org costs at Barclays and they are on track.

Some of the key underlying businesses at Lloyds and RBS too are showing good signs of recovery - the issue is that they still have plenty of toxic assets (far less than before, but still tens of billions and what it left is the more toxic stuff) to go. Plus bit re-org costs and the Government has forced them to end most of their 'casino' banking markets and trading businesses. Also they have pulled back internationally, where the economies are growing, to focus on the UK, where the economy is flat.

So, pity the taxpayers, it will be a long wait to get even a nominal return on investment. The best option still remains a giveaway to taxpayers of the shares, it will reduce the overhang and be a fillip to hard-pressed people across they land as they cash in a few hundred quid - who knows that might even herald the end of banker-bashing.

Waiting for the shares to hit a return point just won't work - the market will be aware of the over-hang and so any time the shares get near that price they will get a nose-bleed. Creative thinking definitely needs to be applied here.

13 comments:

Blue Eyes said...

Thank you Gordon. Again.

Budgie said...

Quite right, BE. I think Brown's first error (in the narrow issue of keeping moribund banks alive) was not allowing Northern Crock to go bust in 2007, purely for Labour votes in the Newcastle area. If he had, it may have given HBoS enough forewarning to get itself (partly) out of the mire.

Brown compounded that error by later hobbling Lloyds with HBoS. I suspect that RBS may have gone down anyway because the Dutch saw Fred the Shred coming a mile off. Effectively RBS paid billions for nothing. Brown basked in the bankers bonhomie and believed himself invincible. And we are paying for his hubris.

Budgie said...

CU, how would this work? Presumably Sid raids his ISA and sends in his £500 for 1000 shares (or however many). So the banks lose some of their deposits, Sid loses some of his cash savings, and Cameron gets another few £billions to squander. How is this an improvement?

Bill Quango MP said...

The shares are free Budgie.
Sid gets them just for having an account of any sort at the bank. Plus an extra helping, which everyone gets, because he helped bail out the bank.

CityUnslicker said...

Budgie - BE is right, its a free distribtuion - much fairer than QE too!

Blue Eyes said...

CU brilliant idea - why does the Bank of England not buy up the shares with the next batch of QE money. The government can then chalk up a profit in time for the next public finance numbers. While the Bank owns the banks it can pump huge amounts of *cough* equity into the banks. The banks then lend vast amounts of new cheap cash into the "real" economy.

Once the plates are all spinning again the Bank can sell the shares or mutualise or give the shares free to the taxpayer or whatever and that will be yet another "boost" for the economy.

Let the good times roll.

Timbo614 said...

I read this morning on the FLS: "Overall, 11 banks drew £9.5 billion from the Scheme in the final three months of 2012, taking the total drawn to £13.8 billion, the Bank of England said. Yet net lending by the participants was minus £2.4 billion in the fourth quarter of 2012. "

So they pocketed it effectively - This is why there will be no helicopter drops of shares or money to the 99% - the 1% don't need any more of our money, they have 99% of it already so they have started on the governments*/BoE coffers

*such as they are

Blue Eyes said...

Timbo, what you are trying to tell us is that despite this being the second or third or even more "go" at getting the "commercial" banks to lend to the "real" economy, the government STILL didn't design a system that would make the money actually go into the "real" economy?

Timbo614 said...

@BE: Perzactly!

As the old saying goes, they will lend out their umbrellas as soon as the sun start shining again.





Anonymous said...

Now if I had access to unlimited Taxpayer cash, I'd be writing off anything that moved at 1.5x or 2.0x what I really thought.

Once privatised I'd look at the provisions again and conclude I'd been too pessimistic and write it back to profit again - taking my bonus of course.

These bank shares will be a steal! Ask Sid.

CityUnslicker said...

Timbo - is what is wrong with giving the shares away - a real deal for the um, 99%.

Also re banks, they are indeed not lending as much as the government would like; because they are not taking risks that they used to , the ones that blew them up.

So good money to good credits. Everyone complaines - I have some sympathy for the banks - it is not even as if the loans are expensive now that interest rates are low - corporate loans ae at 4-6%.

The lack is in demand not supply, which is why QE is not working.

Timbo614 said...

@CU I didn't say there was anything wrong with the idea - I just don't think it will happen. Can't have people thinking the money paid in taxes is really theirs, where might that lead. and the 99% was just a metaphor, as you knew :)

Agence communication said...

"" Some of the key underlying businesses at Lloyds and RBS too are showing good signs of recovery - the issue is that they still have plenty of toxic assets (far less than before, but still tens of billions and what it left is the more toxic stuff) to go. Plus bit re-org costs and the Government has forced them to end most of their 'casino' banking markets and trading businesses. Also they have pulled back internationally, where the economies are growing, to focus on the UK, where the economy is flat.""