RBS & Lloyds to public sector for years

The UKFI has outlined it strategy for the two banks it bought last year (well, 3 banks really if you include HBOS). The answer is sensible, but not pretty.

Due to the high prices paid relative to their current worth today, these banks are going to be in state hands for a long-time to come. It looks like it is expected to take them 5 years to earn enough to be re-privatised.

The talk of profit for the taxpayer is duplicitous too; I doubt the full calculations of the costs of increasing public debt so much are factored in. They may sell out of RBS at 70p a share one day when their average buy-in was 65p and claim a nice profit. But it won't reflect the cost of the public finances of administering the banks for so long, borrowing the gilts etc.

However, it is still a sensible move in that trying to get out of the stakes in the short-term would cause uncertainty in the markets. What is done is done and best to live with it. We don't need any more great ideas like telling the world we are going to sell all our gold and sinking the market in advance of the sale!

FSA in mercy killing of UK bank shareholders

Well, that could be one view of the FSA's decision to allow the banning of short selling UK financial shares to lapse on 16th January.

I don't subscribe to the view that it was shorting that caused the bank share prices all their pain; it was their dodgy balance sheets.

Sadly, these are not improving very fast and so the situation remains that shorting may re-commence with a vengeance.

Perhaps the one chink of light for the Bank Shareholders is that the Hedgies are a bit shorter of ammo than they used to be.

In reality, let us hope that the FSA and the Treasury are speaking about this; there will need to be some sort of shoring up announcement from the Government to help support their own shareholding position. I expect that to be announcing some guarantees for future, erm, non-dodgy?, loans made by the banks. As an outlier there is the chance a 'bad bank' (AKA Northern Wreck) will be created to stiff taxpayers for generations to come.

Either way, if the Government announces nothing expect a wild times in financial shares from mid-Jan...