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Buddy can you spare $24bn?
Apr. 22nd, 2008 07:36 amAnd so, RBS decides to go for the lot via a rights issue, 11-for-18, 200p a share (372p closing price last night). Draw your own conclusions.
Oh, and the insurance units - Direct Line, Chuirchill, Privilege, are up for sale. Just as you want to be getting into the more boring insurance and getting out of the more exciting banking (analysts and fund managers for years have been asking insurers why their return on equity can't be more like the banks. The answer is, because insurers don't go through times like these), RBS has to sell them off.
RBS said this morning that it "is determined to achieve full and fair value in respect of any such disposals".
Ah, yes, there's that phrase "fair value" again. The point is, as Warren Buffett might say to Sir Fred Goodwin, "it's not a matter of how much Direct Line is worth to me. How much is it worth to you?"
Meanwhile in the land of Bank of England rescues, Alistair Darling continues to look at the political perspective while Mervyn King is looking at the economic one. The net result there is that King and Darling aren't quite singing from the same hymn sheet. In fact, they aren't in the same church. It's arguable that they aren't in the same religion.
So, while Darling says that in his meeting with mortghage lenders today he would "discuss with them how they can pass on the benefits of falling interest rates as well as wider government support to mortgage holders", Mervyn King says that the objective of the plan "was neither to persuade banks to start lending again nor stand in the way of a housing market correction".
If Darling thinks this will restore the feelgood factor, then his hymn sheet is from the planet Zog.
As Lex noted this morning, the bank's £50bn facility will have to grow (a questionI raised when the sum was first mentioned), because there's a £200bn gap between deposits at UK banks and loans outstanding. Unless the banks can find someone to support £150bn in new asset-backed securitizations (needed as the old ones mature), then the BoE is the only customer in town.
Secondly, Darling's beliefs fly in the face of the fact that the average mortgage spread above interest rates is still about 0.37% below normal levels (and we are not in normal times). Far from more lending appearing and lower rates being offered, less lending will be appearing, at higher rates.
Abbey National's "75% Loan to value and no more" now stikes me as an implicit futures bet that the market is likely to fall by an average of 25%, with falls of up to 50% (is my guess) in areas where the average L-to-v ratio has been particularly high. People in the UK are less likely to hand back the keys if they fall into negative equity, because they (or their parents) remember the fallout from the early 1990s and the subsequent bounceback from 1995 onwards. And I don't think that the fall will be 50% in abslute terms. With interest rate cuts a necessity and with soft commodities still rising, inflation will do much of the job for us.
Oh, and the insurance units - Direct Line, Chuirchill, Privilege, are up for sale. Just as you want to be getting into the more boring insurance and getting out of the more exciting banking (analysts and fund managers for years have been asking insurers why their return on equity can't be more like the banks. The answer is, because insurers don't go through times like these), RBS has to sell them off.
RBS said this morning that it "is determined to achieve full and fair value in respect of any such disposals".
Ah, yes, there's that phrase "fair value" again. The point is, as Warren Buffett might say to Sir Fred Goodwin, "it's not a matter of how much Direct Line is worth to me. How much is it worth to you?"
Meanwhile in the land of Bank of England rescues, Alistair Darling continues to look at the political perspective while Mervyn King is looking at the economic one. The net result there is that King and Darling aren't quite singing from the same hymn sheet. In fact, they aren't in the same church. It's arguable that they aren't in the same religion.
So, while Darling says that in his meeting with mortghage lenders today he would "discuss with them how they can pass on the benefits of falling interest rates as well as wider government support to mortgage holders", Mervyn King says that the objective of the plan "was neither to persuade banks to start lending again nor stand in the way of a housing market correction".
If Darling thinks this will restore the feelgood factor, then his hymn sheet is from the planet Zog.
As Lex noted this morning, the bank's £50bn facility will have to grow (a questionI raised when the sum was first mentioned), because there's a £200bn gap between deposits at UK banks and loans outstanding. Unless the banks can find someone to support £150bn in new asset-backed securitizations (needed as the old ones mature), then the BoE is the only customer in town.
Secondly, Darling's beliefs fly in the face of the fact that the average mortgage spread above interest rates is still about 0.37% below normal levels (and we are not in normal times). Far from more lending appearing and lower rates being offered, less lending will be appearing, at higher rates.
Abbey National's "75% Loan to value and no more" now stikes me as an implicit futures bet that the market is likely to fall by an average of 25%, with falls of up to 50% (is my guess) in areas where the average L-to-v ratio has been particularly high. People in the UK are less likely to hand back the keys if they fall into negative equity, because they (or their parents) remember the fallout from the early 1990s and the subsequent bounceback from 1995 onwards. And I don't think that the fall will be 50% in abslute terms. With interest rate cuts a necessity and with soft commodities still rising, inflation will do much of the job for us.
