Bankers (rhyming slang)
Apr. 18th, 2008 06:53 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksAnd so Royal Bank of Scotland (owner of NatWest) is going to be forced to break ranks and admit that it needs to shore up its capital base. A £5bn rights issue is just part of the fun. Expect at least as much again in some for of hybrid securitization and more senior debt. Not for nothing were its shares yielding 9% yesterday. They ain’t gonna be yielding that no more.
Personally, if RBS were a customer seeking a mortgage and I were a bank, the conversation between me and Sir Fred Goodwin, RBS chairman, would go something along the lines of ...
“So, Sir Fred, you want to raise £5bn from us, without very much as collateral, because you went out and splurged money on ABN Amro and you lent money to a mate of yours in the pub who was always a bit dodgy, but he promised that he would pay you back and offered you a caravan as security?”
“Yes, that’s right.”
“Thank you, Sir Fred, but I think I’ll pass on this one. Don’t you know that there’s a credit crisis? We are only dealing with reliable borrowers with a good track record. In other words, like banks, we are only willing to lend to institutions who don’t need it. Close the door on the way out, won’t you?”
Halifax Bank of Scotland will likely be next in line, I guess, perhaps followed by Lloyds TSB and Barclays. HSBC is beginning to look an oasis in a desert of crap financial institutions.
The Bank of England, ever keen to bail out these incompetent basket cases, is apparently willing to accept as much as £30bn in collateral in the form of mortgages. However, if RBS needs to raise £12bn, the question must be, is even that much enough? And that, you should note, already constitutes nearly a thousand quid for every adult in the country. I wouldn’t mind so much if the banks had stepped up to the plate to help Citizen UK in the tough times of the early 1990s, but, as far as I recall, they were too busy wallowing in their bonuses.
The banks, I would think, will try to put a positive spin on this, along the lines of “before today we just didn’t know what the impact was going to be, but now things are becoming clearer and it’s possible to draw a line under the whole affair”. All of this sidesteps the fact that the UK banks have steadfastly insisted in past months that they do not need to raise fresh capital. That line has been exposed as, quite simply, a lie. And it isn’t really ameliorated by the fact that anyone who could see what was happening in the US knew that it was a lie. Sir Fred Goodwin was also the guy who said at last year that the takeover of ABN Amro was a good idea. I think I wrote at the time that this was probably one battle that Fortis would eventually be happy to have lost. That's been proved true even sooner than I anticipated.
If Goodwin doesn’t fall on his sword soon, he will do so in the medium term after some of the fuss has died down, but Goodwin isn’t solely at fault here – it’s corporate complacency at RBS, Lloyds TSB and Barclays that will have caused the problems. They have people who are just money brokers who thought that they understood risk. Brokers don’t understand risk – it’s traders and underwriters who understand risk. The bankers, in other words, thought that they were better at their job than they really were, and they didn’t really understand what their job was anyway.
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Personally, if RBS were a customer seeking a mortgage and I were a bank, the conversation between me and Sir Fred Goodwin, RBS chairman, would go something along the lines of ...
“So, Sir Fred, you want to raise £5bn from us, without very much as collateral, because you went out and splurged money on ABN Amro and you lent money to a mate of yours in the pub who was always a bit dodgy, but he promised that he would pay you back and offered you a caravan as security?”
“Yes, that’s right.”
“Thank you, Sir Fred, but I think I’ll pass on this one. Don’t you know that there’s a credit crisis? We are only dealing with reliable borrowers with a good track record. In other words, like banks, we are only willing to lend to institutions who don’t need it. Close the door on the way out, won’t you?”
Halifax Bank of Scotland will likely be next in line, I guess, perhaps followed by Lloyds TSB and Barclays. HSBC is beginning to look an oasis in a desert of crap financial institutions.
The Bank of England, ever keen to bail out these incompetent basket cases, is apparently willing to accept as much as £30bn in collateral in the form of mortgages. However, if RBS needs to raise £12bn, the question must be, is even that much enough? And that, you should note, already constitutes nearly a thousand quid for every adult in the country. I wouldn’t mind so much if the banks had stepped up to the plate to help Citizen UK in the tough times of the early 1990s, but, as far as I recall, they were too busy wallowing in their bonuses.
The banks, I would think, will try to put a positive spin on this, along the lines of “before today we just didn’t know what the impact was going to be, but now things are becoming clearer and it’s possible to draw a line under the whole affair”. All of this sidesteps the fact that the UK banks have steadfastly insisted in past months that they do not need to raise fresh capital. That line has been exposed as, quite simply, a lie. And it isn’t really ameliorated by the fact that anyone who could see what was happening in the US knew that it was a lie. Sir Fred Goodwin was also the guy who said at last year that the takeover of ABN Amro was a good idea. I think I wrote at the time that this was probably one battle that Fortis would eventually be happy to have lost. That's been proved true even sooner than I anticipated.
If Goodwin doesn’t fall on his sword soon, he will do so in the medium term after some of the fuss has died down, but Goodwin isn’t solely at fault here – it’s corporate complacency at RBS, Lloyds TSB and Barclays that will have caused the problems. They have people who are just money brokers who thought that they understood risk. Brokers don’t understand risk – it’s traders and underwriters who understand risk. The bankers, in other words, thought that they were better at their job than they really were, and they didn’t really understand what their job was anyway.
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no subject
Date: 2008-04-18 08:24 am (UTC)Everything else in the west has been commoditised and sold off so there was little else to sell but fresh air.
Face facts, the West and its system is banco rupto.
It is not a matter of belt tightening for a year or two until things blow over. A new era has begun. What it entails is anyone's guess.
Jay "I am not a Marxist" Bee
Lloyds
Date: 2008-04-18 08:30 am (UTC)I have really enjoyed watching the media trying to explain this story. It's an important story but it's not one that should carry any short-term anxiety for Joe Public. It's all about balance sheet ratios and the like and a whole lot of stuff that the public have no hope in hell of understanding. The message is really, 'this bad thing which everyone's been talking about is a bad thing and RBS agree (but then so does everyone else)'. Nothing's got better, nothing's got worse and if we had footage of a missing 6 year old to show, it would be back in Business News where it belongs.
no subject
Date: 2008-04-18 01:15 pm (UTC)I remember buying Barclays shares for a number of pension funds back in the early nineties when they were yielding around 9%.It was one of the best longer term trades I ever did.Everyone was worried that they might cut the dividend, even if they did they would still yield 4.5% and everyone would think they had done a kitchen sink job.It will be interesting to see how this pans out.If in 12 months they come back for more then we know we are in deep doo doo, if not they will probably muddle through before finding something else to blow their profits on.Banks ability to find ways to lose vast amounts never ceases to amaze me,usually once every decade.
best wishes
Ben
Liverpool
no subject
Date: 2008-04-18 06:51 pm (UTC)However, I do object to what appeares to be an attempt to stall a property market correction, which surely the market needs, although perhaps its bigger than that, the media is talking us into a recession. Gordon Brown would prefer to store up a greater problem for the future, than take our medicine now.
f.n.
Fortis?
Date: 2008-04-21 02:36 pm (UTC)As for HSBC, weren't they the bank that started this whole mess? The first to announce to Houston that we have a problem?
Lastly, unless I misunderstood you, I think you got it wrong about Fortis, as they won the bid for ABN Amro; they were part of the consortium led by RBS. RBS, meanwhile, must be dancing with joy that ... er ... some US bank (can't remember which) went to the courts to force ABN Amro to sell them LaSalle Bank, against the consortium's wishes.
Personally, I am not so sure RBS is as badly off as you believe. They have lots of family silver they could sell off but they'd prefer not to.
Johnny H.
Re: Fortis?
Date: 2008-04-21 03:03 pm (UTC)HSBC's Beneficial was one of the subprime lenders wasn't it?
If Lloyds TSB stuck to its traditionalist guns, and C&G was sensible, then you are probably right. Thet could make it a value buy, but I'm steering clear of the whole mess. (I actually sold some shares today...)
PJ
Re: Fortis?
Date: 2008-04-21 03:04 pm (UTC)Please email me yr address and phone numbers. I've mislaid them.
Pete