Thursday, April 17, 2008

Pressie Time

It's not just home loans that can go critical

We've been trying to uncover exactly what the government has promised to the banks. But so far all we've discovered is blather.

Still, the bankers definitely know they're on a promise, as we can see from their share prices.

For example, since Brown's breakfast on Tuesday, Barclays and HBOS are both up around 10%. That's one helluva rise, and it underlines just what valuable presents Gordo has handed over. On our reckoning, we taxpayers are giving a £2bn pressie to HBOS shareholders (10% of their c£20bn market capitalisation) and a £3bn gift the Barclays. And that's just two of them.

These gifts are taking the form of credit risk on the mortgage portfolios we will be swapping for gilts. And what will we get in return? There's talk of a "penal" fee for doing the swap, but as we learned from the Crock fiasco, such macho talk is most unlikely to translate into anything bankable.

Cheaper and more available loans all round? Well, first, don't hold your breath- how in practical terms would the government have a prayer of ensuring the benefits are passed on and not simply used to boost bank profits? And second, given our wobbling crazed property bubble, is yet more credit what we want anyway? Sooner or later asset prices have to adjust, and postponing the hour is simply going to mean an even bigger bust in the future.

Of course, Gordo will have long since departed. He will be no more than another candidate for the title Britain's Crappest Post-War PM.

PS Driving through London this morning, I tried to do a quick crane count. Alarmingly, there are still so many I gave up - even though commercial property values are down 15% since last summer. The banks are naturally up to their gunwales in commercial property loans and the associated Commercial Mortgage Backed Securities (CMBS). So are we heading back to a 1990s style nuclear scenario? According to Fitch Ratings, 10% of UK CMBS would go belly up in such a world: yeah, and the rest (for more anxiety, see this excellent FT Alphaville post).

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