Sunday, October 12, 2008

Feel Lucky Punk?


RBS death spiral - down nearly 90% in 12 months


According to Mr Peston, we taxpayers will be handing over our £40bn to the banks tomorrow. In exchange we'll be getting their bombed-out equity (all-important details still TBC).

£15bn (or more) will go into RBS equity, which Peston describes as a humiliation for the once proud Royal Bank.

But we taxpayers see it more as a stick-up.

And just like any stick-up, we do have the theoretical option of saying no. But only at the risk of discovering that the man with the shooter isn't bluffing, and he really will blow our heads off.

Tyler - along with Hank Paulson and many many others - found that out with Lehman.

There was a bank with no retail depositors to worry about, that was widely understood to be sick and at risk (so its death and dismemberment shouldn't have come as a total shock), and whose top management were seen to be playing silly buggers in negotiating with potential buyers over the price (like... derrr... what price?).

So Paulson let it go, as a warning to Wall St: nobody should assume taxpayers would always come galloping to the rescue.

And we all saw what happened in the next month. The financial markets really did go into melt-down - just like Bishop John Snow and C4 News said they would. And millions of innocent bystanders are now being mown down as a result.

David Smith reflects the now consensus view:

"Hank Paulson’s decision to let Lehman Brothers fail – the first domino and a move attacked by French finance minister Christine Lagarde last week as “horrendous” – will cost the world about $650 billion (£378 billion) of lost output next year. Britain loses about £15 billion of GDP."

So there we are - our banks are now so critical, that if they demand taxpayers' money, we'd better hand it over.

The one glimmer of light is that - as long as the Treasury does adopt the full Warren Buffet - there's a reasonable chance that over 5-10 years we will emerge with profit.

To take RBS as one example, its stock price has fallen by nearly 90% over the last 12 months. Its market capitalisation is now a mere £11.9bn, compared to the £67bn its shareholders' equity was reportedly worth just 3 months ago. We know these are dangerous times, but that's quite a cushion. And that's before we even start rebuilding capital by suspending dividends and ripping off the customers' faces with higher loan rates and charges...

OMG.

I've just remembered Mrs T and I are the customers.

2 comments:

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