Another day, another rescue? Well, at least another rescue petition. From Robert Peston at the BBC:
Well last night a trio of the UK’s biggest banks – Royal Bank of Scotland, Barclays, and Lloyds TSB – signalled to Alistair Darling that they’d like to see the colour of taxpayers’ money rather quicker than he might have expected.
According to bankers, these three were disappointed that at a private meeting last night with Darling, held at his request, he didn’t present to them a fully elaborated banking rescue plan…
On paper, Lloyds TSB, RBS and Barclays don’t have a pressing need for additional capital.
But they have become concerned that they are being weakened significantly by investors’ perception that they are short of capital and their balance sheets need to be strengthened….
And although the other big banks were represented, it was the chief executives of Lloyds TSB, Royal Bank of Scotland and Barclays – respectively Eric Daniels, Sir Fred Goodwin and John Varley – who formed a tightly-knit caucus and gave urgent focus to the discussion.
The three banks estimate that they may need around £15bn of new capital each, with £7.5bn paid up front and a further £7.5bn guaranteed by the Treasury that would be delivered if it became necessary.
Current rough estimates are that the capital injection could be as much as £50bn in total for all British banks.
FT Alphaville reports that RBS investors did not take the news well:
In the frame, on Tuesday, RBS — shares off 30 per cent mid-morning, touching a low of 99p. The aggressive mark-down follows news from the BBC’s Robert Peston that RBS is one of three banks to have approached the British government, each asking for a £15bn capital injection.
By the by, Standard & Poor’s downgraded RBS by one notch to A- late on Monday, citing a generalised deterioration in credit risk and earnings potential.
Bloomberg also has the bank funding appeal as the lead story on its news page right now, but curiously does not acknowledge the BBC report.
Russia just gave Iceland a €4bn loan to boost its reserves which were depleted down to €3.4bn at the central bank
Oh, and Landesbanki or something similar went into receivership
This is just copycat looting. A group of kids sees some seasoned pros (Goldman Sachs alumni) ram an armored truck into a jewelry store, scoop up a 100-carat diamond on loan, and abscond in 45 seconds.
So Lloyds TSB, RBS and Barclays heave a concrete block into the window of a shoe store and grab themselves three pairs of 15-quid sneakers.
Then they hang out under a bridge, posing in their fashionable new footwear and huffing glue. Charming. But sadly typical.
£40bn would be enough to shore up all 3 to 8% Tier 1 Capital.
This implies that they’ve got a load of deferred write downs
GM halting most European production.
demand + borrowing cost
a load of deferred write downs
…and/or (probably ‘and’) more to come from UK mortgage exposure – between them, and including HBOS via the prospective Lloyds tie-up, they must represent a good 50% of UK mortgage lending.
Although RBS is the one attracting all the attention, the stupendous size and gearing of Barclays’ balance sheet is the real elephant
in the room.
Is it hot in here, or is it just me? Woohwee
*THREE-MONTH DOLLAR LIBOR 4.32% VERSUS 4.29%, BBA SAYS
*THREE-MONTH STERLING LIBOR 6.28% VS 6.27%, BBA SAYS
*ONE-MONTH LIBOR FOR EURO 5.12% VS 5.11%, BBA SAYS
*ONE MONTH STERLING LIBOR 6.08% VS 6.07%, BBA SAYS
*OVERNIGHT DOLLAR LIBOR 3.94% VERSUS 2.37%, BBA SAYS
*THREE-MONBTH LIBOR FOR EURO 5.34% VS 5.33%, BBA SAYS
*OVERNIGHT STERLING LIBOR 5.84% VS 5.08%, BBA SAYS
*OVERNIGHT LIBOR FOR EURO 4.27% VS 4.11%. BBA SAYS
Since finance holds the whip hand in the UK (even more than in the US), Gordie and Darling will cave. In Germany, thankfully, real industry is king, so the bankers can’t push the public/politicians around.
What is really happening is that Wall Street and the finance industry as a whole were parasites of the real economy. The current crisis is just people realizing this, and acting accordingly.
*CORRECT: ONE-MONTH LIBOR FOR EURO 5.17% VS 5.12%, BBA SAYS
*CORRECT: OVERNIGHT LIBOR FOR EURO 4.49% VS 4.27%, BBA SAYS
Things are actually worse
“What is really happening is that Wall Street and the finance industry as a whole were parasites of the real economy. The current crisis is just people realizing this, and acting accordingly.”
Yes, finance was selling dodgy scrap and making fees in the bargain. It is much like the spiral in the UK of insurance, reinsurance, retrocession, where brokers sold risks round and round in a circle. The brokers did well, and their fees at investors alive. Much like the bankers in the US with their spiral of mortgages, RMBS, CDO, CDO^2, CDO^3.
Finance should be a tail on the dog; it is madness to allow it to be any more important than that. Letting it grow more important transforms it from a lubricant facilitating the wheels of production, to sand hurting them.
Jim Cramer’s hysteria a buy signal:
Financial derivatives are merely the last chapter in an economy that has transitioned from a natural state of exchange related to use and function to a virtual one, lacking reference to the real world, detached from needs and meaning. The derivatives market is something more extreme, beyond fashion and meaning. It is a market of absolute speculation. A world far away from the industrial titans of old that produced tangible goods of use and social benefit.
The price discovery system of classical economics sufficiently describes standard goods or services. Branded goods that are sold for “sign” or status value, fashion, art, and gaming are unstable and oftentimes irrational systems of value creation, resulting in a mismatch between price behavior and analytical models. Fashion acts as an accelerator of change, causing quicker turnover of assets and more movement of money. Art functions more as a contrived or rigged system than an efficient marketplace, where critics, art houses, and insiders dominate pricing and movement of assets.
In our contemporary “free market” system, securities analysts influence pricing in a manner more aligned with art critiques than investment analysts. Investment banks act to influence price and value as dominant art houses and fashion brands, acting as deciders of value and initiating trends. Ratings agencies exist beyond the realm of traditional interaction that determine price and may in fact block efficient price discovery and market interaction. The rules governing financial derivatives may be arbitrary and divorced entirely from any physical delivery, possession or ownership of an underlying asset. Money may trade hands without creating value, resulting in a specious form of exchange that serves no purpose.
When the virtual wealth of financial derivatives exceed the material wealth of the world, an ultimate wager had been created, something previously unimaginable, an all or nothing exchange.
Welcome to the Desert of the Real. – Jean Baudrillard
I had thought to observe that this RBS event could be used as a marvelous illustration of what Soros intends by “reflexivity”. James Pruett’s introducing Jean Baudrillard as a reference for discussion, however, leaves me nonplussed. (By the way, I do get a kick out of Braudrillard’s argument that there was no First Gulf War.)
How about a marvellous illustration of a cock up!!!
Just imagine the Ambrosia of…. “it was Angie wot done it guvnor!!!”
I think these banks are all in the set of LIBOR lenders for USD, so this has a big effect on the US. The BBA Web site has a list of what the LIBOR fixing banks are, somewhere – I have lost the link.
With all the deposit guarantees popping up and all the wobbly weakly capitalized banks there’s got to be enormous sloshing going on in the hot money deposits right now. I don’t see how any European bank, with their 30:1 leverage ratios, could possibly be safe.
evilhenrypaulson: what are those “vs” against? Yesterday or last month?
one word: resets
Libor Rise to Boost Subprime ARM Defaults 10%, Citigroup Says
By Jody Shenn
Oct. 7 (Bloomberg) — Increases in benchmark London interbank offered rates may boost homeowner defaults on resetting adjustable-rate mortgages, contributing to a “vicious cycle” in the credit crunch, according to Citigroup Inc.
Among subprime loans, defaults may climb by 10 percent, analysts Rahul Parulekar, Udairam Bishnoi, Sumeet Kapur and Tanuj Garg wrote in a report yesterday. About $23.7 billion, or 87 percent, of the ARMs underlying bonds whose interest rates begin adjusting next month track Libor rates. Six-month dollar Libor has climbed to 4.02 percent, from 3 percent on Sept. 15.
The deepening of the credit crisis that started last year amid record defaults on subprime mortgages, contributing to $593 billion in writedowns and losses at banks worldwide, may end up causing more borrowers to fail to make their monthly payments. Libor rates, which track how much banks charge each other for loans, help set the cost of everything from credit cards to corporate loans.
“America’s homeowners are going to get uncomfortably familiar with ‘LIBOR’ starting next month,” the New York-based Citigroup analysts wrote.
vs the last reported rate (Monday morning)
Basically all the banks said they were taking their ball and going home, just because they quote those prices don’t mean anyone is buying