Lloyds: Mind the GAPS

I remember when the superbank had been forged - Gordon Brown's orders apparently.

The thing that confuses me is that if Lloyds Banking Group needs to raise c. £25-£28bn of new capital, that investment would have to come from other sources - wouldn't that just be shoving the problem to someone else?

Also, how would LBG convert capital into equity? (sorry, I'm young and clueless about these sort of things)

Another GAP will appear once house prices start falling further............

Funny thing is, the fee that the gov charged the banks for gaps will be passed on to who?

You guessed it, US, the very folk who bailed the thieves out!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

I will be interested to see just how successful Lloyds are at raising the money.

I still believe the commercial property market has a long way to go before it recovers, if it ever does and HBOS had huge investments in that area plus for developers of "Yuppie flats" in city centres which people aren't buying for love or money.

https://www.birminghampost.net/news/west-midlands-news/2009/09/15/birmingham-s-jewellery-quarter-apartments-not-fit-for-homeless-65233-24697289/

I dare to think how much they will have to write down these investments in the commercial property and property development sectors.

As an investor I would steer clear of Lloyds for at least a year. I think the bad news is far from over.

What a quagmire indeed, indicative of the complete mess caused over time but realised almost in an instant. HBOS is tricky- at the time it felt like Victor was saving the world, if it was it was almost certainly at the expense of his own bank.

Such uncertainty in my mind, I want the bank to survive but equally want them to be penalised in the same way that those who recklessly borrowed the cash are being with rising unemployment. They are massively culpable and should take a hit. But given HBOS I don't want to be too harsh.

On balance the taxpayer deserves to be rewarded, particularly given the uncertainty of what this will actually cost, and I hope the insurance premium will increase.

However I also hope Lloyds can raise a significant wedge of cash as it will indicate more (market) faith in them than my cynical mind has at present which (theoretically) removing the potential further loss to the taxpayer.

What absolutely cannot be allowed is for the FSA to drop the ball and allow any financial institution to opt out of GAPS and avoid paying the premium, only to then have to ask for a bailout (in whatever form) in the years to come.

Hi Robert,

What are UKFI going to do when Lloyds offer them shares at the discounted rate, assuming they seek to avoid the full GAPS. Can you clarify?

# 5 - "What absolutely cannot be allowed is for the FSA to drop the ball and allow any financial institution to opt out of GAPS and avoid paying the premium, only to then have to ask for a bailout (in whatever form) in the years to come." This is almost certainly what WILL happen.

Not only is this likely, but financial institutions will feel hard-done-by if they arn't bailed-out again. A dangerous precendent has been set by Bernanke and Brown that future encumbents will regret.

The only way to stop this happening is for provision to be made for the salvaging of retail and deposit banking, whilst allowing the investment and casino operations to go bust and be wound-up in ANY institution of WHATEVER size and complexity. Only then can true risk management be restored in the financial sector.

This is clearly a power play by the management of the bank. Raising new capital is not in the interests either of existing shareholders OR the public. The only people who will benefit are the executives:
https://www.knowingandmaking.com/2009/09/agency-problems-at-lloyds.html

"However, raising more than £20bn is a tall order for a bank whose total market value is only £30bn."

Well folks - that just about sums up how bad things really are.

Remember that:

a) Lloyds bank was worth 131 Billion in spring 2007
b) They are 2 banks, not one.
c) Both banks are loosing about 10 Bn a year each

...so does anyone really believe this is sustainable and hasn't got further to go?
Do Lloyds really understand risk yet? - they seem to want to go it alone but clearly won't get to the end of the year.

Once the market realises Lloyds are going to struggle to wean themselves off national 'first' aid - they will start dumping the shares, and the more that do, the more likely the whole thing will be taken into total Government ownership.

Split HBOS from Lloyds and merge former with N Rock to make a permanent 100% nationalised bank as exemplar for the banking industry. Lloyds will then be able to raise capital from the market to 'buy' their way out of GAPS and share price will rise pleasing both ex Lloyds-TSB and HBOS S/holders. Win - win?

While banks are still run by individuals yearning for increased personal wealth there will be continuing squirming to get back to relative independence and their previous profligate ways. Lloyds' shareholders at the time of the HBOS absorbtion were voicing concern over the size of the organisation, so why are they now willing to stump-up huge sums to keep it large. Why not sit back, be guaranteed by the taxpayer, have bits chopped-off by the EU and come out the other side stable, efficient? I suspect the ogre of government restrictions on bonus culture that would ensue is the greatest deterrent, the greedy little devils are planning "profitability" that leads to greater rewards for them rather than economic stability and customer support. Maybe the government should start governing, using whatever controls it has - major shareholder status; debt guarantor; regulatory powers; law maker to ensure the stability and growth of an economy so nearly destroyed by the banks indulgences.

Maybe Lloyds and the government are coming from this whole perspective from the wrong angle

Maybe we could withdraw the GAPS and allow these discredited institutions to die like good capitalist entities. Their business model does not meet the tax payers criteria for lending.

I think we need to know how much this would cost the tax payer to just let them go

I also think we need to know why in this rather crushing environment, no new banks have emerged which don't have these huge GAPS in their balance sheets.

Surely we should be investing in new banks and allowing the zombie banks to work out their issues or just go bust. Are there no managers capable of dealing with that situation?

I am sure that the competition, when it arrives, will kill off these zombies anyway because in this parlous state Lloyds and RBS couldn't even hope to compete effectively...but until we see some new entrepreneurs coming along are we to believe that it is a closed market or just not worth investing in?

Good, glad to see that are working out. But I hope the government is not going to pull any punches over fees. The tax payer bailed them out, without our money they would all be on the dole. With the treasuries budget deficit forecast spinning out of control we need all the money we can get.

Time to play hard ball with the bankers....

4. At 12:44pm on 18 Sep 2009, Ian_the_chopper

This is an area I am familiar with - and I have viewed a number of the flats mentioned.

It's a poignant tale about 'value' - in the boom times these 'modern boxes' were built at such a rate they couldn't maintain the quality (although some would argue they never had any).

They were over-valued by the agents, over-valued by the purchasers (mainly Buy-to-lets) and over-valued by the surveyors.

Now that money is tighter people are actually starting to question the value of things - and over-priced items are going cold. There is a secondary market appearing in these new build city flats where BTL investments are starting to go sour - there are so many even renting is not an option.

If you go to property auctions you can see them for sale by the owner or the bank at nearly half (yes half) their price in 2007.

Someone, somewhere is taking those losses, and over the next few months we shall see who.

10. At 2:06pm on 18 Sep 2009, watriler wrote:

"Split HBOS from Lloyds and merge former with N Rock to make a permanent 100% nationalised bank as exemplar for the banking industry. Lloyds will then be able to raise capital from the market to 'buy' their way out of GAPS and share price will rise pleasing both ex Lloyds-TSB and HBOS S/holders. Win - win?"

That sounds like a Government plan, because who gets left with the NR / bad bits of lloyds mutant bank? - ah yes, the tax payer.

So while we're working hard here for the next 10 years paying 60% income tax the Lloyds execs can enjoy themselves in Monaco!

A little bit of daylight and warmer weather and the stock market has gone crazy. As in the run up to the crash, people are going crazy for yield. This time they're buying shares as low interest rates world wide have squashed the carry trade. Low interest rates are inadvertantly causing the next bubble. Its very easy to forget that the banks remain in very bad shape. Europe in particular has not sorted the poor capital position of its banks. Many are quietly saying that the Eastern European euro/swiss franc denominated mortgage problem will develop into a catastrophe twice the size of what we have seen this past twelve months. This is bound to have a knock on effect. So come, dare I suggest, October, all our banks might desperately need that GAPS, as their gaping hole gets bigger. Maybe they should raise all the capital they can now, and keep the GAPS but try not to use it.

We should withdraw GAPS asap by any means we can. The arguments over whether we are in recovery, a double dip, or the first step on the stair of depression have been well rehearsed so I won't repeat them. But whichever it is, the risk of bankrupting the country for generations exists. Let them fail and nationalise the retail current accounts system. As Robert has said and govts around the world demonstrated by their actions, current account retail banking is a utility. It belongs in public ownership. Running it can be licenced out, but ownership and control must become public property. After all, for consumers and business the practical difference between cash and a debit card is non-existent. Current accounts are no different from the mint.
As for deposit accounts, these are investments paying an interest rate commensurate with the risk. It is for the investor to chose where to invest his savings and parliament to consider what regulations apply to the various investment vehicles.
PS We need to be able to withdraw our pensions and keep the cash under the bed.

Well there's only so much QE money to go around the banks for buying up toxic assets and baling out the bankers' favourite property developers.

Is it the case that the banks accountant's are now getting to grips with these toxic assets with figuring how much to depreciate them for further write downs on the balance sheet at the year end or better still dela with them 'off balance sheet' with unfathomable asset swaps and bonus payments to senior bankers in the form of property assets rather than in cash (as would of course attract capital gains rather than high rate tax) when the property market eventually recovers some value and performance?

The bankers are staying one or two steps ahead in all of this because they are very clever and of course devious by nature and occupation but they have the advantage of much of their activity being shielded by law as being private companies notwithstanding that the UK taxpayer owns some of the banks outright and has put money into most.

Never mind the gaps - Stagflation anyone?

https://news.bbc.co.uk/1/hi/business/8262360.stm

If you want to see a 'perfect storm' how does this grab you for 2010?

Rising fuel prices
Falling asset prices
Falling Productivity
Rising Unemployment
Rising Public debt
Falling public spending
Falling world trade
Rising worker militancy (strikes)
Falling Government / upcoming General election
Never ending war against 'invisible' enemy.

It would make the last one seem like a light shower.

HELMETS ON!

Post 14 it is not just Birmingham but many other big cities.

I posted to highlight the fact that someone somewhere is, as you suggest, sitting on huge losses. The other issue is not just the banks covering the developers but also how many liar mortgages are there our there on properties valued at GBP 200,000 but probably worth little more than 80% of that and now worth maybe no more that GBP 130,000.

Somebody somewhere was offering them a mortgage, those poor souls with this millstone round their neck are stuck with two options. Firstly continue to pay up on a mortgage that is unlikely to move back to positive equity anytime soon if ever and if you are on an interest only rather than a repayment mortgage it will be worse. With no equity or even negative equity they are stuck with what little options their current lender will give them.

Or hand in the key and try to walk away. When interest rates go up as they surely will or people lose their jobs this will surely increase thus further depressing the market.

I can see the early nineties all over again as a generation of young homeowners give up the ghost on property ownership.

18. At 2:27pm on 18 Sep 2009, nautonier wrote:

"Is it the case that the banks accountant's are now getting to grips with these toxic assets with figuring how much to depreciate them for further write downs on the balance sheet at the year end"

...an interesting point this one, if I understand you right this might be the 'long slow decline' associated with previous depressions.

Banks are effectively 'naming their price' on the toxic assets as I believe they're not being marked to market anymore. By keeping the value artifically high they are making their balance sheets look good (or better!).
However this value will have to come off eventually, especially as defaults increase their values fall further. Your point may be spot on and accountants may be hoping to 'ease down the value' rather than letting it drop like a stone (as it did in October 2008).

This might sound like the less painful option - however this is also where the long slow decline is born, especially if others are doing the same.

...very interesting...

All very confusing but the real question at the banks: Will it effect the bonus plan?
They win we lose, they lose, we lose. Bankers seem to under the reponsiblities of borrowers to them but seem to not understand their responsibilities when they are borrowers from us.
People with power simply have different set of rules.

21. At 2:59pm on 18 Sep 2009, writingsonthewall wrote:

18. At 2:27pm on 18 Sep 2009, nautonier wrote:

>>>>>>>>>>>>>>>>>>>

Or gambling that the property market is getting set to recover and also with asset swaps, refinancing, paying staff with assest previously decsribed as toxic and virtually written off in the accounts - there is a lot that a bank can do behind the scenes but they need virtual secrecy to do this as they have been undoubtedly been holding off on re-possessions as the assest were almost unsellable earlier in the year and the banks may get very aggressive as re-possessing and selling off anything that will bring in cash to make their books balance and avoid paying insurance and thereby opening their dealings to further scrutiny.

Privacy is what I think the banks are looking for at the moment while they 're-organise' their accounts.

Although this may not be good news for those in mortgage arrears where the banks have been holding off on re-possession?

Entirely speculation on my part - well, in terms, of me not being willing to mention my 'source'.

GAPS is very expensive for the bank. £15.7bn as a fee provides Lloyds with very linited protection given the further £25bn first loss.

KPMG (HBOS auditors) made Lloyds 'kitchen sink' the HBOS figures after the merger the quality of the Lloyds book isn't that bad (Barclays has played it's hand far better getting away very lightly despite the complex derrivaties it holds)

Lloyds Banking Group is generating roughtly £10bn in operating profit per year, its loan book is improving and there are a few green shoot appearing across the economy.

The GAPS is no longer necessary.

Ask the banks' boards to sign personal guarantees for the money - that may concentrate their minds!

Anyone subscribing to an issue by Lloyds of ordinary shares, without some very tasty inducement (in addition to a deep discount) needs his/her head examining.

If I may, Robert, a word in your shell-like ear: avoid writing stuff like: "So, as I said last week (which may make you wonder why you've bothered to read this far - if indeed you have), the chances .....". Writing this cannot have a positive effect on your readers.

Interesting side debate here about property assets (4). What it demonstrates is another example of bloated public sector attitudes - apartments previously good enough for private sales but deemed by public servants not good enough for the homeless!

Surely there is strategic public good in taking such troubled assets into public ownership (RSLs purchasing them at knocked down rates) - bargain for the Housing Associations, further bank losses prevented and reduced housing undersupply.

Or is all that too entrepreneurial for them?

#25

A brilliant idea, and also extremely common with commercial property...

Watch them run, not a chance- they'd probably insure themselves against the risk!

Post 27 the council in Birmingham looked at just that but found that they were too small and sub standard builds for families which were most of the people on their housing lists.

Also if large swathes did go into Housing Associations or for council lets I can't imagine the poor mugs who paid over the odds in the first place for those few flats sold wouldn't be very happy and would be looking at an even bigger loss and more incentive to walk away from them.

There was a block in Digbeth that was going to be taken over as a short term shelter for the homeless. The neighbours were not very impressed. For some reason they didn't want them in their back yard.

I don't disagree with the logic you put forward for social purchasing of stocks of unsold properties but just who is going to pay for it? It certainly can't be the council tax payers of Birmingham as we are already paying off far too many grandiose schemes.

20% of current counil tax payments go to pay of debts and 45% of housing income to service loans

https://www.birminghampost.net/news/west-midlands-news/2009/09/15/one-fifth-of-birmingham-city-council-s-cash-pays-for-its-2-4-billion-debt-65233-24688578/

What IS the priority for Lloyds, sit tight, do some hard work and properly dig your company out of the mire, (take responsibility for your actions?) Or, go round begging for cash from anyone woolly-minded enough to hand it over, thus taking the path of least resistance, the easy way out? Well, I suppose the latter is worth a try? When it all blows up in their faces, the queues round the High Street will be, er...large.

I suspect Lloyds is choosing to exit Government bailout as it wants to massively reduce headcount and it's duplicate HBOS branches, in a blazing hurry, much quicker than people are expecting! (Once it's done that the EU can't really turn the clock back.) Wouldn't the reduction in Bank competition make it attractive to all other banks to lend LLoyds the money to do it? (Maybe not given the extra market share that Lloyds now has.)

(Bankers, doing some hard work? There's a novel idea!)

Can someone please explain. If Lloyds had not agreed to rescue HBOS, then I assume the Gordon Brown Plc would have had to step in. Presumably this would have resulted in Gordon Brown Plc taking full responsibility for the defective HBOS borrowing. Why is it then that having effectively saved them the trouble, that Lloyds should be penalised by having to pay a premium for entering the GAP?

Im not a Lloyds shareholder but I have to say i feel sorry for them.

Many would have invested when Lloyds had a conservative reputation.

And precisely because of this, they were seen as best able to take on HBOS.

Now, having taken all the pain of that deal, they may well have the upside whipped off them.

Its all very well for the UK government to reassure Lloyds that competition concerns would be put to one side but what use was that when it didn't apply to EU competition laws?

Now shareholders are facing the prospect of massive dilution.

Ok, bank shareholders are not flavour of the month but it doesnt seem fair to me to hammer these ones.

Its not the most pressing concern I know but I post it cos probably few enough others will :)

Profligate property lending is at the root of all of this and has impacted the business lending sector while the banks try and recapitalise.

The point is how much do you write of a bad property asset when a market valuation depends on a price it can be sold for - if the property market does not start to recover soon then although some of the banks are upbeat about profit (as some are pointing out) they, the Banks would still have to make writedowns/provisions for losses in their end of year accounts - unless the BoE are paying too much for the toxic assets in the absence of proper due diligence?

If as some say the assets have been written down in value properly then there is good chance that the taxpayer can get some money back through the BoE (but who owns the B of E?)

Is the BoE now or soon to become a giant of the property world in terms of toxic assets and as some are pointing out - could these properties be put to better public use assuming these to be publicly owned assets held on trust by the BoE?

Only questions and very few answers - but I can see a new definition of profit emerging:

'Profit is the notional monetary element within an organisations accounting processes that a banker or accountant creates in order to calculate either their own or the bonuses and/or fees of others'.

More questions for Mervyn King but why is it we know so little about a matter which concerns us all? I've a feeling some are thinking that the less ordinary UK taxpayers know about this murky affair, so much the better!

Can somebody tell me how these bankrupt companies can still issue new shares. What are the shareholders buying? If a company was worth £170 and is now worth only £30 (left out the billions) then I would expect there would already be £30 of shares already issued. To issue another £20 of shares what are the shareholders buying - £20 of hope?

27. At 4:01pm on 18 Sep 2009, mellowtraveller wrote:
Surely there is strategic public good in taking such troubled assets into public ownership (RSLs purchasing them at knocked down rates) - bargain for the Housing Associations, further bank losses prevented and reduced housing undersupply.

Or is all that too entrepreneurial for them?

29. At 4:30pm on 18 Sep 2009, Ian_the_chopper wrote:
Post 27 the council in Birmingham looked at just that but found that they were too small and sub standard builds for families which were most of the people on their housing lists.

And it's precisely what happened in the last crash: private housing was purchased by the public sector. But back in those good ol' days, the construction of housing wasn't quite as determined by global finance. As Ian_the_chopper points out, much of the 'housing' that has gone up in the past 10 years has been financed and sold on the 'buy-to-let' principle—i.e. a commodity which has no use for the person who owns it. This housing (particularly in the larger cities) simply hasn't got the space, let alone the infrastructure (transport, shops, schools, etc.) to accommodate 'families'—or plainly speaking, people.

Funnily enough, the worst outcome of this isn't, however, the horrible lumps of empty buildings in our towns and cities: it's the complete dependence of the construction industry on this type of market. It will be interesting to see whether (if the structure of the market changes, or heaven forbid any future government actually takes housing needs seriously out of the market! Can you imagine that!) the construction industry will be able to adapt fast enough—given it is now structured to reflect a market which doesn't exist.

It will also be interesting to see if the social unrest writingsonthewall refers to moves more quickly into urban unrest than it did in the late-1970s , early 1980s.

#8: Raising new capital is very much in the interests of shareholders (such as me).

#24: Best post on here (except that one probably neednt fret about Barclays derivatives book)

To the Board of Lloyds: Go for it, raise 30bln pounds in a very deeply discounted many-for-one rights issue. At least some of your city fund manager bosses would realise that this is the best way forward, and the rest would follow. There is loads of cash around so you'll get your money and rightly be hailed as heroes. Discount it enough and the government wouldn't even need to put in additional money; they could merely take up part of their allotment. The market value of Lloyds would soon rise to £100bln, it would be off the critical list, and back into the same league as HSBC. Even Mr Peston wouldnt be critical - the idea came from his blog.

Threatened by the loss of their GAPS premium the government might try and quosh it, but they couldn't say that in public. Maybe give them the credit for coming up with the plan, they like that sort of thing.

It's time you bankers stopped behaving like lambs (or is it sheep). Go on, go for it.

#25 Ask the banks' boards to sign personal guarantees for the money - that may concentrate their minds!

Afraid not, even they don't earn enough to make it meaningful. This is the primary reason why regulation has to be much much tighter. Moral Hazard has disappeared completely as there is no sensible individual consequence for failure possible in Financial Services. Even if they end up bankrupt the state will look after them, even if they are jailed for fraud the state will look after them.

Much much worse for the residents of sink estates that can't get credit. They fall into the clutches of loan sharks and them end up getting beaten up because they can't pay exorbitant interest rates.

Sometimes I think Muslims have the right idea (I'm a white British Christian) charging interest is a sin.

#37
When I suggested personal guarantees (tongue in cheek), I wasn't really thinking about the whole debt - just enough to concentrate the minds of those involved.

After all, it is those bankers (further down the line admittedly) that are squeezing the support for small businesses of hard working men and women and asking them to sign personal guarantees every day.

As a shareholder of Lloyds this has been the most crazy situation I have ever encountered. I cant put myself in the shoes of Daniels, Blank, the Board, the institutional shareholders, and all the other people who took part in one of the most senseless bids in British corporate history.
I am sure they are thinking about how collectively they helped to ruin one of our very best and most prudent banks, which would not look too sexy on a resume, or in the book that will inevitably be written about their collective folly.

I left out Gordon Brown and Alastair Darling, the FSA. Nielly, the Treasury, and all the others who helped put this bid together or did nothing while it was being concocted - a bid inflagrant breach of all known monopoly regulations. And then they start pontificating as if they had been asleep through the whole episode and wake up to lay down the law about who can do what.

It is not in anyone's interest for this bank to fail - 43% of nothing is still nothing for the taxpayer's share. If Lloyds debts exceed their assets then they will surely go down. It seems to me the trick is for Neilly, the FSA, the Treasury and the Government to do all they can to give Daniels and his Board enough breathing space to try to turn it round, so that 43% of something comes back to the Treasury. My shares are already discounted - in my army days we were told that if you can't take a joke you shouldn't have joined. How true that is.

N @ 33

profligate property lending is at the root of all of this and has impacted the business lending sector while the banks try and recapitalise

yes for sure - but having said that, I would NOT want to see a return to the "Good Old Days" where you needed a 30 pc deposit and a personal interview with the Bank Manager in order to get a mortgage - that sort of thing kept property ownership unjustifiably out of the reach of lower income people, and it also artificially depressed UK house prices for many years - a great deal of the recent so called "bubble" in HPs was merely a (long overdue) correction of this - overshot a bit, true, due to various factors but still - sub prime lending ... the democratisation of credit we should better call it ... was (and remains) a great idea - I hope it comes back, minus the excesses of the Wall St MBO/CDS machine - just good loans to good people at an interest rate which refects the risk, but stays the right side of "rip off city" - loans made, preferably, by a 100 pc government owned State Mortgage Bank created with the sole (and exclusive) mandate to service the domestic residential mortgage market - one person one loan, and no Buy to Let etc ... all that stuff is fine, but can stay with the private sector banks

If Lloyds were to successfully find £30bn would this mean the government would be able to reduce its public debt by £30bn or is that number what the government would be willing to borrow to provide the GAP if it was needed??

As Warren Buffet says " recessions end when asset prices fall and wages rise". Wages haven't risen but stock prices have. Indicators are showing the rate of decline diminishing, in some indicators growth has returned. But wages aren't rising.

So what is happening. Indicators measure price changes or an effect of price changes. Look at stock prices. In came worldwide QE and stock prices rose. The indicators are measuring the inflation in stock prices and commodities caused by worldwide QE. But as long as wages are stagnant or falling there can be no recovery in the classical sense.

The theory is the inflation in stock and commodity prices feeds in to the real economy, inflating wages which increase consumption causing a return of growth. This theory comes from a time before a global economy, a time of mass union membership dominating giant factory based manufacture and administration. That structure is gone. The powerful unions no longer exist as a means of transmitting the inflation in stock and commodity prices to wages.

So what can we do.
1/ Trade barriers. Easy, tempting and popular but with a bad press.
2/ Lower costs on consumers by lowering taxes, keeping interests rates very low and building a million new homes to keep house prices low, create full employment by house building and lots of infrastructure projects.
3/ Remove barriers to the evolution of new employment and production structures.

1 should be a more serious option. We are an economy that needs to retool itself. It worked for Korea and India et al.
2 was tried in japan and failed. But it did work in WWII so now govts are trying it on a worldwide basis. The problem is the size of the world population and global economy. I can't see national currencies surviving the extent of QE needed.
No one is talking or trying 3 which is unsurprising as the established oligarchs, be they unions, govt depts or business', realise it will diminish some and kill off others. Turkeys don't vote for christmas.

The govt, the unions and the business oligarchs think this is the same old story. Take more money off the taxpayers while further limiting what we get for our money. But they are wrong. Now is a tipping point. Wages have become too low to support a welfare consumer economy and a globally competitive financial services industry.

But there is hope. The BBC, our common law legal system and our NHS supported pharmaceutical industry are success stories. And all are born of our collective will to do good and spread freedom to all. More of the same please.

May be, instead of smiling as Lloyds goes to the dogs at the hands of the EU, we should wonder what would have happened to UK market confidence if HBOS hadn't been 'rescued' by Lloyds. Can anyone really say Lloyds didn't do the 'right thing' in the UK's hour of need?

What if we never see a Global Recovery?

What if recession justs goes on with unemployment continuing to rise and sterling falling?

What if we are forced out of Afganistan as we simply can no longer afford to stay there?

What if the next Election produces a "Hung" Parliament?

What if the Globe only experiences Global warming, hurricanes and stunamis in the future? This "Growth" game really is a busted flush.

"So some may think that Lloyds should be obsessing less about how it raises capital - so long as it raises enough - and rather more about how it can make a bigger contribution to pulling the UK out of the economic quagmire which it (its HBOS bit in particular) and its competitors helped to create."

Perhaps that's a financial innovation: Banks in the future will be designed to acquire capital and sit on it.

JohnnyZero66

I read that book. And in the end there were just two people left on an island and the snakes were coming up the beach....

JohnnyZero66

I read that book. And in the end there are just two people left alive on an island and the snakes are coming up the beach....

Lord Myners, the City Minister, seems to have thrown away old loyalities and is challenging with astonishing frankness the mad and bad ways of the banking world in the City. The city bankers were astonished to hear such talk, as they assumed it to be their birthright to expoit the average UK citizen without being reprimanded.
Please read more here:
https://www.guardian.co.uk/business/2009/sep/18/lord-myners-attacks-bonus-culture

40. At 7:03pm on 18 Sep 2009, sagamix wrote:
N @ 33

profligate property lending is at the root of all of this and has impacted the business lending sector while the banks try and recapitalise

yes for sure - but having said that, I would NOT want to see a return to the "Good Old Days" where you needed a 30 pc deposit and a personal interview with the Bank Manager in order to get a mortgage - that sort of thing kept property ownership unjustifiably out of the reach of lower income people, and it also artificially depressed UK house prices for many years - a great deal of the recent so called "bubble" in HPs was merely a (long overdue) correction of this - overshot a bit, true, due to various factors but still - sub prime lending ... the democratisation of credit we should better call it ... was (and remains) a great idea

30 years ago you could only get 2 times salary and have to put at least 10% deposit down. This was a good thing because it kept houses a lot cheaper, although there was a lot more social housing than there is today. Only building societies gave mortgages then, but starter homes were very easy to afford on a basic wage, even with interest rates at 10% because the price was much lower. The growth in M4 money supply has exactly matched the growth in house prices over the last 40 years which have both increased by nearly 100 times. House prices have nearly tripled during the last 12 years, wholly caused by the expansion of credit. Only wage inflation or price reduction will restore the balance, a combination of both will probably occur over the next few years as banks will not be able to lend in the profligate ways that they used to.

"Lloyds has put out a statement today that it is still exploring alternatives to making any use at all of the "Government Asset Protection Scheme" (which apparently is now known as "GAPS" - presumably because it is supposed to fill the "gaps" or gaping holes in its balance sheet)."

Or maybe the initial letters just spell GAPS. God it must be tiring simultaneously murdering the English language, boring us rigid on tv and radio and maintaining a paranoic personality.

So the FSA will not allow LLoyds to withdraw from the APS? The Treasury are in same camp. Europe is on the prowl about asset disposals.

On the one side we have the Government:

Number One is the Prime Minister who brokered the deal between Lloyds and HBOS because he didnt want queues outside HBOS branches as a symbol of Labour's disastrous handling of the economy. As we had already seen with Northern Rock.

Number Two is Alastair Darling and the Treasury who must have known that Brown was blowing a hole in the competition rules but said nothing.

Number Three is the Competition Authorities, who also said nothing.

Number Four is the FSA, who said nothing.

Number Five is Neelie in Europe, who said nothing.

I dont know the numbers, but I do know that given time (ie no fire sale) LLoyds can realise a lot of value from Scottish Widows and the HBOS insurance companies, from the building societies within the combined group, from Bank of Scotland, Halifax and even from Lloyds itself. Plus lots of other assets within the balance sheet. I dont know if they equal the losses that could be incurred but we ought to find out.

There are too many imponderables in this to allow anyone like the FSA or Neelie to hardball. We as a Nation have a huge investment in Lloyds and the best thing for British taxpayers is to maximise that investment. The FSA and Europe should go back to sleep until the matter is resolved to the good of shareholders, the largest of which is us.

You wrote : "The Bank of England has this morning published figures which showed yet another decline in the flow of new lending to households and businesses. Much of this is due to a collapse in demand for credit, as borrowers - wholly rationally - decide to reduce their indebtedness".
Sorry but "much" of this decline in new lending can't be attributed to individuals and businesses. For the last year the banks have deliberately starved the economy of credit. Worse, they've been consistenty reneging on existing credit deals, reducing or calling in overdrafts with little or no notice. And if there is now reticence on the part of potential borrowers, it's because when the banks do deign to lend they're instructing their surveyors to deliberately down-value propereties and using the resultant poor LTV's to justify rip-off interest rates way above base and crazy arrangement fees. Caledonian Comment

#51 majorroadaheadagain wrote.

'Number One is the Prime Minister who brokered the deal between Lloyds and HBOS because he didnt want queues outside HBOS branches as a symbol of Labour's disastrous handling of the economy. As we had already seen with Northern Rock'

The deal was brokered with the full acceptance of the Lloyds management and much to the relief of Barclays and HSBC to stop a major run on all the UK banks.
HBOS at the time was within 18hrs of being unable to refill the cashpoints of the regions that they were responsible for (Barclays fills all the cashpoints in my region), once one cashpoint (from any bank) runs out, there is pressure on the rest.
Customers of LLoyds/Barclays/HSBC etc., having trolled around the competing banks cashpoints and getting nothing would visit their own cashpoint (which may have been previously filled by HBOS). Getting nothing from that one they could assume (wrongly) that Lloyds was running out of money, confidence is weakened, rumours start and it becomes a self fulfilling prophesy, the whole banking/financial edifice would have come crashing down very rapidly indeed.

The majority of NR customers queueing outside branches were already protected from losses but that didn't stop them, once a run starts it becomes increasingly difficult to stop (there were major withdrawals from all the high st banks once the run on the rock started)

The actions taken by the government at the time actually did work and the claim by GB that he had saved the world (as we know it) was true.

That he had a hand in the events leading up to the crash of NR and merger of Lloyds/HBOS is another story.

Robert, you wrote -

"So what is Lloyds going to do now?

Well it will move heaven and earth over the next fortnight to try to raise the £20bn plus.

If it succeeds, this would involve a rights issue of new shares of up to £10bn, the conversion of well over £10bn of lower quality capital into better quality pure equity, and a major disposal."

So, this 'conversion' of 'low quality capital' into 'better quality pure equity' - how does that work then? It wouldn't bear even the slightest resemblance to securitisation of debt, would it?

Ah, the alchemy of financial transmutations - happy days are here again!

it seems simple to me.
Why cant Lloyds take HBOS's savers and turn HBOS into a property company
Lloyds gets lots of capital and HBOS doesn't have to have a cash pile and can make arrangements with people who default to pay less for a while.

The EU competition "guru" needs to butt out I think. We all understand competition needs to be maintained but not at the expense of the economic recovery. Its an example of the EU jobs for the boys (girls) nonsense. Maybe if Lloyds weren't so worried about the disposals imposed on them by entering into GAPS this situation would have sorted itself out and a bit more certainty would exist, also for all you people complaining about taxpayers footing the bill, remember you own 43% of the ordinary share capital of the bank so the poorer the Lloyds share price performs the worse it is for you, also the price of GAPS based on current market conditions is extortionate so you are not geetting a bad deal if Lloyds enter on current terms. If there was more certainty your stake in Lloyds would be worth more. We all understand some banks have taken ridiculous risks and no one is trying to condone what they have got us into, but Kroes needs to be told in no uncertain terms to s*d off, all she is doing at the moment is causing instability, where stability is needed, and clouding the decision making process. At the moment we need strong banks worrying about how they can keep our business's liquid, not worrying about how they will raise capital to avoid sanctions imposed by the EU.

@48. At 9:50pm on 18 Sep 2009, invisiblehandadvisor wrote:

"Lord Myners, the City Minister, seems to have thrown away old loyalities and is challenging with astonishing frankness the mad and bad ways of the banking world in the City. The city bankers were astonished to hear such talk, as they assumed it to be their birthright to expoit the average UK citizen without being reprimanded.
Please read more here:
https://www.guardian.co.uk/business/2009/sep/18/lord-myners-attacks-bonus-culture"

And here you have the most perfect example of Labour's blatant political opportunism barely concealing their utterly craven attitude to the City.

Quoting the Guardian article per the link, Lord M is on the one hand trying to chime with the zeitgeist by: "... urging bankers to think about the "perceived fairness" of their multimillion pound payouts."

(Now, we can readily imagine that bankers who perceive their bonuses as entirely fair and reasonable are named Legion, for they are many.)

So, having identified this injustice, how does Lord M, representing the Labour movement, propose to rectify the situation?

Ah well, interestingly: "... he stepped back from suggesting that the government should regulate the price of labour in the City by setting caps on bonuses."

Of course he stepped back from actually doing anything, of course.

For one, he currently works for Gordon Brown, who's entire raison d'etre is to avoid upsetting anyone connected with big business, however dubious the business.

For another, Lord M previously worked as a fund manager and he will no doubt soon be returning to the City boardrooms himself, and when he sits down with his compadres around the handsomely polished tables the last thing he wants is the big boys squinting at him sideways and thinking "hmmm, is this not the apostate who would have stolen the food from out of my very mouth - he would have had us starving in the streets!"

Take comfort Lord M, for there is no joy in finance like that for a sinner who repenteth.

A proper review of EU competition rules might itself show that reform of the giant banking mogoliths based in the UK is long over-due bringing more stable, ethical banking and a larger number of banks run on ethical principles which might actually reduce UK job lossses in the banking sector when the inevitable next wave of banking consolidation hits. There may well be to many banks trying to set up similar capitalisation structures and which is inefficient and soaks up too much of the UK £ sterling money supply and this can be inefficient within a single currency economy like the UK (which leads to the question would the UK banking sector be more efficient within the Euro in terms of money supply - and I think Yes it probably would be).

Whichever way you look at it Brown's pathetic nod (we still don't really know if and how much the EU had any part to play in the 'merger') for the takeover of HBOS ran a bus through EU competition credibility and showed the EU to be nothing more than a giant centralised bureaucratic regulation machine without any real business thinking behind it.

Perhaps DC should be less concerned with the Lisbon Treaty and get some government figures and estimate if the UK would NOW be better off joining the Euro?.

Speculation about the way forward for the UK - the next UK PM should table a set of concrete proposals for Euro reform (identifying those matters which are clearly European for Brussels to decide on and those which are none of their business) which could persuade the UK (and possibly also an Independent Scotland to join the Euro) or come out of Europe altogether and restructure the 'UK' economy as a true 'Tiger economy'.

@57. At 12:36pm on 19 Sep 2009, you wrote:

@48. At 9:50pm on 18 Sep 2009, invisiblehandadvisor wrote:

"Lord Myners, the City Minister, seems to have thrown away old loyalities and is challenging with astonishing frankness the mad and bad ways of the banking world in the City."

Lord Myners - the name rings a bell - wasn't he the chap who signed off Fred G's rather generous pay-off? - yes I believe he was.

And then when that started to look bad, he thought about it for a bit but decided he didn't have the power to do anything about it.

Still, at least he can find it in himself to issue a heartfelt plea to bankers to self-regulate by looking into their consciences - now that's the kind of tough, uncompromising stance we elect these people for ...

Labour's complete hypocrisy and complacency in a nutshell.

WHEN PUSH COMES TO SHOVE

magnetic_monopole (#59) Steady on - that's the sort of talk that makes them threaten to leave the country!

Maybe Madagascar would take them?

Another very lucid explanation from Mr Preston. What I don’t understand is this, and I hope someone will enlighten me:
Lloyds operates substantially in the UK and their competitive position post the HBOS takeover was agreed with the Monopolies and Mergers Commisson - if that is what they are still called. So – what does it have to do with Brussels? What gives them the right to interfere in what is essentially a UK affair?

Insurance is an all-or-nothing proposition. Unless Lloyds Banking Group is willing to specify exactly which debts will or will not be covered, there cannot be partial insurance.

Just like there is no such thing as being "a little bit pregnant". You're either pregnant or you're not !!

If LBG specifies which debts it wants to keep, then the remainder will be the truly bad debts and for that the "insurance cover" will have to increase. Therefore, the premium for the new cover may not be much less than the premium to cover the whole lot !!

In any case, they've already taken the Queen's shilling so they should just "shut up and soldier, soldier" !!

61. At 11:36pm on 19 Sep 2009, r19r19 wrote:

Another very lucid explanation from Mr Preston. What I don’t understand is this, and I hope someone will enlighten me:

>>>>>>>>>>>>>>>>

The UK's Office of Fair Trading are about as much use as a chocolate fireguard with regard to UK competition policy/enforcement and the EU is also weak on competition policy/enforcement issues hence some EU countries operate e.g. protectionist measures with massive state funding of e.g. car plants etc. and get away with it.

This has left some countries like the UK with oversized high risk banks which have shown to be a risk to the stability not only to the UK but the entire global fiscal systems.

Gordon Brown did not review/block the Lloyds/HBOS merger or indeed RBS Havro and these are further bad exmaples of weak competition policy and regulation.

Arguably, Brown's pathetic nod (we still don't really know if and how much the EU had any part to play in the 'merger') for the takeover of HBOS ran a bus through EU competition credibility and showed the EU to be nothing more than a giant centralised bureaucratic regulation machine without any real business thinking behind it.

In effect the UK/EU does not have any effective competition policy or systems - if Brown had not meddled with the role of the BoE when he first became Chancellor it is likely that the BoE would also have examined the Lloyds and RBS merger/takeovers and competition issues, at that time, including the systemic risk posed by oversized banks viz-a-viz the UK money supply in a non-EU currency.

The other issue about the EU is Blair /Brown have never said clearly why the UK did not join the Euro currency when they are obviouzly pro-Europe - looking back at their vague 'not in the national interest' statements may in fact cover the real reason that the UK stayed out of the Euro currency - so that Brown could relaxe regulatory controls and allow the UK banking sector to grow which was intended by Nu Labour to become an enlarged 'tax cow' for Brown - because to join the Euro would have restarined the city of London's activities and arguably would have restrained money supply, borrowing, over lending, growth etc.

This was easier for Nu Labour than e.g. investing in sustainable energy, manufacturing, agriculture and having a real British economy that would NOW in 2009, have already pulled the UK out of recession with UK energy 'self sufficiency'.

Many issues here - but both Lloyds and the British taxpayer are paying the price for both bad/weak and government decisions and their own bad corporate decisions/management.

Gordon Brown goes for the 'easy money' every time and the result is that the critical elements of a sustainable UK economy are either non-existent or defunct.

Lloyds original small shareholders have been royally shafted in this whole thing. Unfortunately this includes my Father who worked for a Lloyds subsidiary for 30 years and partook in their share save scheme. Never took a dividend, always rolled it into new shares. Investing for his retirement.

Gordon Brown stole his pension and then his savings. He has now been forced to reconsider his plans for retirement and now will continue to work after his 65th birthday indefinitely.

Fortunately he has always been hard working all his life and will be ok, but it is the responsible who have lost out in all of this and the feckless who have gained. Gordon Brown has facilitated an economic debacle of monstrous proportions and will never be forgiven by right minded people in this country.

Stll he cannot overcome his own hubris and simply resign or go the the country for a General Election. The man is an absolute disgrace.

Needed to get that off my chest.

What a situation we are in, the Banks are trying to build excessive profits but increasing the margin between borrowing and lending rates, the cash to keep them running was generated by the public purse, which will now lead to cuts in NHS spending, tax rises etc. Are the Banks in their present form worth all of this hassle? when Thatcher couldn't abide the cost of the coal and steel industrys she got rid of them, should we now not be thinking more radically about the banks? Or are they really too powerful? Maybe socialism in the UK missed a trick in wanting to own the means of production instead of owning the means of money distribution which was left in the hands of the elite classes.

BobRocket

I agree with everything you said. My beef is about the events that took place after the debacle you talk about at the cash points.

Gordon Brown, Alastair Darling, Lord Myners, Lord Mandelson, the Treasury, the FSA, the MMC (or whatever it is called now) and Neillie and her EU competition people watched as Gordon Brown brokered a deal between Lloyds TSB and HBOS. That involved both Boards going into the arrangement with their eyes wide open. The deal was effectively swung by the institutional shareholders who held shares in both banks, and presumably wanted to save their HBOS bacon. This had nothing to do with customers, workers or ordinary shareholders but everything to do with people in high places seeing through the deal they thought was appropriate for this country.

They all knew that the deal, as I say brokered by our Prime Minister, would bust competition rules. Yet they all let it go ahead. That is fact. Yet now some of those same people come out of the woodwork and want to change the rules as they were applied between the bid first being muted in September and being finally rubber stamped by the Boards and Government in January this year. I think that is grossly unfair, and also absolutely stupid.

I assume that Mr Brown and the rest do not worry too much about ordinary LLoyds shareholders, like the gentleman on here mentioned earlier whose father bought the shares over a number of years in good faith. He knew that buying shares is always a risky busines, but he did not expect an act of gross collusion and corporate and government stupidity to put at risk his savings and retirement.

What is needed is for LLoyds Bank Group to be given the time to establish what it owns in the way of assets, to establish what it owns in the way of toxic assets and to categorise them by degree of risk, and to fully understand what it owns and how they can all be put together in a sensible way. Even though all in power agreed to break competition rules it would obviously be folly to allow that to continue, but any divestment needs to be sensible and orderly. We have already seen how the backs to the wall mentality which was applied top C&G can come up with a nonsense.

The key to this is sensible and orderly, in the best interests of the taxpayer and his 43%, of the other shareholders, of the employees and of the customers (not in any particular order). That is why I want Neillie and our Treasury to hoinour our Prime Minister's commitment and assurances which must have given for Blank and Daniels to proceed as they did. If the shares reach 2.50 as they could easily do Great Britain plc will make a 100% profit. Brown will not have had such success in all his time in Government. Go for it PM!

I'm sorry but am I missing the point. If LloydsTSB hadnt bailed out HBOS under pressure from the Government wouldnt HBOS have gone BUST and therefore the taxpayer would have had to bail it out instead! It is the Lloyds Shareholders I feel sorry for!!!Now having rescued HBOS from Government bailout the EU are dictating terms around the price Lloyds must pay for the state aid. This started off by Lloyds aiding the State rather than the other way round!Just where are the Government now!!

Hi Why on earth didn't the experts like teh BOE and FSA let all these bankers who are aftr all worse than theives go to the wall, someone would rise from the Ashes stronger, wiser and without the present incompetents in charge. Despite all the money pumped into these companies teh ordinary businesses I know of have had their overdrafts halved or eliminated altogether and yet they continue the excesses of salary, bonuses and golden handshakes as if nothing has happened. They together with the other gfroup of theives, the MP's who gilded their expenses, should all have to repay all bonuses derived in the last five years together with all paid up pensions taken by those who new the ship was going aground.
With all this money repaid as clawback, we would have more retrospect and moral employees in both the Banking and Political scene and most of the debt gratuitously piled onto the inevitable laststop taxpayer would be recovered - although I would expect the prisons to be a little overcrowded. This could easily be solved by contracting out to the third world the housing, luxuries and welfare of the present and future inhabitants

Aussie 47

Make all pay over £30,000 pa in toxic assets at the current MTM on the Balance sheet. Do this until all the assets are allocated. Publish all pay over £30,000 for all individuals.
This will identify a price and provide an incentive for these hard pressed bankers.
Value too low and it hits the balance sheet stopping further high risk activity. Value too high and it hits them where they least like it. Between the pockets.

It gets the asset to its rightful owners

Why are we surprised that Lloyds is acting in this manner?
This is just one of the scenarios they will have been practising during their frequent stress testing exercises.
They will also have plans B and C ready to roll just in case they cannot pull the wool over the government's eyes with this one.
The whole of banking revolves around risk. The risk in this case is that the banks will have to extract the money from the real economy rather than getting their surrogate - the government - Our Government - to do the dirty work for them.
Make no mistake however. We will end up paying for the banks.
It is what we do.

In the months to come there will no doubt be figures bandied about totting up how much money we have to come up with in order to pay our way in the world.

Ahem. Just how has that figure come about? Oh of course we were all wastrels.
Nothing to do with the banks. Funny isn't it how all the wasted money just so happened to end up with the bankers? Pre and post bailouts.

No wonder Robert talks about the banks. They really are the only show in town.

Prudeboy

"Make no mistake. We will end up paying for the banks. It is what we do".

I think you are mixing up two things. The Lloyds folly was Government inspired as a reaction to their failing to regulate banks properly for twelve years. Whatever scams some bankers got up to they were doing it under the noses of the people we elected to look after us. They failed and the few spivs who almost bankrupt us took over without any supervision. Blair, Brown, Darling, Mandelson, Cooper, FSA, MMC, Myners, Neelie etc etc were supposed to be on watch and failed.

We have already paid for the banks so the "we will end up paying" is already here - 43% of Lloyds and much more for RBS. Northern Rock has also cost a packet.

What we as tax payers get back depends on how the government allows the banks to recover by lending and attracting savings. No funny derivatives or sub primes - just simple and honest banking for you and me. If they can be turned round to profit then we will get our money back plus a share of the profits. That would be a first for Gordon Brown. If we just use it as a blame exercise then we wont deserve to get it back.

By the way, we pay our way as you put it by being prudent with our money. The level of national debt has very little to do with bankers other than funding the losses as described above. That is frankly small beer compared to how our debt is spiralling. It has everything to do with New Labour and their boom and bust.

Incidentally, I am sure there are some spivs in banking. But as a profession probably 95% at least are honest and decent people, like you and me, and there is too much blanket blame of bankers as a whole. Root out the guilty and make them pay but dont assume all bankers are crooked. As some do on here, mindlessly in my view..

Is there a possibility that the reason banks are so keen to get out of governmental lifeboats is because they will have more freedom to determine bonuses ?

69. sosraboc wrote:

"Make all pay over £30,000 pa in toxic assets at the current MTM on the Balance sheet. Do this until all the assets are allocated. Publish all pay over £30,000 for all individuals.
This will identify a price and provide an incentive for these hard pressed bankers.
Value too low and it hits the balance sheet stopping further high risk activity. Value too high and it hits them where they least like it. Between the pockets."

That's just vindictiveness, with absolutely no justification. The vast majority of bank employees were not in any way responsible for the terrible mess their employers made, and to punish them would be wrong. Many bank staff have already lost huge amounts of money from the plunge in the value of the shares they have purchased (and often been encouraged to purchase) over the years in employee share schemes.

Furthermore, we do not have the right to know any individual's salary any more than we have the right to know the salary of an individual nurse or civil servant.

Something is puzzling me... The government is supposedly sitting with debts of around £800billion some of which was used to bail out banks. A huge chunk of this debt was supposedly bought by the Bank of England (Quantitative Easing). The bank of England supposedly created the money to buy government bonds from fresh air or Mervyn Kings farts. This would mean that Her Majesty's treasury who owns the Bank of England has Loaned money to itself?? And then it wants interest from itself?? It in fact demands interest from itself and to meet this interest bill the Government is considering fiscal cuts elsewhere....

As far as I am concerned, If the Bank of England demands interest on the government bonds it had bought, we as a nation should collectively fart as a payment.It is my view that QE has reduced government debt by almost 50% and and in that respect the interest bill should reduce by the same amount. I can't also see why the Bank of England should stop at 50%...I agree with Mr King.. Buy all of the government debt... and the nation saves enough in interest payments to prevent any cuts in social spending. Problem solved...Happy days.. no more government debt with one easy stroke of a pen.

To good to be true??? Someone please explain why not without mentioning inflationary pressures or some of the other wanckk words used by our very knowledgeable bankers who got us into this mess

I would like the banks to be required to write a living will before being allowed off the hook. Government should publicly tell Lloyds, HBOS et al that once they are free of GAPS any future failure would result in bond holders not being reimbursed. Keep the protection for small depositors (less than £50,000). If they should fail again, then ONLY small depositors would be covered. If this were the public position it would be interesting to see what interest rate the banks would have to offer on their bonds.

#71 majorroadaheadagain

As I understand it the Lloyds folly, as you put it, was a case of Hobson's choice.
In order for Lloyds to open in the morning they had to take on HBOS.
Now they are trying to wriggle out of the deal.

Presumably that is why the worlds oldest professionals require payment up front!

Depending upon when and by who history is written Brown will be either a visionary or a chancer.

We do all pay however since the banks do not actually contribute anything.
They get a free ride. But of course they are actually needed. What a quandary we are in..

By the way I did actually complain to Ms Kroes amongst others about the way that state subsidies were distorting the market my company operates in.
I got short shrift from everyone, my MP included, apparently we should all apply for government grants. Create jobs and take people on whose only function is to fill the forms in. Oh and of course take on debt. Expand. Don't forget the banks need their cut.

fantastic cut the 1 thing thats extremely important(ie the future generations education) and bend over backwards to help these filthy rich bankers.what a tremendous government we have.brown watch 252 days.

Morning Robert,
as you have not written anything new recently, I thought that I would read some of the informed comments on your blog.
There is something nagging in the back of my mind when I read about Lloyds wanting to raise cash in the marketplace, now we have RBS who want to raise cash and Barclays who have invented an offshore vehicle to dump their lower performing loans into.
We have had 18 months of profits (loan repayments) for all of these banks and yet RBS and Lloyds are looking for another £40 billion or whatever (presumably to tide them over 'till Friday night).
Doesn't that ring any alarm bells within Government?
If not, then it means that Government expected these cash calls to be made.
I remember when Fred Badloss organised a rights issue (wasn't it £16 billion to tide the bank over)? RBS managed to burn through that money in 3 months and had to come back for more although they were technically insolvent.In steps our Government and gives them another £20 billion of taxpayers money. Now that's disappeared as well.
My question to you, Robert, as our banking expert is WHERE did this money go (ie to state the bloomin' obvious, what did the banks do with the money)?
Trite answers like they used it to improve their liquidity ratios will not do. Did they invest it offshore?
Did they just put it on deposit with BOE?
Did they lend it out at some fantastic rate of interest?
Something is not right here and nobody is providing the simple information that taxpayers (and shareholders) have a right to.
I suspect that all of our High Street Banks are taking another huge gamble here and there will be more misery to come once the real details become clear.
As an aside, what's to stop another shorting frenzy against the Banks that are trying to raise more cash?

73 rbs_temp

The vast majority of bank employees were not guilty, true.
But the vast majority do not get paid over £30,000 either.

As for pay. Why not publish? Most ranks of the public service have payscales/ranges. Look them up in Whitakers.

And let's face it most banks in the UK are directly or indirectly totally dependent on public support. Even HSBC, Barclays et al. See where they would be if the others were allowed to go to the wall. Pay secrecy is mostly to stop equal pay for equal work/performance.

When the Lloyds/HBOS shotgun marriage was hastily arranged there was little doubt that the whole banking/financial system was on the verge of collapse, the question is, why was Lloyds chosen as the saviour and not one of the others such as Barclays or HSBC who also have a large UK presence ?
Could it have been something to do with Iranian money and Baroness Scotlands extradition treaty with the USA (the one that got the NatWest Three) ?
(its not called a shotgun marriage for nothing)

Barclays offshoring huge chunk of Toxic Debt.
I see that they are doing business as usual, no doubt there will be writedowns/notional losses in high tax countries on the Toxic Debts that have been transferred, if some of these turn out to be not so toxic then any profits will be generated in the low tax area.
Of course this wouldn't be happening if the G20 actually got off their collective and closed down the tax havens like they said they would do.

LBG could do the same, I'm sure that Sir Fred Goodwin would manage the fund for them for 20mil/pa and a nice house in the Caymans.

An idiotic questions perhaps,

1. How much of LBG retail business is in Europe?

As I think the answer is not a lot, Tell the EU to go and mind iots own business. A little Britain approach, but why can the EU tell LBG to sell of bits and pieces when Santander can retain its purchases.

The Government, on behalf of taxpayers, needs to be proactive over LLoyds desire to raise capital on the market. All the banks remain inherently unstable and any reduction at the moment in state control via shares could lead to further problems later. The Board of LLoyds needs to understand that public opinion would not tolerate another rescue. Further problems would be met with nationalisation by acquiring all the shares for a total of £1 and a complete loss for shareholders. Sooner or later these mega banks are either going to be broken up anyway or they will break apart on their own.

81. At 10:28am on 21 Sep 2009, Exiledscot52 wrote:

An idiotic questions perhaps,

1. How much of LBG retail business is in Europe?

>>>>>>>>>>>>>>

A very pertinent question...the 'internationalisation' issue.

The largest troubled UK banks receiving QE money may well have substantial toxic assets and problems overseas as you suggest - in terms of money supply and capitalisation reserves, this can mean printing money to buy overseas currency, overseas government bonds, gold, precious metals etc - whatever is acceptable as secure collateral/capital in balance against the perceived risk(s).

This can also require transaction costs on currency conversion and Brown/Darling may be being told behind the scenes by overseas Heads of State that they are concerned about the risk posed by RBS and other UK based banks and insisting on their being adequate capitalisation maintained by UK banks against their failure or increased toxicity.

This is probably another factor explaining why some of the UK banks are so short of cash for ordinary high street lending in the UK.

A mighty fine mess and is expensive for the UK taxpayer and is another reason for the BoE and Treasury to conduct themselves like a secret society while they wheel and deal behind the scenes in a frantic attempt to shore up Britain's finances and the distant flicker of this lame duck Nu labour government ever remembering any claim of any kind of economic and financial competence in the management of the UK economy.

Someone needs to ask some questions here - Treasury Select Committee?

Never mind the Gaps - put these together and what do you get?

1) Total warning of future oil shortage

2) Sterling falling because foreign investors are concerned about the level of public debt.

3) The tax (or lack of it) revelation about Lloyds by Panorama

Sounds like we're cooking up a storm here, rising fuel prices, falling sterling, loss of confidence in UK PLC and the public outrage that follows the endless stream of "you pay - they don't" when it comes to taxation, bonuses, expenses etc.

There are many people on here who are told the recession is over by many 'experts' - but it doesn't feel right - all too easy - so little pain.

The sense is of something big awaiting around the corner, but no-one is sure what - except the linger we have to wait for it the worse it's going to be...

Robert, I often come on to the BBC website these days and think to myself how little news and how much government propaganda is waged on these pages.

The most obvious and biggest dilema facing this country is that the housing bubble has not been popped and the current house prices are still way, way overpriced.

In fact to state the obvious we have not seen properties repossed and sold off at the volume needed to reset the problems in the economy. This is obviously government/banks policy - a failure/denial of reality - as is the marked delusion in the stock market that things are "recovering".

Until the "bad debt" and unsustainable lending is made sustainable this country will sink further into a black hole. Something the government's asset insurance scheme will become heavily liable for I think in the near future.

I remember knowing that when the banks received tax payers money that this money would run out and further funds would be required - it's bleedin obvious as the bubble has not been popped. However, given the policies of not facing up to the problem and the stupididty of "hope" in the face of unsustainable debt I dont see an end for the tax payer shoring up "high finance".

The situation will not end until is does collapse and the policies of stupidly high house prices ends - high house prices is a sign of INFLATION NOT GROWTH. Government tinkering with inflation figures that exclude house prices is like placing a blind man on watch in a boat - we are very close to shore and possibly about to head inland.

Isnt it time the media stopped towing the line of sinking this country ? Or is the aim of our dear presenters at the BBC to sink the reputation of this corporation in the hopes of returns in the private sector ?

While you're all thinking about recovery and stimulation....

Consider this scenario – at the moment central banks have dropped their rates to all time lows in order to stimulate demand.

By this they mean, because a lot of people’s mortgage payments have fallen, they expect those people to go out and start spending the extra cash (Stimulating demand).

However this is like handing out ‘financial suicide pills’ for the following reason:
Once demand is stimulated then we will see inflation again, this will prompt central banks to raise rates again. However all the people who ‘took the pill’ will find that in hindsight they should have reduced their mortgage rather than spend the excess cash. That could potentially start a whole new round of defaults (a classic false start).
Therefore what people are doing (which is entirely sensible) is they are paying down their debts at a record rate – partly because they don’t trust the Government, and partly because a lot have been here before and know what’s coming round the corner (the householder is more mature than in previous recessions)

Unfortunately this has an adverse affect on the banking system (as they make money from lending) – reducing their ability to make profit. Sadly the market is not ‘cultured’ enough to foresee this possibility and is simply operating on a short term basis (i.e. who is making money today).

All mortgage holders are standing on the edge of the consumption cliff and the Government is egging them on to jump back into the consumption sea. However the mortgage holders are looking at each other and saying ‘you go first then’ and we have a lot of jittery people and no-one prepared to dive in.

Those net debtors who have no mortgage are not so affected by the change in rates (especially as credit cards are ignoring the rate changes). However savers are also encouraged to go out and spend because of their piddling interest rate – but this will not be enough as if you remember back when this started it was caused by ‘not enough savers’ in the system and ‘too many borrowers’ – so it’s not logical that savers will be able to provide the stimulus (which they’re possibly reluctant to).

Soon the Government bailout money will wear off and we could be looking at a total impasse, especially if the General election is not a conclusive mandate (which I can’t see it being). Just because every party is ‘promising cuts’ – it’s not necessarily what the people want – I mean why should they pay for the bankers excessive greed?

The banks are clearly NOT going to change their ways – and the Government is merely making noises. No matter which party gets in they will NEVER curb bankers pay because (as some have demonstrated) the next questions become – what about Doctors, what about Nurses, what about civil servants and of course what about MP’s?
Tragically this is why there is a further fall – you cannot take an advance on the future income of this country and for no-one to notice (or rather no-one has to pay) – the problem this time is they have taken more than ever before and that means the person who lands the bill (usually the taxpayer) is not going to be best pleased…..
….and just remember who it is you need to go out and ‘feel good’ and ‘spend excess income’ in order to stimulate recovery…..

The greed and stubbornness of man is about to bring the system to a halt.

They actually have to secure the loans that they make. What an interesting idea. Not surprised that bankers are disappointed with having to protect the assets of depositors. They learned last year that high risk, high reward processes end up being paid by the taxpayer when they fail, but of course the banks have already made their money at that point. They don't want to put their own money at risk.

I think the bankers need to be slapped about the head again, and shown who's boss.

They should be told to start honestly evaluating their assigned (collateral) assets, i.e.'mark to market'. That should squeeze the puffed-up smugness from them again.

Remember, this is an ongoing battle, just another round in us versus the banks.

Regards,

#79. sosraboc wrote:

"As for pay. Why not publish? Most ranks of the public service have payscales/ranges. Look them up in Whitakers."

Publishing pay scales is not the same thing as publishing details of individuals' salaries.

My post 4, it seems a long time ago, refers there is an interesting story in today's FT about lots of commercial property loans needing refinancing.

https://www.ft.com/cms/s/0/a29bce72-a60e-11de-8c92-00144feabdc0.html?nclick_check=1

I very much doubt we are even at the end of the beginning let alone the beginning of the end.

The real underlying reason Gordon Brown/Darling/BoE and Treasury are applying QE is that the overseas perception of the UK's credit rating (IMF etc) is uncertain and so UK bank recapitalisation is necessary to maintain UK fiscal credit rating otherwise £'s sterling will slide heavily in value against other currencies. This would cause inflation as the UK is heavily or 'over-reliant' on imports.

QE is unlikley to lift the UK out of recession by itself - we're relying on overseas markets recovering first because our UK economy is dependent on other overseas economies for both investment and demand and is not in itself an 'economic driver'. That is the result of bad government - so let's not kid ourselves over current UK economic recovery being anything more than a few minor blips on the radar.

However, some of the highest risk on some toxic components and instruments has dissipated due to stock market recovery in relation to some bad hedge funds and derivatives which have been created by UK banks. The QE is required to deal with systemmic risk, UK money supply and credit rating issues to cover a fair proportion of the potential risks created by profligate banking activities.

Please Monsieur Brown! No more financial Tsunami's coming across your 'British' Channel - Please make sure that you have your UK banks adequately capitalised or I will report you to Mrs Merkel!

We're now entering the next most dangerous phase of the UK economic crisis and so would some constructive but realistic assessment from government and opposition parties instead of total negative electioneering be beneficial?

Can someone or some people please stop lying about QE?

How about another approach - putting their wholly owned subsidiary, HBOS, into administration?

88. At 2:13pm on 21 Sep 2009, allmyfault wrote:

"I think the bankers need to be slapped about the head again, and shown who's boss."

True - but this time instead of a hand we should be using a table tennis bat as last time it clearly didn't get through!

89. At 2:13pm on 21 Sep 2009, rbs_temp wrote:

"Publishing pay scales is not the same thing as publishing details of individuals' salaries."

What's the matter with publishing salaries? Only the overpaid and underworked fear their salaries being published.

This is what it's going to come down to - who really has something to hide?

Some companies try this devisive tactic and make it a punishable offence to discuss salary with other employees. However in companies that don't do this you'll find that there is greater pressuere on those who earn more as they are forced to justify their salaries by doing more, or showing why they're worth it.

This is a concept which has been severely lacking in banking for a long time.

Tell me Rbs_temp - what is skillfull about rebalancing your portfolio to a benchmark on a daily basis by simply 'clicking rebalance' on your OMS and hey presto the trades are done?

Is that worth an almighty salary? Is that a real skill?

The salary scales in banking are still embeded in the old days when everything was done on paper and you needed to be excellent at maths to cope. This is a far cry from today where you can manage millions effectively as long as you know which buttons to press.

The real reason there is a resistance to publishing salaries is that the rest of the hard working world will be appalled at what some members of society are paying themselves for what is one of the simplest jobs ever (even if it's cloaked in a shroud of mystery).

Bankers have long since applied their dodgy valuation rules for assets as they have to their own wages - the result is massive over-inflation of both which can clearly be seen today.

Remember the FOI and how it was going to cause chaos? Well all the information gathered under this act has benefitted society as it has shone a light in many dark corners and produced a much more open and fair world.
The only loosers under the FOI act are the ones who were keeping information secret for their own gain (MP's for example) and the light has well and truly ousted those cockroaches from our system.

Surely salaries must be next - and I mean all salaries, that way we can reach a fair and open valuation of labour in this country. This is the path to equiality and liberty for all.

Hopeless. Point 1, Back in March they said there was 260bn of "toxic" assets they were looking to place into the APS. The cost for this was 15.6Bn. They now consider that substantially less of these debts are "toxic" and henc ethey can reduce their reliance on the APS, NOT remove themselves from it already!!! What is likely is that they will place say 150Bn into the scheme at a premium of 10Bn which will be raised in an alternative way (other than giving HMG a bucket load of shares) There is NO WAY they will be able to raise the capital needed to not go into the APS and think about it, if 20Bn is considered enough to mean that the APS is not required, whyt he hell are we talking about 260Bn of toxic debt. This is really poorly reported across the piece and needs to be put right quickly because right now, those, like me, who know what is going on are buying up even cheaper shares and when the truth is finally worked out by our rather silly financial journalists I will have made another killing!!!!!

76 Prudeboy

"In order for Lloyds to open in the morning they had to take on HBOS"

I am sorry but that is not my reading of the history of this bid at all. Brown and Blank met at evening do in September 2008 and the former asked Blank what he would think of being given a clear run on HBOS with no government intervention on monopoly issues. Brown must have known that HBOS was in trouble at that time. Lloyds had mooted a deal to take over HBOS some years earlier but had been laughed out of court as totally out of the question. At that point Lloyds was a sound English bank dealing with english morgages and savings accounts and insurance through Scottish Widows, on which they had an offer of 6bn a few years earlier. It was a sound and prudent bank with (apparently) little or no exposure to toxic assets. The latter point is conjecture on my part, but the history of Lloyds and Daniels suggests that was so.

When HBOS shares collapsed from over 2 pounds to less than 80p in a couple of days they were on the verge of total collapse. Oddly Lloyds shares went up from two pounds plus to around three pounds fifty immediately on the news that a bid was in the offing. When Lloyds confirmed this they apparently did back of the fag packet due diligence and the bid proceeded slowly, finally being completed in late January 2009.

As the realisation dawned that Lloyds had signed up to buy a pup the losses of HBOS began to emerge. In my view they were known by January 2009 and yet Lloyds carried on with the bid regardless.

The first thing about this bid is that it should never have been allowed on competition grounds. Everyone from Neille to the FSA and from the Treasury and therefore Government know that and say that now. Thus Lloyds shareholders were cynically used as a method of the government avoiding another banking collapse. Lloyds would still be trading profitably and, like Barclays, would have a share price in the three pounds range and be paying dividdends.

The second point is that some of the Lloyds shareholders had it coming and deserve what they got. These are the institutional shareholders who owned shares in both bank. They screwed up a decent bank in the process of trying to save their HBOS bacon. Chumps of the year?

The third point is that this former paragon bank, which is now stuff filled with HBOS paper and toxic assets is owed big time by the government for allowing itself to be conned. Not ordinary sharholders, but the current holders of Pratts of the year, the Board of Lloyds.

Thr final and most important issue is how the government (us) gets out of this fine mess that Laurel and Hardy (sorry Brown and Blank) got us into so that rdinary sharholders of Lloyds and the taxpayer gets the best return. It is not to punish us the taxpayers, but to maximise any residual value there may be in Lloyds Banking Group. On the grounds that two wrongs dont make a right.

Some banks are in a mess and are technically bankrupt...unless and until the property market recovers in asset value and volume of sales.
If your view is this is not going to happen for 5 years or more, then the banks that are in trouble will never recover and should have been allowed to fail. This can't happen because now the government owns these banks. So they need to be broken up and sold off piecemeal.
Some commentators are saying the property sales going on at the moment are happening because of big discounting. In reality the prices are at correct levels and may still be too high. It will be decades before we see house prices and sale volumes reach pre credit crunch levels.
Consumer spending will follow suit so don't expect trading levels to recover any more quickly.
It's an unholy mess and if I were a conservative leader I would refuse the job of running the country without a disclaimer from the electorate stating the Conservatives accept no responsibility for the ill considered decisions to invest in a banking system bankrupted and corrupted by greed.

95. At 3:42pm on 21 Sep 2009, icantmakeupnames wrote:

"This is really poorly reported across the piece and needs to be put right quickly because right now, those, like me, who know what is going on are buying up even cheaper shares and when the truth is finally worked out by our rather silly financial journalists I will have made another killing!!!!!"

Ahhh, if I had a pound for every stock market dabbler who told me what a killing they made before they fall silent sometime down the line then I would be a millionaire.

The hole in your plan is this bit:

"They now consider that substantially less of these debts are "toxic" and henc ethey can reduce their reliance on the APS, NOT remove themselves from it already!!!"

They - I presume you mean Lloyds, those world famously accurate 'asset valuers' who bought into HBOS and then found all their loans were toxic?

Just because some bean counter announces that these debts are no longer toxic - it doesn't mean that they aren't.

Toxic debts are debts likely to default, defaults are caused by insolvency and unemployment - and what is happening at the moment in great numbers?

Insolvencies and unemployment.

A classic piece of short term thinking - did you think all loans default on day 1 of a recession and then it's all over?

You carry on buying shares in the part Nationalised Lloyds all you like icantmakeupnames - we shall see you on the other side....or not perhaps.

Just remember when Northern Rock was nationalised the Government didn't exactly offer great compensation and the same could easily happen to Lloyds.
Remember that Lloyds are being damaged by staying in the APS so they would be keen to move out of it - however they clearly can't - which speaks volumes about their confidence of their own position.

One day you will wake up and realise that making money without effort is unsustainable - for every action there is an equal and opposite reaction.
That is why the system is unsustainable and why eventually the people you're making a 'killing from' will rise up and seek you out for their revenge.

Still - I reckon your imagination doesn't stretch that far...

#95 £260 billion toxic assets....

In the 6 months since March, do you not think Lloyds have now figured out which of these are really toxic, and which have a likelihood of recovering/not defaulting.

Wouldn't it be a surprise that we get the real rubbish to cover, and Lloyds slip away relatively unscathed (and wouldn't it be a surprise that this government lets them, as a sop to encouraging them to take on HBoS in the first place.

Regards,

majorroadaheadagain

"The second point is that some of the Lloyds shareholders had it coming and deserve what they got. These are the institutional shareholders who owned shares in both bank. They screwed up a decent bank in the process of trying to save their HBOS bacon. Chumps of the year?"

Is it possible that even these shareholders would have been better off, in retrospect, if they had voted against the merger? I certainly have a hunch that once Lloyds has finished being bailed out, divested etc, it will have a lower value and market share than before the merger. That really would be an astonishing indictment of the Board