The new banking hierarchy - and a question for Barclays

Robert wrote:

"Today the market value of Standard Chartered, at .. £32bn, is only £2bn less than Lloyds' and £5bn less than Barclays. And it is £11bn more than RBS"

Let us assume that the underlying assets of these banks are reflected in these valuations (no probably true!) if so it demonstrates just how good these highly-bonused bankers are! The big bank's have blown shareholder value in a totally unprecedented way!

If, on the other hand, these values do underestimate the underlying asset values of these other banks it looks like a golden opportunity to buy at a substantial discount. However the problem is that accounts of banks are incredibly opaque and nobody, not even the banks themselves actually know!

Unfortunately, we, the taxpayer, stands behind these banks and everybody knows it so we are subsidising the gamblers in the city.

THIS AGAIN DEMONSTRATES THAT NO BANKING REFORM HAS YET BEEN ATTEMPTED.

It is going to take a couple of years for the dust to settle after the recent upheavals. If the value of the Barclays investment bank is not reflected in its share price it will surely be floated as a separate entity and give the shareholders true market value through that avenue. This is what most politicians seem to want anyway - especially if the Lib Dems hold balance of power after the election!

Yawn!!!!! Another day, another bigging up of the financial sector. I'm so glad I don't pay BBC tax.

Only as a guess, does this actually highlight that shares are valued a lot on sentiment and whisper rather than the market finding their "real value" anybody with common sence knew Barclays shares was over valued at £7.5 and very under valued at 50p

Another piece of unbiased reporting I see.
During the boom, Barclays was criticised for being too conservative and investors said that it should be more like RBS. Take ABN Amro for example; there were hopes that a bidding war would begin, but it didn't as Barclays chief exec said many times that it would not be in shareholders interests to do so. Looks like he was proven right.
And so now investors are able to see the clear difference and Barclays is starting to see the rewards for this. If we look at share prices compared to a year ago we see that Barclays has increased almost 5 fold whereas RBS has only just doubled. So are investors shying away?
Or could this be seen as another populist piece on bonuses and pay again - perhaps out of spite or jealousy?

This comment was removed because the moderators found it broke the house rules. Explain.

"So here's what Barclays owners have to ask themselves. Does Barclays own Barclays Capital for the benefit of its shareholders, or for the benefit of its highly-paid executives?"

How about extending this question to RBS? The government is handing over billions to the investment banking employees of RBS, while telling everyone that it's an "investment" that will pay off in the future. But there's a reason that the market value of RBS is less than zero.

If you're running a business which demands that almost all income be turned over to the star performers bringing in that revenue (which is what the investment banking business is all about), then there are no real long-term profits, and owning that business isn't worth anything. It never will be worth anything. All that Brown and Darling are doing is allowing RBS's employees to use the UK government's capital to make themselves rich.

Three years ago was HBOS not 4th or possibly 3rd largest bank - ahead of Lloyds ?

"Its heartlands are Asia, the Middle East and Africa. So in reporting a 13% rise in pre-tax profits to $5.1bn, it also disclosed that five different countries each generated more than $1bn of income for it."

Ah the folly of bankers - well is Asia going to continue producing such growth now all it's customers are broke? (the west)

What about the Middle East - is that a bedrock of stability and financial openess?

I bet there are many speculators who at this very moment are piling into these two banks (Barc. + SC) - on the basis that they have made good returns.
There will be many saying these banks have 'skillfully traversed' the stormy seas to come out on top.

Oh how these spivs can't see how the world is connected - we're no longer indivudal states operating isolated markets and there are no new markets to exploit (unless aliens land of course).

National Aggregate demand is one thing - but what about world aggregate demand? It is truly falling - and just as it does nationally - if someone doesn't step in a boost the demand - then it will flag. Unfortunately there is no 'world Government' to complete this action - therefore the demand drop gap cannot be filled

Still, that's just Economics - and what do gamblers care about Economics....

So if Standard Chartered and HSBC are doing well because they conform to an old imperial pattern, then what happened to Barclays DCO or Dominion, Colonial & Overseas? This used to a separate entity within Barclays but was absorbed by the main bank I think in the late Seventies, but I stand to be corrected on the date.

As for corporate pay being based on the size of the budget and the number of reports then this explains all the empire building that goes on in Big Business and Big Government. This is part of the problem as executives distort the function, productivity and value of their organisation in order to self-aggrandise, improve their income and enhance their career opportunities.

Once one of these inanely stupid people described this to me as The Game. At the time I docketed him as a dangerous maniac. If you doubt my view of this definition then just look at the state of the economy.

"Now what I find slightly odd in all the hullabaloo about whether Barclays and other so-called universal banks should be broken up - or whether it's healthy for the British and global economies that investment banks and retail banks should be part of a single organisation - is why shareholders haven't weighed in."

Robert I asked on one of your posts about the apparant shrinkage of private sharehlders a few days ago how can I weigh in as a shareholder?

You've not answered my point that I'm disenfrangised as a pension fund holder.

As a shareholder my vote on shareholder pay is (unless I'm mistaken) only advisory.

So how do I participate? Seems to me I'm bearing the risk but can't exercise any rights in a meaningful way. That seems to be the central lever that is missing in all this talk of reform.

"If the value of the Barclays investment bank is not reflected in its share price it will surely be floated as a separate entity and give the shareholders true market value through that avenue."

If only it were that simple. Barclays, the investment bank, uses the (government subsidised) balance sheet of Barclays, the high street bank, in order to make it's money. Without the subsidy and without access to that balance sheet, it's just another hedge fund. And what's the average market value of a hedge fund these days? In case you're wondering, the answer is "not a lot".

I'm confused Robert-I thought Barclays profit was reported to have been 'in part due to the sale of it's highly profitable investment arm'?

I'm no economist, so maybe I got it wrong, but if, as you say, they derived very little from this sale, why was it sold in the first place?!

Now I know why I failed economics at school. I don't gamble.
As the banks are both the judge and jury on who has cash and how much return must be done with it could they have at least learned there own lessons?
Or am I being too simplistic?

I am, unfortunately, beginning to believe that most of you Business/Financial Correspodants are either willing sycophantes, or just plain ignorant! If you can infer that there has been, or will be, a progressive "Financial Shakeup", and equally, a "New Banking Hierarchy" will change things for the better. You are as deluded as those who continue to offer bail-outs, and habitually invest in the global stock exchange; which is corrupt and manipulated beyond all common sense. The one sure means of improving the Global economic interests for the betterment of all, is to bring down the Global Elite: lock, stock, and barrel! Devalue the Dollar, and/or Stirling - cripple the Federal Reserve and The Bank of England. Give all the citizens of the world a flat playing field to start afresh. Then, we'll see a difference, because no-one will claim to be superior to anyone else, ever again! That's the progress we need: not endless debates, which are as derisive as the paper, and plastic money, they so willingly worship...

#13 Tigerjayj

The sale was of BGI - Barclays Global Investors (or something similar) - which was the investment part for customers - stocks, shares, bonds etc -and not the investment bank.

What amuses me is all the ballyhoo we heard on BBC News about the 'failing Euro' and the Greek crisis. But the Euro is still worth about 90p as opposed to 67p when it started out! So which is failing? or is it just the BBC's attempt to beat the Murdoch drum?

5. At 10:27am on 03 Mar 2010, yam yzf wrote:

"During the boom, Barclays was criticised for being too conservative and investors said that it should be more like RBS."

Who critisised them? Do you have any quotes - or is it made up to support your argument?

"Take ABN Amro for example; there were hopes that a bidding war would begin, but it didn't as Barclays chief exec said many times that it would not be in shareholders interests to do so. Looks like he was proven right."

That's not how I remember it - I remember that Barclays couldn't raise the capital required - mainly because RBS were in a consortium (i.e. greater protection) - and the difference in the bid was only 9.8% - hardly a reckless over bid.

Are Barclays supporters suggesting that if they had purchased ABN Amros for 9.8% less than the RBS consortium that they wouldn't have suffered the same fate?
Don't make me laugh - if Barclays had succeeded at their price - then they would be in the RBS position now. There was no skill or prudence there - just luck.

"And so now investors are able to see the clear difference and Barclays is starting to see the rewards for this."

As I explained - the difference above is luck, not judgement. Anyone who suggests otherwise is merely a gambler.

"If we look at share prices compared to a year ago we see that Barclays has increased almost 5 fold whereas RBS has only just doubled. So are investors shying away?"

Investors are dumb sheep - they convince themselves one bank is better than another - but the facts are they aren't.

"Or could this be seen as another populist piece on bonuses and pay again - perhaps out of spite or jealousy?"

What's there to be jealous of? At least the rest of us can point to our value - show where it originates and what our purpose is in the Economy. Bankers can't do that - they cannot explain where their bonuses come from.

That's because the truth is that their bonuses are extracted from every working man and woman in the country.

This is why eventually the workers of the world bring the recession - for it is them who support the Economy - not the bankers. When they can no longer afford to spend, demand falls and banks collapse.

It's called an imbalance - and our Economy is built on it. I realise you have to think hard to come to this conclusion, but once you're there you will see how obvious it all is...

It's easy to remember the way banks excess profits were criticised not so very long ago. Clearly the critics were right and the banks profits were not only too large but also simply an accounting illusion based on the discrete reporting periods in use.

quote/Fast growth in size and profits generates fast growth in executives' pay and bonuses - at least for as long as the growth is sustained./unquote

Rather like claiming to have won a large sum on an ongoing horse race because your horse is out in front?

Anyway Mr Peston, what's your take on the Pru's gamble.

One of the object lessons from HSBC is the importance of income streams that are diversifed by sector and geography. But they are also fortunate in being an international rather than a domestic bank.

Something that gets overlooked in some of this is the effect of consumers; we expect free banking, yet it costs the banks money and has arguably led to consolidation and misadventures into revenue chasing ploys like RBS buying ABN Amro and Lloyds trying to grow by domestic acquisition.

On Barclays I think that the jury is out. Let's see what state they are in in 12 month's time.

I notice that there is also no mention of potential new entrants. I think that if Tesco get their banking act together they might be a formidible force but I am less confident about others.

15. At 11:09am on 03 Mar 2010, Meehan wrote:

"Give all the citizens of the world a flat playing field to start afresh. Then, we'll see a difference, because no-one will claim to be superior to anyone else, ever again! That's the progress we need: not endless debates, which are as derisive as the paper, and plastic money, they so willingly worship..."

I'm afraid the 'highly paid but useless' will do everything possible to prevent this happening.

They claim Capitalism is 'survival of the fittest' - but this would require a level playing field to begin with.

A level playing field is what the rich fear the most - because they know (even though they would never admit it) that very few are in their position fairly and above board.

I mean did you know that Klienwort Benson was built up from exploiting asian and other foreign commodity markets - and once they had their 'stolen capital' they moved into other areas such as merchant banking - which are unachieveable for the rest of us.

This is not an unusual story - most of the big banks and investment houses have their roots in exploitation. The Capital from which allowed them to exploit our markets through their sheer size.

...strangely banks don't want us to remember this history - it's the 'inconvenient truth' they are desperate to hide.

WOTW - absurd generalisations that miss the point.

"Asia going to continue producing such growth now all it's customers are broke? (the west)": total rubbish. It may have escaped your notice but Asia does not trade with Western Countries (many of whom, like Greece are broke) but with individuals and companies in those countries. Most, even the vast majority, of individuals and companies in the West are not broke, they may not be buying as much as they did 2 years ago but they are not broke. So clearly your statement is wrong. It is likely to be the case over the next 2 or 3 years that the major western countries see a slight improvement and some, but very weak growth but of course if Asia is expanding rapidly then there will also be a large growth in intra-Asia trade.

"Oh how these spivs can't see how the world is connected - we're no longer indivudal states operating isolated markets and there are no new markets to exploit ": Again it may have escaped your notice but at least in UK we have not been an isolated market for at least 200 years. The statement is another absurd generalisation. At the individual company level there are many many companies who are not active or not as active as they could be in many markets around the world. China and India average wealth and asset holding is, at an individual level, massively below western standards for many goods and services which implies there is still plenty of room for trade to expand. You completely ignore the effect of innovation which will produce new markets for products that have yet to be created.

Maybe these Spivs and gamblers know more about economics than you

> Because Barclays share price appears to be deriving almost no benefit
> from its ownership of one of the world's very biggest investment banks.

The ups last longer than the downs, but the downs happen more suddenly than the ups. Those conditions make gambling thrive – you make some money most of the time, but a little of time you loose a lot . But as long as it's other people's money, who cares?

Investors know there is no value in assets that you have no control over. Bankers can leave at the drop of a hat, and start their own firms. This means we must make all firms (a) robust enough to handle suddenly losing a lot of money , or (b) verticalised or localised, so the loss of one is not significant to others or (c) so small, we don't give a hoot.

And if shareholders want to reap any value, they must tie remuneration to a long cycle, with claw backs where gambles turn into fiasos.

A really great post and keep it up. The main issue is when will the Government split up the banks and remove the risk of seeing consumers quing up outside the retail banks to draw out their cash. And for all the hidden bankers on this page , this article is primarily aimed at the Government

17. At 11:40am on 03 Mar 2010, Robin wrote:

"What amuses me is all the ballyhoo we heard on BBC News about the 'failing Euro' and the Greek crisis. But the Euro is still worth about 90p as opposed to 67p when it started out! So which is failing? or is it just the BBC's attempt to beat the Murdoch drum?"

It's not the relationship to the pound which matters - I mean what value does that paper have?

It's teh relationship to GOLD which matters - that is something which is not changing in value - but all the currencies are falling against it rapidly (it's at an all time high).

The difference between sterling toilet paper and euro toilet paper is immaterial when the value of all currencies in in rapid decline.

Any chance of a live TV debate with a sample of those 'earning' over £1M bonuses and an invited audience representative of the general public to at least give a chance to the Bankers to explain why they are so important to all of us that we mustn't criticise them for fear they might move elsewhere? They all seem so convinced of their value to our economy that almost any level of subsidy from the tax payer is a small price to pay in order to retain their services. Perish the thought that their industry should be 'interfered' with by further regulation and be broken up in to smaller more financially transparent business units.

The only thing that has changed with UK Banking is good ole joe public can't get a decent loan rate even though he / she might have been banking customers > 20 years. Whatever god help them in a far worse position, but ball bustin inflation proof salaries / bonus payouts for the very well off indeed, remain unaffected! Time to put it all under the mattress again!

Its always been obvious that ownership of BarCap is purely for the benefit of the board.
Many dubious deals (sometimes in dubious countries) have been done over the last few years and I wouldn't mind betting that if 'records' were open to all, many would raise more than a few eyebrows!
I question too, where the funds come from for(which accounting rules applied) for Barclays Premiership sponsorship and how on earth Barclays still manage to fund a small fleet of aircraft, based in Northamptonshire, for publicity events and the enjoyment of their senior staff, let alone the hosting of a number of sumptuous Corporate events, one of the most lavish within weeks of the 'crunch' in 2008.
Scandalous! Varley and Diamond need reality checks - didn't US corporates have to 'flog' their 'corporate wings'?

The day after a major company announces the closure of a R & D facility with the loss of 1200 or so jobs, presumably fairly hi-tech and probably with knock on effects. The business topic for the day is about........... banks and who is now the biggest

Is the labour government about to break Discrimination Laws? From April 2011 anyone earning above £100K will start to loose their personal tax allowance. At £150K you certainly will have lost the whole of your personal allowance and therefore in effect find that you are paying 60% tax rate until you have repaid the personal allowance normally given. Then you will return to paying 40%.
How can this be fair? To be fair government should have decided on say a 60%+ tax rate above say 100K. However this would mean that very high earners would pay even more tax. As it is the moderately high paid will all pay an extra £210 per month extra and the very higher earners £210 per month as well. Anyone wish to look into this?

22. At 12:04pm on 03 Mar 2010, Justin150

...so you're Government goes broke and you as an individual won't be on the international stage?
How are you going to buy your Chinese imports when the pound is worthless?
Why do you think the Greek banks fell on the Greek National debt problem? - a coincidence was it?

Of course they're broke - that is why they are printing money!! There's only speculators who believe this isn't the case - well they probably know it but are prepared to risk hanging in until the last minute for a profit.

"Again it may have escaped your notice but at least in UK we have not been an isolated market for at least 200 years. "

No it hasn't - that was my point. Only those who convince themselves their nations problems are isolated from the worlds believe this. I mean are you trying to say that people who promote Barclays and SC as being 'banking role models' realise that they are just as vulnerable as the rest of them?

"China and India average wealth and asset holding is, at an individual level, massively below western standards for many goods and services which implies there is still plenty of room for trade to expand."

With what? with the worthless dollars and sterling they hold? Are they going to continue producing goods and services paid for with our IOU's?
It seems China has already decided it won't be - and the others will follow.
Only western people could be so arrogant as to expect the asians to keep taking their promises and providing cheap goods in return. A rating is a guide to past performance - not future preformance.

"You completely ignore the effect of innovation which will produce new markets for products that have yet to be created."

Oh the old 'innovation will save us' argument - well what sort of innovation do we need? - well I can tell you we would need free, cheap and clean energy on a mass scale to provide the innovation needed to get us out of this hole - and how are we going about seeking this innovation? - ah yes, cuts in higher education - that should sort it out!!

"Maybe these Spivs and gamblers know more about economics than you"

If that were true then they wouldn't have been staring at their screens in October 2008 wondering 'how could this happen' - and I wouldn't still be in a job now (because clearly I'm doing something right).

Maybe you're too quick to put your faith in people who have already let you down.
Remember - it wasn't me and my Economics that brought the country to the brink of disaster and left the tax payer with a £850 Billion bill!

HSBC with a market value of more than £120bn.
Hmmm.
Sounds like another one of those 'too big to be allowed to fail' type of banks. You know, the ones that if they did fail would take the entire ecomony down with them.
Break 'em up into small little banks that no-one cares about. All of 'em. Sooner the better.

No sane person would ever sleep with a loaded gun on their pillow beside their head, but yet our society is run by crass idiots that let privately run buisnesses pose an equal threat to all of us.

Either smash the big banks into tiny little bits (about the size of small betting shops) or yet close them down and hand their function over to the state.

Anything else will just be a repeat of the same boring disaster.

Sir,
It is worth remembering that the long-time planned take-over target for RBS was Standard Chartered, and it was a very late switch to ABN Amro that caused so much of the resultant problems, including the rushed due diligence reviews from which it currently suffers!
Yours aye

26. portofca


sod the live TV debate. Skip the foreplay and cut straight to the live guilotinings. much better ratings.

Echoing DBB59

Still struggling with why you as "Business Editor" seem to spend so much of your time on these pet topics/hobbies of yours, RP.

And anyway, I'm sure I'm not alone in saying that I'd be much more interested in reading a more balanced appraisal about the banks from the BBC's economics editor. Stephanie's (or Hugh's) reporting is always unbiased and has real substance, and is without unnecessary sensationalism.

At 12:35pm on 03 Mar 2010, portofcal

...now I would pay big money to watch that - and even more to be in the audience....

It would be a much better idea than the politicans debating because:

a) The Bankers are in control, so why do we want to see politicans debating
b) The politicans can lie about things we are not privvy too - the bankers don't have that luxury
c) The country would wake up and realise it just missed the biggest robbery in the world.

WOTW

I'm afraid your memory is going :

"We are very clear that we will only proceed with this transaction on terms which produce the right results for our shareholders. We have high benchmarks for returns and we will not compromise them."

www.telegraph.co.uk/finance/markets/2812432/ABN-may-disappoint-Barclays-and-back-RBS.html

The all share deal would have had less of an effect that paying cash as there would have been cash available to soften any losses.

Actually, the only people who really produce anything of importance for the world are farmers. Bur Pol Pot tried that route and it did not work.

What we have is not perfect, but it is the best choice at the moment

30. tm123:

how terribly unfair that the government is thinking of hitting the moderately well paid, as opposed to the obscenely well paid.

Still, if you're getting paid over a hundred grand a year it's not quite time for the bailiffs just yet is it? Not quite in the same league as the food or heating conundrum facing a lot of folk out there.

My advice. Take it on the chin mate. Things can always be worse.

#26 portofcall

The BBC don't have a great track record in 'representative of the genereal public' debates -just look at recent Question Time broadcasts....

#24 Sean

The banks that failed were generally retail only - Fred Goodwin's ego being the RBS problem - so splitting should be at the back of the list for now

'is why shareholders haven't weighed in?'

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

Because the largest shareholders outside of the privileged confines of the banking sector Boardrooms are the 'pension funds' and looking at our pensions and my traditional UK based pension has drastically under-performed in recent years/last 10 years particularly...

the performamnce of most UK based pension funds has been dire over this period and so...

'people who live in glass-houses shouldn't throw stones' - the largest shareholders - the one's who have the clout are looking around and wondering - when is my pay and bonus going to come under scrutiny and the answer is, of course, I hope - right now!

Robert

Same issues with the 'banks', the boardrooms of the largest shareholders stifled with the same rights and privileges, absence of stakeholder, 'golden ladder', private members opportuntities greedy exploitation clubs - the same issue of rewards for failure and under-performance.

The customer and taxpayer holding a pension is probably the same customer being exploited by the banks and rotten government - things need to change and not by waiting for a another several years of G7, G20, IMF, Basel Committee edicts, meetings and conferences - but by the actions of a competent UK government 'going it alone' and doing what needs doing - Now!.

And the PIIGS 'might fly'. There's more than 'one piggy with its finger in this pie'.

11 Martyn Owen.

I totally agree about the average shareholder being disenfranchised and not able to influence corporate behaviour.

For most people their shares are in the form of pension funds or investment funds and the voting rights are taken by the managers of those funds.

This keeps the decision making power in the hands of the banking and financial services old boys club increasing their view of their own importance more than I would have thought possible to justify. Yet justify it they do taking their non performance related slice of the action (remember charges can go up and up futher).

Even the government colludes in the financial services stitch up that is milking us for all it can get. Retrictions on pensions investments leave no choice but to get on board the crazy train while the gravy train continues on its own track.

The inability of the owners of wealth to influence the companies that it is invested in can't be a good thing. The financial "industries" are an exaggerated microcosm of this.

"Credit Crunch", what a nice term for the greatest robbery of personal wealth in history. Everyone understands that some banks are doing well and maybe some mention of the banks that failed and continue to fail would be in order. The "big" banks of course will have the businees these banks once had. Most of this means absolutely nothing to those unemployed or facing retirement hardships because of what these banks colluded to do. As rick mangement is the primary function for banks and invesment firms, they not only failed but developed a scheme that gambled away the assets of their despositors while the legislative bodies and governments stood by doing nothing. As the banks move off to Asian Markets they leave in their trail shattered economies, unemployment, loss of personal wealth and higher taxes...all from the greed of bankers and impotent governments unwilling to act on behalf of their citizens. Asia....fair warning....as the old Chinese saying goes: Wholesale thieves, start a bank.

An interesting article, Robert. I know you won't change your mind, but I feel I have to take you up on several points.

I still find it hard to see how the bonus structure led to the problem. Hindsight is amazing. We all know that CDOs were toxic assets. But at the time, I don't recall you saying what dangerous instruments they were. If not even you spotted the poison till the patient died, I don't think you can blame the bonus culture for getting people to take insane risks. At the time, people thought these investments were normal.

HBOS made a series of highly questionable lending decisions. The City obviously realised something was very wrong as their share price fell through the floor. It wasn't CDOs that brought them down but sheer banking incompetence.

You say that Lloyds would be a bit better off without HBOS. You understate. Lloyds would be sailing along with a minor glitch in their normal excellent record if they hadn't made the disastrous decision to buy HBOS. Remember their share price stood at about 280 before the City got wind of their intentions to buy HBOS. You talk about the value of the company. This masks the position. Much of its value is newly subscribed capital standing at a bare premium to its sale price - and in the case of the Government capital injection, a major discount.

This breathtaking incompetence remains unpunished and I am amazed that the Governemnt have not used their huge vote to kick out the people involved in that decision.

I am reminded of a General's withering question when appearing before the McCarthy inquisition in the 50s - "Senator have you no shame?". Equally, have the board of Lloyds no shame over what they have done to their shareholders.

Robert

Regardless of your excellent and detailed analysis of the Banking systems; bonuses; and asset values etc. there is only one analysis that the good-old British voter is going to make at the now over-due general election.
Let me offer my own analyis of the situation:
- Banks gamble their money and lose.
- Banks run to the government for a bail-out.
- Government/Treasury/Bank of England hand over large wads of hard-earned tax-payers money.
- Banks make promises to, said, government departments
- 2 years down the road, poor tax-payer is wondering why the bank will now not extend the over-draft to keep his/her company going.
- poor tax-payer is also wondering why his/her local council is cutting services.
- poor tax-payer is wondering why he/she can't get a job.
You don't need to be an expert to analise what the voter is going to be thinking come election day!

39. At 1:39pm on 03 Mar 2010, yam yzf wrote:
The banks that failed were generally retail only - Fred Goodwin's ego being the RBS problem - so splitting should be at the back of the list for now

Would that hold true if the taxpayer hadn't stepped in?

#16 Yam Ysf

Thank you for clarifying this for me - investment banking is not really my world.

I wonder how much profit they made from the sale of Barclays Global then - and how much profit they would have shown if they hadn't sold it?

36. At 1:28pm on 03 Mar 2010, writingsonthewall wrote:
26. At 12:35pm on 03 Mar 2010, portofcal

No long and drawn out, some things are to be savoured!

I'd pay too.
I quite like the idea of a Question Time format. Not sure who I'd have on as the non-banker panelists. Jo Brand perhaps to keep Paxman calm and ready to dish out more volleys.

11:53am on 03 Mar 2010, writingsonthewall wrote:

This is not an unusual story - most of the big banks and investment houses have their roots in exploitation. The Capital from which allowed them to exploit our markets through their sheer size.

...strangely banks don't want us to remember this history - it's the 'inconvenient truth' they are desperate to hide.

Another inconvenient truth is that private banks create 97% of all new money as a debt with interest, which is a huge cost to society and the real economy. The recent quantitive easing has also mainly helped the banks rather than the real economy.

Anyone else feel slightly aggrieved that Investment banks seem to be doing very well at the moment.... but investments don’t?

I do hope my bank aren’t sneaking off to the Casino again with my money and not cutting me in on the deal!

37. At 1:33pm on 03 Mar 2010, yam yzf wrote:

Where in that article is the criticism of their prudence you mentioned previously? All I can see is facts about the bid.

"The all share deal would have had less of an effect that paying cash as there would have been cash available to soften any losses."

...and how would Barclays have been able to raise the capital from the middle east that saved them?

You haven't answered the fundamental question - how would it have been different if Barclays purchased ABN for 9.8% less than RBS (which was their final offer)?

"What we have is not perfect, but it is the best choice at the moment"

That's what I used to say about my old Austin Allegro - until I realised that it was breaking down so often in the end I would be better off walking.

....just like Capitalism.

39. At 1:39pm on 03 Mar 2010, yam yzf wrote:

"The banks that failed were generally retail only - Fred Goodwin's ego being the RBS problem - so splitting should be at the back of the list for now"

now that's nonsense - it was the restriction of credit which was brought on by the speculation of the credit departments in the investment banks that was the first sign of problems.

Of course this had a greater effect on the retail banks, they were the classic 'last in, last out' - whereas the crooks like Goldman had already sold on their packages of hot air.

That's like sending the fence down for the burgulary - so I presume you won't be surprised when we get burgled again even though the fence is safely behind bars...

For anyone who tries to split the bonus issue from the failure of the banks should consider this.

The architects of the CDO's were getting paid huge bonuses for 'generating profits' from the packaging and sale of these instruments. As these packages were basically fraudulent (as the worldwide regulators are now demonstrating with record fines) - the bankers were incentivised to commit fraud

Every time there is a bonus structure, corners get cut and short term profit making grows. Whether it be investment banking or used car sales.

Now that we know (with hindsight) that these products were constructed, rubber stamped and sold on without full disclosure - and that the men who created them got paid handsomely - how can you defend the bonus culture.

I mean if you were a CDO man back in 2005, you knew these things weren't worth a brass bean, but you knew if you could sell enough of them you would be able to retire - wouldn't you be doing the same?

...and now the same thing is happening, except the CDO has now gone, and the new game in town is Government subsisdy.

Don't forget folks, as a 'financial whizzkid' the up side is millions of pounds in bonus payments and the worst case scenario is the sack.

Can't lose - it's a mugs game.

# 37. At 1:33pm on 03 Mar 2010, yam yzf wrote:

> Actually, the only people who really produce anything of importance for the
> world are farmers. Bur Pol Pot tried that route and it did not work.

I do like a nice lamb chop now and again. But I also like my MacBook!

> What we have is not perfect, but it is the best choice at the moment

What we have is a load of old rubbish, which is why we're making other arrangements that might empower the individual by stripping power from the establishment. That means moving to electronic news and deal-making to impoverish the middlemen. Long live the (Internet) revolution, and down with the banks (except the ones we have bought, of course!)

47 CopperDolomite

Wrong blog - this is Pestons Picks - you want Nick Robinson next door!

BTW - I'd already suggested that - there are also various other suggestions from myself and others which would certainly make it worth watching!

Yes, but what about the dividend being paid?

In troubled times investors like to seek solace in dividends/good yields. Without these the shares are a speculative punt... in some ways RBS is ''option money''.

Banks should be producing 4% yields on their shares.
Barclay's big mistake is that it is not paying a decent dividend to shareholders. They seem to be more interested in paying high salaries and bonuses to the few ...a la Goldman Sachs.


Income producing shares versus Capital incremental shares...Simples!!

"Does Barclays own Barclays Capital for the benefit of its shareholders, or for the benefit of its highly-paid executives?"
Easy. Shareholders (not to mention tax payers) count for little nowadays. That was why the banks went into self destruct in 2008.
They just think Bonus, bonus, bonus...

#53 Jacques

"Long live the (Internet) revolution, and down with the banks (except the ones we have bought, of course!)"

Unfortunately, govt have already invaded the internet to try and prevent said revolution. One of the reasons they are so keen on broadband is that it generally means a static IP address which is easily traceable :( Not impossible to circumvent, granted, but not always easy either.

#51 WOTW
The root cause can be laid at the doorstep of govt again, especially Mr Clinton. They ensured that banks were made to lend to those who the bank would normally avoid, hence the term subprime. The CDOs were not the problem, the problem was when the subprime mortgages started to go bad through people not meeting their mortgage payments. The market then got jittery and the one thing the markets do not like is uncertainty, hence investors started disappearing as their was not greater risk to their money and they felt the risk was not worth the returns.

A different article in the telegraph shows that "Shares in ABN Amro surged more than 5pc this morning as traders welcomed the prospect of the bidding battle." www.telegraph.co.uk/finance/markets/2807833/Royal-Bank-of-Scotland-trumps-Barclays-with-49bn-offer.html

Just thought I'd give my opinion on shareholders.

Life's not fair and shareholders who don't look after their own interest in a venture by active executive participation deserve to get fleeced by their directors and more often than not do.

Now I won't go so far as to say people who contribute to a pension fund deserve the same, because they are shareholders, but well I'll say it anyway the same principle applies.

I laugh when I hear 'Independent' Financial Advisors calling for people to educate themselves about Finance and to start a pension early.

Stay stupid people. You will be better off.

Cheers

54. At 4:46pm on 03 Mar 2010, Tigerjayj wrote:
47 CopperDolomite

Wrong blog - this is Pestons Picks - you want Nick Robinson next door!

Nope. Nick is talking about the debate between politicians, the guys with no power. That's just all just a polite game, debating tiddlewinks.

The response I gave was to a proposed debate about having the powerful, string pulling mastes of the universe bankers et al on telly to justify themselves.

#60 copperDolomite

I'll second that.
UKFI has a big stake in the banks but does not wield any power.
It is ignored by the banks as being of no consequence.

The bankers will not ever turn up to a debate however.
Think about it. Why should they?
They are in charge for themselves thankyou very much..

Robert wrote:
"Because Barclays share price appears to be deriving almost no benefit from its ownership of one of the world's very biggest investment banks."

I love reading some of these blogs because like the Climate Change freaks, we do seem to exaggerate the situation.

In spite of making good profits, Barclays are repairing their balance sheet and probably (I don't know) not fully writing down dubious assets. Their dividend for March is a mighty 1.5 p per share. That translates as a return of 1.5 divided by 329p or about 0.012%. More than Lloyds but not enough to set the pulses racing.

So their share price reflects that and it's no wonder the capitalisation of Barclays is so woeful. OK, the investment bankers are feathering their nests but the banks need to rebuild and meet new Capital requirements. If you're looking for a long term investment maybe it will deliver but right now the jury is out on all Bank shares because, like many bloggers on this site, many believe the worst is not over so all Bank shares are suffering.

It isn't the end of capitalism (as many seem to wish) but maybe the start of a more shackled Banking sector. The great pity is that that Governments let these guys gamble in spite of the lessons of the 30's and in spite of the early tremors caused by LTCM in the 90's. Could it be they liked the tax generated - surely not!

# 5. At 10:27am on 03 Mar 2010, yam yzf wrote:

> Or could this be seen as another populist piece on
> bonuses and pay again - perhaps out of spite or jealousy?

You make it sounds as if we all have to work! We're not all
chained to a desk, you know. Many people inherit good sums,
but it doesn't mean we like being ripped off by measly
bank-clerks in London head offices.

#63 Jacques

Unfortunately I am one of those who has to work :( Granted I do a job I enjoy, so perhaps that is why I do not get too irate when I hear about the bonuses etc.

As some have said before, though, as a percentage of profits, the individual bonuses are not incomparable to some other sectors. And from people I know, they are not bank clerks who do 9-5 with an hour lunch but are often working 18 hour days. Not making excuses for them, for I would prefer to have my job than that for at leastt when I work an 18 houur day it does not feel like it because I am enjoying it.

"Well arguably investors are valuing both Lloyds and Barclays on the basis of their substantial enduring shares of the British retail banking market. These are annuity operations that will yield very substantial, stable profits once interest rates rise a bit and once bad debts subside.

They will be fantastic businesses again when economic conditions are more benign."

By "fantastic" I presume you mean the size of expected Profits they will eventually report will be so great this will leave, even you Robert, incredulous!?

The hierarchy will probably change. But then we're really only talking about a league which consists of about 5 contenders. That's a pretty small league. The point is the reason why the league is so small? Because the contenders are so great, there is essentially no other competition - something the OFT saw quite plainly during their bank charges "campaign."

Shareholders have rarely become embroiled in a company's affairs. There are a number of reasons why not. But they ought to be more active. In some areas of life the principle is, if you don't use it you lose it. Maybe it's time for inactive shareholders to lose their rights. But of course that would mean having a government willing to bring about such change. If it's Labour, Tory or Lib Dem in charge, well yes it's never going to happen.

Can anybody educate me on where to get info on the fees paid or discounts given to the investment banks by the taxpayer for offloading £225 billion gilts?
Thanks

#66

Ask A. Blair esq, financial consultant to J.P. Morgan.

"So here's what Barclays owners have to ask themselves. Does Barclays own Barclays Capital for the benefit of its shareholders, or for the benefit of its highly-paid executives?"

Given that dividends to shareholders for last year totalled just £113m, while staff bonuses were some £2.9 bn, the answer seems pretty clear!

# 64. At 11:20pm on 03 Mar 2010, yam yzf wrote:

> # 63 Jacques
> Unfortunately I am one of those who has to work ...

Then you can gauge how irate "essential people" have become. Consider our troops, who get a pittance that is further devalued by the enormous wages of parasites who just suck from the trough of financial transactions in London. We had to squish inflationary unions in the 70's, and now we have to do the same to the bank-clerks. We can't have the tail wagging the dog, you know.

Another banking story.

How novel.

GC

64. At 11:20pm on 03 Mar 2010, yam yzf wrote:

"As some have said before, though, as a percentage of profits, the individual bonuses are not incomparable to some other sectors."

...except in other industries they actually produce something of value

"And from people I know, they are not bank clerks who do 9-5 with an hour lunch but are often working 18 hour days. Not making excuses for them, for I would prefer to have my job than that for at leastt when I work an 18 houur day it does not feel like it because I am enjoying it."

Yeah - this '18 hour day' is a joke - I work in the city and the only people doing 18 hour days are those incapable of achieving their tasks in 7 hours like the rest of us!

Even if we assumed everyone in banking was working those hours - it doesn't detract from the fact that nobody can (or won't) actually explain (in plain english) what is the constructive purpose of banking.

By using acronyms and talking about very small and complicated elements of the markets they seek to confuse and spread dis-information.

The simple fact is that banks cream the excess labour effort from every business they invest in (it's called interest payments). They then are supposed to re-allocate this excess to start up other businesses (that's what the free market calls efficiency).

However they can't help dipping into this excess labour value and paying themselves (and sometimes the shareholders) big bonuses.

The result of this is an imbalance - the surplus extracted from the worker means they are on a steady decline of wages. It's small enough not to be noticed, but over the course of time (a boom) it eventually rears it's head. Inflation helps disguise the fall in real wages.

This is why recessions / depressions occur - because the workers (who are also most of the consumers) find they are no longer earning enough to provide their needs (food, energy, water etc).

When this happens consumption falls - then businesses go bust - and more workers lose their jobs - it's a cycle or spiral downwards. The workers don't stop buying goods and services because they don't want them - but because they can no longer afford them.

It's all very simple (and logical) - but obviously if everyone gets wind of this the working class will ask themselves why they need this system and overthrow it.

Still there are collaborators who stand by Capitalism as being 'fair' - and when it's pointed out clearly that it isn't - then they claim this is not Capitalism.

What they fail to understand is Capitalism isn't failing, it failed the first time the Government had to step in and save the system from collapse - not sure exactly when - but it was some time ago.

This is why we now have 'state sponsored Capitalism' - which nobody likes.

"So here's what Barclays owners have to ask themselves. Does Barclays own Barclays Capital for the benefit of its shareholders, or for the benefit of its highly-paid executives?"

Cost of sales my dear boy. Cost of sales.
The same could be said of the gleaming head offices.
They have to look smart to attract the right incredibly bright and focussed executives.
If the marble floors were not to be polished correctly then those executives would just walk somewhere else.
Now that would never do.
I mean the shareholders would get nothing.
Shame.
But of course at the same time the taxpayers would not get clobbered.
Now you are getting there. That would never do.

Well lets see Barlays were not stupid enough to let the Government ruin their business,Lloyd's,RBS were not,there is a lesson here DO NOT LET THE GOVERNMENT MEDDLE,they cannot balance their own books why should they think they can help in the real world.

Alesha Soba 66: Gilts are auctioned, sealed envelope style. So you have to bid high if you want them, but not so high that you end up making a loss when you sell them on. The govt doesn't pay the investment banks to take them. Quite the contrary.

wotw: More nonsense, I see. You've often said that you work for a bank, so how come you have absolutely no idea what your company does? I bet it's a real pleasure being on one of your projects.

Amongst many other services:
Investment banks arrange corporate bond issuances, ie helping companies raise money through issuing coupon-paying bonds rather than having to take a loan. The bank arranges the issuance, finds the investors and handles the trading, in exchange for a fee. In return, the company gets finance at a rate far below that of a simple cash loan. The risk is well understood and managed, investors (private and corporate) get a reasonable return which is often better than a savings account, and the company gets finance at a better rate. How is that not beneficial to all parties?
Investment banks arrange swaps, whereby clients can reduce or remove their exposure to various risks, such as exchange rate fluctuations or interest rate changes. There is a cost involved, of course, but that is the price of removing uncertainty. Corporations want to know what their cashflows are for a while into the future; they do not want to be faced with having to stump up extra cash to cover their outgoings at a difficult time for business. Arranging swaps with a bank allows them to do exactly this.
Investment banks arrange governmental funding, whereby govts issue Gilts / Treasuries etc as a soure of income. It's often more convenient than putting up taxes, and can be easier than cutting spending.

How are any of these "useless" activities? How is the fact that the bank acts to broker the deal "not adding value"? You don't buy a car direct from the factory, or a house direct from the vendor, or food from the farmer. You CAN, just as you can go direct in finance. But most people pay a bit extra to the car dealer, or estate agent, or supermarket, to have somebody handle the deal. Far better, and easier, to pay somebody who does the same job day in and day out to handle your finance and do it in 2 hours, rather than you have to sit there and work it out, with no experience, take 2 months over it, and get less out of it.
I fail to see why this is such a problem to you. Banks, in general, and traders, in general, know quite a lot about risk management. Yes, there was a big problem in recent years but it was in a very niche area of the markets, namely mortgage backed securities. This does not imply that there was not a lot to go wrong; we have seen that the effects were actually pretty big. But the overwhelming majority of the deals done and trades executed are mostly well understood, and their risks well established.

I think you are simply fixated on your neo-communist ideals, so worked up by the idea of overthrowing the system, that you refuse to consider any of the reasons why our current economic structure is so much better for all concerned.
I will agree with you that a benevolent dictatorship is probably the best way to run the country overall, but in practice it's a lot easier to get the dictatorship than the benevolence, so in practice I'm afraid your ideas hold less water than a colander.

#9 >>Ah the folly of bankers - well is Asia going to continue producing such growth now all it's customers are broke? (the west)

Isn't this a rather parochial statement ?? "all it's customers are broke? (the west)" How are *ALL* it's customers in the west ?? It might surprise you to know that less than 15% of the world's population live in the West !! The remaining 85% of the population also have to survive and needs the necessities of survival. Simple things like a bowl to hold water for drinking or a knife to cut up food can be bought cheaply from the East. Multiply that by billions and you'll soon get a significant number.

Fortunately or unfortunately, depending on the point of view, these very same people are not in the market of over-priced "luxuary" products. Hence the West cannot sell well into these markets. Hence it's "broke" as you say !!

What about the Middle East - is that a bedrock of stability and financial openess?

What has "stability and financial openess" got to do with the price of oil ?? *THAT* is the bedrock of their wealth and of their spending power !! Someone once said, "The Kingdom of Heaven runs of Truth and Justice; the kingdoms on Earth run on oil !!"

#28 In case you hadn't noticed, it was also mentioned above that Barclays *HAD NOT* taken the Queen's shilling !! Its top up funding came, mainly, from the Middle-East !! And rich Middle Easterners like the comfort of their fancy cars and their planes !!

#32 >>Sounds like another one of those 'too big to be allowed to fail' type of banks. You know, the ones that if they did fail would take the entire ecomony down with them.
Break 'em up into small little banks that no-one cares about. All of 'em. Sooner the better.

Your reading and comprehension seems a tad deficient.

It was also mentioned in the article that HSBC *DID NOT* fail !! It *DID NOT* take the Queen's shilling !! Neither did Standard Chartered !!

So, why the rant about them ?? Or are you simply in a ranting mood ??

Both HSBC and Standard Chartered have diversified their areas of operations. So too, to a certain extent, has Barclays. They believed in the old adage about eggs and baskets and they are proved right !! In case it may have slipped your notice, *ALL* the *FAILED* banks are localised in the UK or the West !!

If you wish to rant, perhaps you should rant at the West for being "Failed States" rather than rant at successful banks for being "to big to fail" since they *HAVE NOT FAILED* !!

#37 >>Bur Pol Pot tried that route and it did not work.

He planted the wrong crops !! You can't grow people by planting a lot of capitalists and reversionists !! :-)

Then again, Singapore, with barely 1 square inch of crop land, seems to be doing rather well !! They are well out of their recession and well on the way to their normal growth !!

#42 >>As the banks move off to Asian Markets they leave in their trail shattered economies, unemployment, loss of personal wealth and higher taxes...

Firstly, you'll find that the banks cannot easily up sticks and "move off to Asian Markets"

Secondly, the banks that are making it big in the Asian markets have been there for at least half a century. Both HSBC and Standard Chartered have the right to issue banknotes in Hong Kong and have done so for nearly a century. Surely, not your average fly-by-night bankers !!

Thirdly, none of these banks will take kindly to "FILTH" (Failed In London, Try Hongkong) muscling in on their "home" turf !!

#50 >>That's what I used to say about my old Austin Allegro - until I realised that it was breaking down so often in the end I would be better off walking.

....just like Capitalism.

The Austin Aggro was a Socialist car, rather like the Trabant, badly built, heavily subsidised and died an unnatural death when better cars were available in the market !!

Bailing out the banks is Socialism in action. Pure capitalism will have let them die unnatural deaths and let the other banks pick up their market share !! Of course, Our Glorious Leader, being not merely Socialist, but Scottish, to boot, cannot allow the 2 "Premier" banks of Scotland to fail !! So he bailed them out !!

If he had not, we'll still have 4(FOUR) major High Street banks - HSBC, Barclays, Lloyds TSB and Tesco !! And we'll have saved a lot of financial grief !!

#74 >>I think you are simply fixated on your neo-communist ideals, so worked up by the idea of overthrowing the system, that you refuse to consider any of the reasons why our current economic structure is so much better for all concerned.
I will agree with you that a benevolent dictatorship is probably the best way to run the country overall, but in practice it's a lot easier to get the dictatorship than the benevolence, so in practice I'm afraid your ideas hold less water than a colander.

Well, Singapore had/has an, almost dynastic, benevolent dictatorship, oops sorry, I mean a "guided democracy", and they aren't doing too badly. Then again, they don't have the dole and are not too keen on trade unions and wildcat strikes !! They also have a very lean and mean public sector and they are definitely no politically correct !!

Surely what is missing here is the reaction of the Pension Funds. I thought they invested in the Stock Market to earn dividends to pay pensions.

Yet here they are meekly accepting a derisory 2p / share (£248 million) from a bank paying billions to it's employees. Why be a Barclays shareholder? The Pension Funds would probably do better cashing in their Barclays shares and putting the money in a safe bank e.g. RBS or Lloyds.

Why aren't the Pension Funds demanding a better return on their investments? Aren't the shareholders the owners of the bank? They seem to be very poor stewards of their investors' funds.

#82 >>Why aren't the Pension Funds demanding a better return on their investments? Aren't the shareholders the owners of the bank? They seem to be very poor stewards of their investors' funds.

Perhaps it is this very "demanding a better return on their investments" type of stewardship that led to some banks gambling in the markets in hope of paying ever better dividends !!

Alternatively, a certain Mr. B. Madoff "guarantees" excellent returns on your investments if you invest with him !! I believe he can still be found somewhere in New York !!

Of course, there are those stewards that invest in shares of banks with less likelihood of going belly up in the near future !!