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Taxpayer to profit from insuring RBS

Robert Peston | 09:35 UK time, Friday, 6 August 2010

For me, the most interesting bit of RBS's 303 pages of info on its first half results (a case, I fear, of more is less - lots of duplicated and baffling detail) is the stuff on the asset protection scheme (APS).

RBSThis is the insurance contract written by the government to protect RBS against losses greater than £60bn on more than £200bn of poor quality loans and investments.

Now RBS accounts for the contract as though it were a credit derivative.

What this means is that when conditions in the credit market deteriorate, it books a profit on the APS contract. And when they improve, it books a loss.

The logic is that the contract becomes more or less valuable according to perceptions - as reflected in interest rates paid by riskier borrowers relative to those paid by risk-free borrowers - of whether life is becoming easier or tougher for borrowers.

Because it's such a huge contract, the impact of the changing valuation of the contract is material.

In the first quarter of 2010, RBS booked a £500m loss on the APS. But as conditions in credit markets deteriorated (a big hello to the eurozone and its woes) the value of the contract rose for RBS, so it booked a £500m profit.

The corollary, of course, of the rise in the value of the contract for RBS is that it represented a notional loss for taxpayers.

So the chancellor will be relieved that the public sector doesn't use mark-to-market accounting, so he doesn't have to declare this loss.

In fact as and when the APS contract is unwound, the chances are that the public sector - the taxpayer - will be sitting on a fat profit, based on data provided by RBS today.

The amount insured under the contract has fallen from £231bn to £216bn, due largely to "maturities, amortisation and repayments" of loans (yes, some of RBS's troubled borrowers are paying their debts).

More relevantly though. RBS expects to incur just £20bn of losses on some £37bn of loans covered by the scheme where the borrower has gone bankrupt or cannot repay for other reasons.

So for the taxpayer to incur any loss on this insurance contract, RBS would have to suffer more than £40bn of additional losses on the remaining insured loans and investments, which have a gross value of less than £200bn.

Now unless we tip back into severe recession, that looks unlikely to happen.

So the chances are that the taxpayer will pocket the handsome fee for the insurance and never pay out a penny to RBS.

Comments

Page 1 of 7

  • Comment number 1.

    Now unless we tip back into severe recession, that looks unlikely to happen.
    -------------------------------------------------------------------------

    Oh deary me. Since when did the UK Govt become AIG?

    I think your analysis is slightly flawed RP. If we own 80% of RBS, its loss is our loss and its profit is our profit (although we wont actually see any of that profit). So whether we carry the profit on the Treasury's books or RBS's books, its still a zero sum game. Only when RBS becomes a completely segregated and fully privatised entity can we consider the credit protection we wrote on RBS's toxic assets to be a profit (assuming RBS or its toxic assets do not default fully by then)

  • Comment number 2.

    Robert, you've posted 7 blog entries so far in August and every sinlge one has been about banking. I know banking is a hot topic these days and I like banking blogs as much as the next man but isn't there any other business news to talk about at the moment?

  • Comment number 3.

    What you are saying is that it could be worse and what you are not saying is that it is good. It is not the job of government to take ill defined risks with taxpayers money and it is only justified if failing to do so results in financial meltdown. If the risk - reward trade off is good why did not private finance market come to the rescue?

    What is important is precise forensics on the causes of the situation RBS and others found themselves in ie a top level public inquiry also covering the role of the BoE and its MPC nerds.

  • Comment number 4.

    More relevantly though. RBS expects to incur just £20bn of losses on some £37bn of loans covered by the scheme where the borrower has gone bankrupt or cannot repay for other reasons.

    Just more than half! Just more than half! Robert! If I lost just more than half of my salary on the way home, perhaps via the bookies, I'm sure I'd hear my hubby use the word 'just' It would be quickly followed with a very, very long silence. That's duvet on the couch stuff for most of us mere mortals.

  • Comment number 5.

    Now unless we tip back into severe recession, that looks unlikely to happen.

    Hmmm, now when you begin cutting wages, jobs etc like Nevada, California guess what happens. You go straight into an abyss. Guess what our government has planned for us! We are jumping right in to that abyss. Like lemmings.

  • Comment number 6.

    Quoting "So the chancellor will be relieved that the public sector doesn't use mark-to-market accounting, so he doesn't have to declare this loss."

    I shudder to think where and when, accounting practice might end up trashing the economy.

    Wasn't it 'credit derivatives' and 'swaps' that caused the recession in the first place?

    Deja Vu? Lord help us all!

  • Comment number 7.

    "a case, I fear, of more is less - lots of duplicated and baffling detail"

    Baffling? - but why would they want to baffle you Robert - is it because they're trying to cover up the truth from the investors (that's us by the way, or rather whichever generation of poor taxpayers are going to be lumbered with it)

    "as reflected in interest rates paid by riskier borrowers relative to those paid by risk-free borrowers "

    Risk free borrowers? - who are these people Robert? - Are we talking about Governments - because if you look throughout history Governments are anything but 'risk free' - in fact, according to the credit derivatives markets some Governments are 'riskier' than corporations at the moment!
    Just another fundamental assumption bankers make which is WRONG, there is no such thing as a 'risk free rate'.

    "In the first quarter of 2010, RBS booked a £500m loss on the APS. But as conditions in credit markets deteriorated (a big hello to the eurozone and its woes) the value of the contract rose for RBS, so it booked a £500m profit. "

    If what you say is true - then this is contrary to the claims being made yesterday that the changing of credit expectations is not being booked as 'profit' - in fact I recall wholistens accusing someone of not understading "how banks work" if they believed that Lloyds were conjouring profits from the reduced impairments - and yet here we have RBS doing exactly the same.
    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/08/is_lloyds_doing_enough_for_uk.html#P

    What a shame some people's perception is so far from banking reality.

    Whilst all these banking profits are good fun - the real story of the Ecconomy is the rising commodity prices in a 'wage deflation' environment. Now who can work out what happens next.........?

  • Comment number 8.

    Now RBS accounts for the contract as though it were a credit derivative.

    Now, what did Alan Greenspan and the others call these derivatives years ago. RiskAnalyst? So our bank is playing with the stuff of destruction, our bank and our nations money! Am I mis-understanding this? Are we really turkeys voting for Christmas?

  • Comment number 9.

    'So the chancellor will be relieved that the public sector doesn't use mark-to-market accounting, so he doesn't have to declare this loss."

    Does this mean that the public sector marks-to-model?


  • Comment number 10.

    From previous thread but related:

    108. At 5:13pm on 05 Aug 2010, RiskAnalyst wrote:
    85. At 4:10pm on 05 Aug 2010, SmilingEdBalls wrote:
    68. At 3:06pm on 05 Aug 2010, writingsonthewall wrote:

    If you don't know anything about accounting than how will you know how a CDO is comprised....."

    Good grief man, get a grip. How is accountancy and CDO theory in any way related (aside from the fact that it is numerical and an accountant is more likely to be smart enough to understand the concepts).

    You really do write some utter drivel.

    -------------------------------------------------------------------------

    When a CDO is structured, how do you access the strength of the underlying collateral? By analysing the credit worthiness of the borrower, which involves the forecasting of the borrowers cash flow and the value of the property. The borrowers are then pooled together and historic default probabilities are used to construct tranches out of the pool which have various ratings attached to them. (But then the problem starts, accountants became bankers and ignored their principles."

    Whoopsie - RA has just revealed that he probably doesn't work in risk at all. I think you'll find most CDO transactions are delta hedged, thus you are trading correlation. Historic default rates utterly irrelevant to tranching (only to pricing). Bespokes have no rating.

    You pulled it off for a little while there RA, but your last post has exposed your knowlege gaps. A bridge too far mate.

  • Comment number 11.

    3. At 10:15am on 06 Aug 2010, watriler wrote:

    "If the risk - reward trade off is good why did not private finance market come to the rescue?"

    Spot on - 100%

    You cannot judge the words of bankers or politicans as they are so used to lying - you must judge them by their actions.

    "RBS will make a profit for the taxpayer" - but surely in a Capitalist society if there was a profit to be made then the private sector would step in (basic law of Capitalism)?

    "The Economy is in recovery" - so why are the BoE holding rates at 'historic lows' for a 'record breaking period' when inflation is running well over the agreed target?

    "Banks generate wealth" - So is it just coincidence that their 'wealth making ability' dried up when the REAL economy slowed down?

    "Cuts will prompt recovery by allowing the private sector to grow" - so why are private companies now fearing the reduction in state spending and the impact it will have on their business?
    (didn't anyone mention that "everybody's on a subsidy" - even the private sector train builders)
    http://www.guardian.co.uk/uk/2010/jun/04/railways-rolling-stock-cutbacks-network-rail


    ..all good questions, all very good questions - but you won't get any answers - simply because the truth will out these charlatans and everyone will realise "that king has no clithes on" - and promptly fall about laughing...

  • Comment number 12.

    2. At 10:01am on 06 Aug 2010, davidbrent wrote:

    "Robert, you've posted 7 blog entries so far in August and every sinlge one has been about banking. I know banking is a hot topic these days and I like banking blogs as much as the next man but isn't there any other business news to talk about at the moment?"

    Davidbrent, I know it might seem a little hard to take in, but BANKS ARE BUSINESS NOW.
    You see banks are prime 'resource allocators' and without their say so - you won't have a business (unless it's an existing 'debt free' one). So really what point is there talking about anything else.

    I'm sure the rest of the business world will get a mention when the last SME closes in Britain and we have a little ceremony for it.

  • Comment number 13.

    Re cause of recession Sanity4all

    "With breathtaking clarity, renowned University of Massachusetts Economics Professor Richard Wolff breaks down the root causes of today's economic crisis, showing how it was decades in the making and in fact reflects seismic failures within the structures of American-style capitalism itself. Wolff traces the source of the economic crisis to the 1970s, when wages began to stagnate and American workers were forced into a dysfunctional spiral of borrowing and debt that ultimately exploded in the mortgage meltdown. By placing the crisis within this larger historical and systemic frame, Wolff argues convincingly that the proposed government “bailouts,” stimulus packages, and calls for increased market regulation will not be enough to address the real causes of the crisis - in the end suggesting that far more fundamental change will be necessary to avoid future catastrophes. Richly illustrated with motion graphics and charts, this is a superb introduction designed to help ordinary citizens understand, and react to, the unraveling economic crisis."

    The quote is from http://www.capitalismhitsthefan.com/

    Watch the preview.

    Also a good article from Wolff

    Economic Recovery for the Few
    http://www.marketoracle.co.uk/Article21623.html

    Think WOTW & Ghost of Sichaun may agree

  • Comment number 14.

    Please do not believe the Bankers' spin. I know of two companies in my area whose loans have been called in because RBS is reducing its exposure to certain sectors. There must be thousands of other cases. This is why net lending is down. RP & others - why not use your influence to expose the truth?

  • Comment number 15.

    Although there have been encouraging signs for our economic growth, perhaps it's time, Robert, for a wee comment about the Baltic Dry Index, which hasn't featured for a while. It's looking rather limp.

  • Comment number 16.

    All very interesting, I simply want to know why it is that I am still working and paying taxes, as I have for 30 years, yet the banks are once more making profits, and no doubt getting more in bonuses than my salary, yet I'm not hearing about any of the £750 billion the banks owe us, being paid back to us.

    Lets keep it simple, if they don't pay it back, they(we) can't be bailed out next time, as they never seem to learn to take a small profit, is that greed?

    Isn't it about time someone decided to sort it all out in the open.

  • Comment number 17.

    8. At 10:23am on 06 Aug 2010, copperDolomite wrote:
    Now RBS accounts for the contract as though it were a credit derivative.

    Now, what did Alan Greenspan and the others call these derivatives years ago. RiskAnalyst? So our bank is playing with the stuff of destruction, our bank and our nations money! Am I mis-understanding this? Are we really turkeys voting for Christmas?

    -------------------------------------------------------------------------

    Unfortunately Alan Greenspan went from a staunch advocate of derivatives to a propagator http://www.nytimes.com/2008/10/09/business/economy/09greenspan.html) Even the Sage of Omaha, Warren Buffett himself has weakened his oppososition towards derivatives (http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748703441404575206252252365076.html)

    You can't help but laugh when people make a 360 U-turn, and they say money doesn't corrupt.

    Effectively the UK Govt has written a Credit Default Swap on RBS's loan portfolio, it was exactly this derivative that blew up AIG and many monoline insurers who provided credit enhancements. What RBS has gotten is a pretty good deal, because normally a CDS issuer has to be sound enough to honour its commitments (read as 'the boom years'). In this case, RBS has credit protection from its parent company, the sound as a pound UK Govt.

    Here's another way of looking at it, I have a mortgage through RBS, if I default the UK Govt makes RBS whole. Why doesn't the UK govt offer me the mortgage itself?

  • Comment number 18.

    It might be a good idea to read this before engaging in a battle of 'CDO knowledge'.
    Please note the part where the historic default rates (the ratings) are used to define the tranches.

    http://accruedint.blogspot.com/2007/03/how-does-cdo-work.html

    ...or if you want the more official version.
    http://www.wikinvest.com/wiki/Collateralized_debt_obligation_%28CDO%29

    Hope that helps!

    (is anyone stil wondering why the whole banking system nearly collapsed and that these instruments played a large part of it?
    If you stay the course to the end, you will see that 'risk' seemed to have been misinterpreted by the 'financial whizz kids'. )

  • Comment number 19.

    #1 it is not a zero sum game if the tax payer only owns 80% of RBS.

    Secondly (and a mistake banks make) profits and cash are not the same. If RBS loses £20-30bn "only" on the loans in the APS, govt makes no pay out but RBS paid a fee for the APS, so govt cash position is positive.

    WOTW: banks generate some profits (I am not going to get into the old argument about what wealth means as you and I will never agree) but there more important function is facilitate the rest of the economy making money. Perhaps the right analogy is that they are the oil in the economic motor. The credit crunch was the equivalent of dumping a load of sand in car oil tank.

  • Comment number 20.

    so Robert wrote about what RBS are spinning.

    watriler, WOTW, RiskAnalyst etc enlighten with professional, learned analysis.

    The result: RBS slapped down and told to go back to the drawingboard.
    Job done.

    Next...

  • Comment number 21.

    The problems with banking that caused the crash have not yet been addressed. They invested in purchasing 'assets' whose valuation was vastly overstated. Where was their due-diligence? Nowhere. Where is it today???? Is there any substantive evidence that the culture of gambling with other peoples money is in any way curbed?

    At one level it is a good thing that the banks are once again a reducing burden on the taxpayer - BUT at what cost??? Savers are still being robbed, with the smallest robbed most and investment decisions are still being based on completely unrealistically low borrowing interest rates. Further, nothing at all have been done about the insane economics that overvalues houses to the extent that UK wages (and US wages) have to be so much higher than our competitors just to pay staff to be able to live near(ish - but actually too far!) where they work - absolute insanity. All of these elements need reform and urgently.

    I also see that Barclays is threatening to leave the UK (see today's Guardian). Presumably for the Middle-East where it gets its capital. Let them finance it. But it should be made clear that Barclay's privileged regulatory access to London the the UK cash cow of the credit card will cease if it leaves.

    PS where is my stalker today? writingsonthewall - we have both had stalkers over the last couple of weeks - if you think about it it is really quite flattering! Our ideas must be getting noticed and I had thought nobody bothered to read these blogs! The good and the great must be getting scared by the facts and the truth!!!!

  • Comment number 22.

    #15. nutts wrote:

    "the Baltic Dry Index, which hasn't featured for a while. It's looking rather limp."

    and what of the price of containers to and from the far-east too?

  • Comment number 23.

    13. At 10:54am on 06 Aug 2010, twinturbo

    Very nice twinturbo, Professor Wolff is an old favourite of mine along with Naom Chomsky - he clearly puts the idea that "people borrowed because they were ill disciplined" in the bin.
    The reality is most people borrow because if they don't, their wages are not enough to help them progress, due to the rising cost of living through currency devaluation. It's either borrow, or actually see your standard of living reduced.

    Of course this is denied by thoe who lend - I mean why would they want to admit they are using lending to cover diminishing wages (which come from diminishing profit margins - something else which some continue to deny, despite the "in your face" evidence all around us)

  • Comment number 24.

    Re CDOs

    My understanding is that the synthetic cdo product called Abacus for which the SEC fined Goldman Suchs $550 million was sold by Paulson to ABN now RBS($840 million) and German IK Bank($150million)

    IKB was compensated the full amount.

    RBS was offered only $100 million.

    There was chatter on the net that the miserable offer was because RBS sre British as in Petroleum.

  • Comment number 25.

    17. At 11:21am on 06 Aug 2010, RiskAnalyst

    Och, I was thinking of that reference you gave the other day! And with only one hand on the keyboard today, it was just too much to go clicking to find. You know the one I mean, when you also referenced Neeson in the Guardian.

    Still, they are all parcels with no label to me. And we've all seen the trick of wrapping up a boiled sweet so much until it looks like the most enormous, super pressie. And then the horror of it only being a sweetie at best... Who wants to get landed with it, let alone pay good money for the box of unknowns?

  • Comment number 26.

    17. At 11:21am on 06 Aug 2010, RiskAnalyst wrote:
    Here's another way of looking at it, I have a mortgage through RBS, if I default the UK Govt makes RBS whole. Why doesn't the UK govt offer me the mortgage itself?


    Right so the government should deliberately make you redundant.... well, what do you know! My grannie would call that biting off your nose to spite your face - not bright of Boy George to be doing that, but he will.

  • Comment number 27.

    15. At 11:11am on 06 Aug 2010, nutts

    Is that the 'recovery' the news is always talking about - or is this in fact the 'new normal'?

    Good to see that despite the failure of the media to spot these indicators that there are still some out there with the inquisitiveness to find them.
    http://www.bloomberg.com/apps/quote?ticker=BDIY:IND

    So low shipping volumes - presumably on lower consumption, higher VAT, devaluing currency and above target inflation - bake it all in the oven and what do we get?

    A 'Flat-jack' economy. (flapjack)

  • Comment number 28.

    10. At 10:42am on 06 Aug 2010, SmilingEdBalls wrote:

    -------------------------------------------------------------------------

    > Historic default rates utterly irrelevant to tranching (only to pricing). Bespokes have no rating.

    Really? - A simple search on google would have been useful before you wasted your time writing out that post.

    http://www.bis.org/publ/work163.htm
    http://en.wikipedia.org/wiki/Collateralized_debt_obligation
    http://money.cnn.com/2007/11/24/magazines/fortune/eavis_cdo.fortune/index.htm

    So on what basis do the junior tranches carry an extra risk? Tranches indeed do have a rating, so on what basis are those tranches given a rating. The likelihood of default on the underlying assets, which in my example were residential or corporate mortgages. Now how do we derive a credit rating for those, we look at their cash flow and financial strength. The rating also implies a default probability, based on historical defaults.

    > Whoopsie - RA has just revealed that he probably doesn't work in risk at all. I think you'll find most CDO transactions are delta hedged, thus you are trading correlation.

    So how do you delta hedge a CDO? By writing a CDS contract, and how is a CDS contract priced? Again using the likelihood of default of the reference entity. Also what correlation are you trading? Could it be the DEFAULT correlation of the underlying assets? -http://db.riskwaters.com/public/showPage.html?page=168572

    So explain to me how credit analysis is not involved in the creation of a CDO? Even in a synthetic CDO?

    > You pulled it off for a little while there RA, but your last post has exposed your knowlege gaps. A bridge too far mate.

    Run along now, go back to your backoffice job. Don't forget to release that SWIFT, otherwise you may embarass your bosses once again.

  • Comment number 29.

    In other words RBS is calculating its profits and no doubt substantial bonuses to be creeping about later this year in part based on APS manipulation ... when this APS calculation material should be hived off and separately accounted for.

    Bent accounting?

  • Comment number 30.

    What's in a headline?

    "Personal insolvencies drop 3% in England and Wales"
    http://www.bbc.co.uk/news/business-10890955

    Hurrah! - we're going into recovery - the recession is OVER - we can all go back to work

    ...then look at this reduction graphically - a picture tells a thousand words (you can add in today's figure of 34,743 as the graph hasn't been updated yet)

    http://www.housepricecrash.co.uk/graphs-individual-insolvencies.php

    Is this story really telling us the full picture?

    Lets not forget these insolvencies come at a time of "historically low interest rates" - so what do you think will happen when we return to 'normal interest rates' - or worse 'higher than normal interest rates'?

    This is why the BoE is scared stiff of even mentioning the 'R' word - it's a catastrophe waiting to happen.
    Of course the alternative is the printing presses - an action I fully expect before the end of the year - further devaluing our currency and reducing our purchasing power making the already rising imported commodities even higher - something the people of Britain will understand and will feel.

    ...but don't listen to me - I don't know what I'm talking about...

  • Comment number 31.

    I wonder how much profit RBS will declare when it downsizes by selling over 300 branches and pimping the 1.8 million associated customers to Santander?

    Isn’t there are fairly major Data Protection issue with disclosing customer details to a 3rd party for cash?

    RBS branch sale to Santander: your questions answered:

    http://uk.finance.yahoo.com/news/rbs-branch-sale-to-santander-your-questions-answered-tele-acf693aaf5ae.html?x=0


    Among the answers it contains the following gem:

    “A spokesman for Santander said the bank wasn’t making a commitment that no customer would end up worse off after being transferred but said its offerings were highly competitive in all areas of the market.”

    Be afraid……

  • Comment number 32.

    21. At 11:35am on 06 Aug 2010, John_from_Hendon wrote:
    ...PS where is my stalker today?
    ---------------------------------------
    Sam_From_Hendon appeared this week. I am convinced that more than any other newby this was a PR representative to spin during the bank results week. Very little was provided in terms of evidential links, instead rather much opinion, sarcasm and failure to address issues raised. Probably disappear after today as the week long contract comes to an end.

    I am sure those with the time to research will find very similar posts in other forums, has anyone checked the Economist or newspaper economics blogs?

  • Comment number 33.

    RP, You been concentrating in critising on the banking sector even ever there were any news since your last report on Northern Rock before it's been nationlised. Just wonder are there no other business news you think might intrest the reader? i.e. drop of inflation, sales of EDF's UK grid etc.

  • Comment number 34.

    19. At 11:33am on 06 Aug 2010, Justin150 wrote:

    "WOTW: banks generate some profits (I am not going to get into the old argument about what wealth means as you and I will never agree) but there more important function is facilitate the rest of the economy making money. Perhaps the right analogy is that they are the oil in the economic motor. The credit crunch was the equivalent of dumping a load of sand in car oil tank."

    Well - we're almost there, I see banks as the resource allocators - after all when they lend money, most businesses will use it to buy resources (stock, labour, equipment etc.)

    My issue is who decided they were best for the job? The idea is that they should be making decisions based on profit / return - which should indicate a demand for the proposed use of the loan.

    If they were doing a good job then we wouldn't have the overproduction we're experiencing now - too many cars, too many goods, too many services and not the demand for them - hence the need for asset devaluation as a cure (something the Government has been putting off with inflationary policies)

    We don't need to agree on a definition of wealth - but can you not see that the banks have failed in their prime function - the consistent and correct allocation of resources across the Economy in line with the expected demand.

    In the past, banks would do this through a bank manager who would assess the loan prospect, investigate the business and determine if there would be demand.
    Modern banks simply lend in the boom times (because that's how they 'boom') regardless of the expected demand - and then draw it all back in.

    Collaterised debt was a good example of this - lending for profit, and not based on whether the request for a loan was 'profitable' and therefore an efficient use of resources (under market theory).

    Banks haven't failed in the Marxist sense - they're actually failed market economics and the idea of efficiency through lending and seeking profit.

    Now banks can't lend because the demand isn't there. If banks were a bit more intelligent then they would have started reducing lending gradually - not the on/off scenario we find ourselves in - which is of course extremely damaging for everyone.

  • Comment number 35.

    19. At 11:33am on 06 Aug 2010, Justin150 wrote:
    #1 it is not a zero sum game if the tax payer only owns 80% of RBS.

    Secondly (and a mistake banks make) profits and cash are not the same. If RBS loses £20-30bn "only" on the loans in the APS, govt makes no pay out but RBS paid a fee for the APS, so govt cash position is positive.

    -------------------------------------------------------------------------

    Ok, so I simplified it a little. Its a zero-sum game less 20% held by my pension fund and other investors. I think you are struggling to understand the connection here. If the fee comes out of RBS's bottom line, as the majority equity holder, whose return on investment will it ultimately effect? Now, don't talk to me about how the accountants will mitigate it somehow, I want real world answers.

    With the next round of banking crisis round the corner, I assure you this will be much more than a zero sum game.

  • Comment number 36.

    20. At 11:35am on 06 Aug 2010, copperDolomite wrote:

    "so Robert wrote about what RBS are spinning.

    watriler, WOTW, RiskAnalyst etc enlighten with professional, learned analysis."

    Sorry - we don't know what we're talking about - best off listening to the press release of RBS - we wouldn't want to mislead you and you know those bankers are always right, history tell us that ;-)

  • Comment number 37.

    21. At 11:35am on 06 Aug 2010, John_from_Hendon wrote:

    "PS where is my stalker today? writingsonthewall - we have both had stalkers over the last couple of weeks - if you think about it it is really quite flattering! Our ideas must be getting noticed and I had thought nobody bothered to read these blogs! The good and the great must be getting scared by the facts and the truth!!!!"

    I do admit that the more absurd the stalking becomes the closer we must be to the sharp end of it all.
    I'm just waiting for the revelation that I'm a dangerous radical, insurgent or terrorist or worse - some sort of paedophile insinuation - that's how they usually work to rid themselves of the 'inconvenient truth'

  • Comment number 38.

    28. At 12:01pm on 06 Aug 2010, RiskAnalyst wrote:
    10. At 10:42am on 06 Aug 2010, SmilingEdBalls wrote:


    > Whoopsie - RA has just revealed that he probably doesn't work in risk at all. I think you'll find most CDO transactions are delta hedged, thus you are trading correlation.

    So how do you delta hedge a CDO? By writing a CDS contract, and how is a CDS contract priced? Again using the likelihood of default of the reference entity. Also what correlation are you trading? Could it be the DEFAULT correlation of the underlying assets? -http://db.riskwaters.com/public/showPage.html?page=168572

    So explain to me how credit analysis is not involved in the creation of a CDO? Even in a synthetic CDO?"

    I think you're slightly confused here. Sell protection on an equity tranche, delta hedge it and if correlation increases you are in the money. Any default is offset by your long CDS, so any analysis on the underlyings is a moot point if you are taking a view on correlation.

    Sorry don't have time to post in detail. I take it from your lengthy posts that you either don't work in a bank, don't have much responsibility or perhaps your area has no risk?

  • Comment number 39.

    SmilingEdBalls - you just got mullered @ 28

    never mind - you've got all afternoon to do some internet research and come up with "another fault" in what RA writes.

    What a shame you don't train your 'sharp analytical eye' to cross RBS's 303 page first half results instead.

    I'm sure you can find a million holes in there if you look hard enough.

  • Comment number 40.

    19. At 11:33am on 06 Aug 2010, Justin150 wrote:
    'Perhaps the right analogy is that they are the oil in the economic motor. The credit crunch was the equivalent of dumping a load of sand in car oil tank.'


    I don't think that analogy really works (though I take your point). It suggests that the problem was generated externally from the system whereas in fact the oil managed to mess up the engine all by itself.

  • Comment number 41.

    #32. Kit Green wrote:

    "Sam_From_Hendon appeared this week. I am convinced that more than any other newby this was a PR representative to spin during the bank results week..."

    Whereas WOTW, who posts up to 50 times a day, almost exclusively between the hours of 9am and 5pm, and who must also spend a great deal of time hunting down all those negative stories to which he links, is not a PR stooge?

    I'm not suggesting he is - he is simply an angry, bitter old Marxist who rages against capitalism at every opportunity and refuses to accept that his long-awaited revolution will never happen - but if you really believe that some contributors to this blog are PR people then he is an obvious candidate.

  • Comment number 42.

    Here is hoping ...

    Baffling detail? Surely not! UK has more accountants than the rest of Europe put together, so there should be a corresponding higher number of accountant who can, and will, put together a report without baffling details.

  • Comment number 43.

    At 11:35am on 06 Aug 2010, John_from_Hendon

    "The problems with banking that caused the crash have not yet been addressed."


    A primer

    We are in the mess we are in because we don't earn enough to buy the stuff/services.

    Therefore the financial industry have to lend us enough to buy the stuff/ service.

    But we can't buy the stuff because we don't earn enough to repay what we have already borrowed so we can't borrow any more anyway.

    This means that the stuff/service providers aren't putting money from their profits (grossly inflated for 20 years) into the Bank.

    A vicious circle.

    Which means that the steady flow of money from poor to rich stops.

    At last.

    Although Thatcher & Joseph hymned "trickle down economics" money was always intended to be flow up poor to rich.

    Don't be blamed for this crisis which will get worse as job cuts & increased VAT take effect.

    The root cause lies with corporations & banks, media that didn't ask the right questions and a government that was and is not looking after the best interests of it's electorate.

    It is not in essence a financial problem. The roots are in the imbalance of power & wealth in our society the solution requires a fundamental restructuring of society.

    Suggest you look at the works of Marxist economists like Wolff (see 13 above both sites as well as Wolff's own site} or David Harvey's marvellous animation at http://comment.rsablogs.org.uk/videos/ (the one you want is Crisis of Capitalism but they are all worth watching.

    Please don't take the easy communism failed much of which was a distortion
    of Marx work.

    PS Baltic Dry up 1.1% yesterday. Won't be shipping Russian Grain though

  • Comment number 44.

    31. At 12:14pm on 06 Aug 2010, Paul_42

    Classic - I didn't even realise that Santander is getting the accounts from the branches too!

    Isn't that a bit regionist?

    Lets not forget folks that RBS is backed by the UK Government through it's 80% odd stake - Santander is not.

    I wonder what Friedman would say about the 'choice' faced by RBS customers at the moment....

    It will be interesting to see how many customers can freely move to other banks - as I found out recently 'other banks' are not so keen to take on new customers and hide behind the 'credit scoring system' as a reason for refusal.

    Take my credit card company for example, signed up with them about 4 years ago, only wanted a small card with a small limit for internet shopping - about £200.
    They generously (without asking) raised this to £8000 over the first 6 months of use (yes you read that right £8000).
    Shortly after the credit crunch they suddenly reduced it to a £150 limit, much to my annoyance because I was using it on holiday at the time - or not as it turned out). Despite my circumstances not changing - they now see me as a credit risk.

    My favourite bit was in the final letter where they said "we would not be acting as a responsible lender if we were to increase the current limit - this is not a change in our lending criteria as you have suggested"

    How odd - because I can't explain that behaviour any other way! Maybe someone else can help me out

    I expect the Government might work it out eventually - and then we'll get a headline or two and some cross words directed at lenders to make it look like something is being done.
    I'm lucky, I wasn't relying on that credit - I wonder how many people are facing a similar problem who do rely on it.

  • Comment number 45.

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

  • Comment number 46.

    Oh dear, then. More bad news for the coalition. On top of borrowing/the deficit being less than they expected and growth greater than forecast, along with unemployment not as high as predicted and home repossessions still not soaring, we're now seeing the banks looking healthier and possibly paying their publicly funded loans back within five years...Somehow, though, I can't see the coalition changing its mantra from "because of the economic mess the last government left us" to "because of the economic recovery the last government bequeathed us". It does rather put them in a quandary, though, because if things start going pear-shaped from now then the perception could be that it is down to them, not the last government.

  • Comment number 47.

    #32 Ref Stalkers

    Has anyone else noticed that Sam_From_Hendon was the second person to post on 3 consecutive Robert Preston Bloggs and the posts were moderated and on line within 36, 42 and 36 minutes of Roberts reports.which were timed at 10.28 7.34 and 10.28 am.

    Now i,m not saying Sam was waiting for the reports to be posted, or maybe I am??
    It does make you wonder if someone was indeed being aid to represent certain views, would that be against House Rules?

  • Comment number 48.

    In Robert's blog, comments ,39. at 10:26am on 31 Dec 2009, onward-ho wrote:

    2010 will be the year the bad debts the government guaranteed will turn out to be not so bad and the government will make a profit on it!

  • Comment number 49.

    2. At 10:01am on 06 Aug 2010, davidbrent wrote:
    Robert, you've posted 7 blog entries so far in August and every sinlge one has been about banking.


    Banking is in total crisis, nobody knows how to fix it and we are utterly dependent on it for everything short of a hunter-gatherer existence. It is the overwhelmingly most important issue facing humankind today.

  • Comment number 50.

    41. At 1:01pm on 06 Aug 2010, rbs_temp wrote:
    ....Whereas WOTW,.... is simply an angry, bitter old Marxist who rages against capitalism at every opportunity and refuses to accept that his long-awaited revolution will never happen - but if you really believe that some contributors to this blog are PR people then he is an obvious candidate.
    ---------------------------------------
    He does seem to have loads of time on his hands but who would be paying him to spin in his direction?
    I often wonder if there are some pairs of conflicting views from the same contributors talking to themselves!
    I also wonder whether anyone on here has a job. We may all be part of the economically inactive, but trying to be economically literate (with a few ranting exceptions).

  • Comment number 51.

    The fascist state gets ever nearer.

    http://www.bbc.co.uk/news/uk-10888785

    Banks in control, governments doing their bidding but don't dare try to take action against it.

  • Comment number 52.

    39. At 12:58pm on 06 Aug 2010, writingsonthewall wrote:
    SmilingEdBalls - you just got mullered @ 28

    never mind - you've got all afternoon to do some internet research and come up with "another fault" in what RA writes.

    What a shame you don't train your 'sharp analytical eye' to cross RBS's 303 page first half results instead.

    I'm sure you can find a million holes in there if you look hard enough"

    Unfortunately I don't have the entire afternoon to spend on long winded posts like yourself and RA who seemingly do very little except post on here!

  • Comment number 53.

    41. At 1:01pm on 06 Aug 2010, rbs_temp wrote:

    "Whereas WOTW, who posts up to 50 times a day, almost exclusively between the hours of 9am and 5pm, and who must also spend a great deal of time hunting down all those negative stories to which he links, is not a PR stooge?"

    I beg to differ.

    "142. At 11:32pm on 05 Aug 2010, writingsonthewall wrote:"

    You might be working until 11:30 at night - but that's againt my religion!

    If you're going for character assasination on here then please at least do your research - people get awfully irate when you make statements which may not be completely true.

    "I'm not suggesting he is - he is simply an angry, bitter old Marxist who rages against capitalism at every opportunity and refuses to accept that his long-awaited revolution will never happen - but if you really believe that some contributors to this blog are PR people then he is an obvious candidate."

    Bitter? - old? - angry? - how can you make that assessment when you
    a) have never met me
    b) Don't know when I was born
    c) have never heard any of my opinions (except my economic opinions)

    Slightly contradictory isn't it - to say that I'm old, bitter and angry and yet I'm running a PR campaign?

    Which branch of the 'Marxist revolutionary corporation' do you think I work for?
    As for the revolution - you keep telling yourself that because everyone stopped listening to your predictions a very long time ago. The revolution has already started - I have more than 20 signed up members - how many couter revolutionaries do you have?
    Which do you think will come first - your recovery (which is long overdue) or my revolution (which is only slightly late)?

    I don't know why your wasting your time posting - I mean aren't you busy cracking open the champagne folowing the announcement of RBS's profits?

    Whoooooohoooooo - £1.1 Billion of profit - imagine how many hospitals you can buy with that.

  • Comment number 54.

    Another computer generated blip??!

  • Comment number 55.

    31. Paul_42 wrote: I wonder how much profit RBS will declare when it downsizes by selling over 300 branches and pimping the 1.8 million associated customers to Santander?

    Isn’t there are fairly major Data Protection issue with disclosing customer details to a 3rd party for cash?


    Firstly, RBS had no say in this divestment - it was an EU directive as a result of taking state aid. So an interesting use of the word "pimping" under the circumstances.

    Secondly, following divestment Santander will not be 3rd party to these customers - RBS will, and as such will have a responsibilities under DPA to securely transfer the customer details.

    As my previous posts will have demonstrated I'm no great defender of the banks, but the issue here was the recklessness that resulted in state (i.e. our) aid being required in the first place. This divestment is seen as a punishment for RBS - it hardly seems fair to now castigate them for serving the sentence in full?

  • Comment number 56.

    41. At 1:01pm on 06 Aug 2010, rbs_temp wrote:
    #32. Kit Green wrote:

    "Sam_From_Hendon appeared this week. I am convinced that more than any other newby this was a PR representative to spin during the bank results week..."

    Whereas WOTW, who posts up to 50 times a day, almost exclusively between the hours of 9am and 5pm, and who must also spend a great deal of time hunting down all those negative stories to which he links, is not a PR stooge?

    I'm not suggesting he is - he is simply an angry, bitter old Marxist who rages against capitalism at every opportunity and refuses to accept that his long-awaited revolution will never happen - but if you really believe that some contributors to this blog are PR people then he is an obvious candidate."

    Indeed. WOTW claims to work in a bank, but if that is true clearly isn't very busy. Mind you, people who have passed their pre CFA foundation courses are indeed in much demand.

  • Comment number 57.

    38. At 12:55pm on 06 Aug 2010, SmilingEdBalls wrote:

    "I think you're slightly confused here. Sell protection on an equity tranche, delta hedge it and if correlation increases you are in the money. Any default is offset by your long CDS, so any analysis on the underlyings is a moot point if you are taking a view on correlation."

    Thank you, You have elloquently describe the 'bankers black hole' of CDS's. You see you talk of the CDS like it's a 'dead cert' - like it's some form of 'insurance'. Maybe you need reminding of what happened to AIG - I realise it was a while ago and the memory is probably playing up.

    You see folks, the bankers believe that in the 'armageddon scenario' that all the CDS contracts written, bought and sold will 'net off'. This is theoretically true (as for every buyer there is a seller), if we had all nations and all corporations go into simultaneous default. However the reality is life doesn't work like that, and institutions and governments go down in stages - and the 'sloshing' effect of the defaults is too much for institutions to bare as each one suffers from their exposure to a failure, but don't benefit from their shorting on the debt that doesn't fail.
    This is why banks don't see CDS contracts as a problem - a fatal mistake brought on by the use of mathematics over logic applied to a market assumed to be rational (which considering it is comprised of irrational humans - is somewhat unsurprising).

    It's clear that Ed 'dabbles' in CDS's (as it's his specialist subject) - but whilst he's all about the detail - he's missing the big picture.

    This is the problem we have in banking, too much concentration on the detail and very little 'big picture' view. This is how the trader can immerse himself in 'how clever he is' - because he's not seeing the wider consequences of his actions. Hence all the 'surprise' when the system went boom.

    ...of course Marx already described this phenomenon and called it alienation over 100 years ago - bankers haven't caught on to this concept yet.

  • Comment number 58.

    36. At 12:46pm on 06 Aug 2010, writingsonthewall wrote:
    Sorry - we don't know what we're talking about - best off listening to the press release of RBS - we wouldn't want to mislead you and you know those bankers are always right, history tell us that ;-)


    So that'll be new Sam From Hendon or whatever the press office goes by this week then.

  • Comment number 59.

    If we must have moderation, please can the mods get on with it.

  • Comment number 60.

    3.7% growth and rising unemployment?

    http://www.bbc.co.uk/news/business-10890989

    Maybe this is the wheels finally coming off - the Economies of the world can't keep the lie going forever....but they're going to try their damm-dest anyway.

  • Comment number 61.

    At 1:01pm on 06 Aug 2010, rbs_temp

    In defence of WOTW. I agree with 95% of what he says so I feel his frustration.

    If there isn't revolution there has to be major evolution and it will happen bottom up (following the money) because it is at the bottom where the pain is and will be felt the most.

    The actions of governments either QE or austerity will merely "kick the can down the road". Enabling the the bankers to squeeze the last drops from the working and middle classes.

    Option 1
    Our leaders (are there 12 or14 millionaires in the cabinet?) will look after their ilk first. This will evolve into fascism. Which will mean a cowed population with unrest being managed by an even more militarised police force.

    Option 2
    I would like to be led by a government which genuinely acknowledges that an equal society is a happier, healther less crime ridden society. See Wilkinson & Pickett's work at
    http://www.equalitytrust.org.uk/why/evidence

    How do we get Option 2 because I feel Option 1 is the most likely?

  • Comment number 62.

    38. At 12:55pm on 06 Aug 2010, SmilingEdBalls wrote:

    I think you're slightly confused here. Sell protection on an equity tranche, delta hedge it and if correlation increases you are in the money. Any default is offset by your long CDS, so any analysis on the underlyings is a moot point if you are taking a view on correlation.

    Sorry don't have time to post in detail. I take it from your lengthy posts that you either don't work in a bank, don't have much responsibility or perhaps your area has no risk?

    -------------------------------------------------------------------------

    Au contraire, my fellow spiv. The less you know about this toxic junk, the better placed you are to identify it as the junk it truely is.

    Either way, your delta hedge strategy only works in periods of low volatility, as it is too costly and near enough impossible to continously rehedge due to your gamma in periods of volatility. Oh and no matter which way you spin it, your still carrying considerable counterparty risk. Goldman Sachs did this and almost hit the fan due to their exposure to AIG through their delta-hedge 'exposure' to CDO's.

    I underestimated you... you obviously are a ABS salesperson, desperately trying to force this junk down the throats of others.

    You see, this is why I am a Risk Analyst, no matter which way you package it, it is still risk that is grossly underestimated. Come back when you talk sense and don't bother writing anything if you can't justify it with facts. The 'I am too busy/can't be bothered excuse just won't slide'.

    Yours Sincerely,
    Risk Analyst

  • Comment number 63.

    44. At 1:23pm on 06 Aug 2010, writingsonthewall wrote:
    My favourite bit was in the final letter where they said "we would not be acting as a responsible lender if we were to increase the current limit - this is not a change in our lending criteria as you have suggested"

    How odd - because I can't explain that behaviour any other way! Maybe someone else can help me out



    It's the same International Business Management Postgrad course they go on. I keep saying so! It's like a deadly infection of the mind. You are immune to what Dawkins refers to as a meme.



  • Comment number 64.

    54. At 1:45pm on 06 Aug 2010, Kit Green wrote:

    "Another computer generated blip??!"

    There's no such thing.

    Until the advent of AI, a computer can only do what it's told to do.

  • Comment number 65.

    52. At 1:42pm on 06 Aug 2010, SmilingEdBalls wrote:

    Unfortunately I don't have the entire afternoon to spend on long winded posts like yourself and RA who seemingly do very little except post on here!

    -------------------------------------------------------------------------

    "Im sorry your honour, I have no time to provide evidence of my claims" - SmilingEdBalls, in a court room.

    Did you supply Madoff with his defence too?

    http://www.nydailynews.com/gossip/2008/12/28/2008-12-28_bernies_fundamental_defense.html

    p.s. theres not much work to do anyway, seeing as we're all out of red and into the black.

  • Comment number 66.

    "We are in the mess we are in because we don't earn enough to buy the stuff/services.
    Therefore the financial industry have to lend us enough to buy the stuff/ service."
    No, they don't. They choose to lend people enough to buy stuff and services they couldn't afford. In other words: the banks created the problem; people have always wanted to buy things - that's not a new thing.
    The whole system has collapsed, again, and as always happens the "reform" is done by the people who made the mess and their friends. And as usual the "reform" consists of finding someone else to pay for the mess.
    An economic system which collapses every 30 years or so is not a working system.
    There probably isn't an economic model that works for 7 billion people, but it would perhaps be a start if we could stop pretending that Capitalism does or ever will, or ever has. Once we do that, we can throw all the supporters of the system, with their Mickey Mouse degrees from the LSE and so on, and treat their opinions as just that. Taking all opinions on board, the government can then try to decide what sounds like it might work and do that instead of just mindlessly repeating the same mistakes over and over and over again.
    Economists peddle religion. Complex systems and models of how each economist wishes the world was really like, insulated by a thick skin of self-importance from the realities of how markets and people actually work. We have to strip this farcical layer of unreal gravitas from the discipline and look coldly at what economists have actually managed to prove or create. A bank is no more than a church for money, and it is based entirely on faith. That is not good enough.
    It's not too late to pull the plug on the banks and take the money back (ie, scrap all these loan guarantees).
    The religious worship of the City's high-priests of mumbo-jumbo should have been introduced to the harsh Darwinism of consequences. They got it all wrong but they have still not had their bluff called.
    "Support us or face the Hell of economic chaos!" they said.
    I say: "You keep saying that but you never have any evidence. I think you're the ones causing the economic Hell to make sure your collection plate is full."

  • Comment number 67.

    56. At 1:50pm on 06 Aug 2010, SmilingEdBalls wrote:

    Indeed. WOTW claims to work in a bank, but if that is true clearly isn't very busy. Mind you, people who have passed their pre CFA foundation courses are indeed in much demand.

    -------------------------------------------------------------------------

    Ahhh, the holier than thou argument.

    Banks employ hordes of CFA charterholders, mathematicians, physicists and still ran aground. What does that tell you?

    Anyway, wasn't it a child that pointing out the Emperor wasn't wearing any clothes?

  • Comment number 68.

    nutts & John_from_Hendon

    Baltic Dry Index rises 2.6% to 2030 points

    RANSquawk today.

  • Comment number 69.

    'Taxpayer to profit from insuring RBS'

    So what impact if any on the profits will there be if the story being reported by the Guardian is true? A surprise fall in industrial output no less. http://www.guardian.co.uk/business/2010/aug/06/industrial-production-surprise-fall?utm_source=twitterfeed&utm_medium=twitter

    And, just so everyone knows, Johann Hari has a really good article today worth a browse. When people get to gether and stick together, the powers that be get wobbly legs and back down.

    http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-and-now-for-some-good-news-2044578.html

    Right, if the Chinese can vote with their feet, so can we so when are the demos and where?

  • Comment number 70.

    Post 53 WOTW. How many Hospitals can you build with GBP 1.1 billion? The answer is surely about GBP 400 millions worth if you use PFI.

    The following is very informative and well worth a full read.

    http://www.david-morrison.org.uk/pfi/pfi.htm

  • Comment number 71.

    59. At 2:17pm on 06 Aug 2010, SmilingEdBalls wrote:
    If we must have moderation, please can the mods get on with it.
    ----------------------------------------------

    Keep this in your notes in case you are paid to spin against the licence fee in a few months time.
    In fact the moderation is a bit faster than usual today. Mind you a year ago it was far faster so there must have been a cost cutting cull of moderators at some point, either that or some swanky new system introduced that has not delivered as expected.

  • Comment number 72.

    57. At 2:13pm on 06 Aug 2010, writingsonthewall wrote:
    38. At 12:55pm on 06 Aug 2010, SmilingEdBalls wrote:


    Thank you, You have elloquently describe the 'bankers black hole' of CDS's. You see you talk of the CDS like it's a 'dead cert' - like it's some form of 'insurance'. Maybe you need reminding of what happened to AIG - I realise it was a while ago and the memory is probably playing up.

    You see folks, the bankers believe that in the 'armageddon scenario' that all the CDS contracts written, bought and sold will 'net off'. This is theoretically true (as for every buyer there is a seller), if we had all nations and all corporations go into simultaneous default. However the reality is life doesn't work like that, and institutions and governments go down in stages - and the 'sloshing' effect of the defaults is too much for institutions to bare as each one suffers from their exposure to a failure, but don't benefit from their shorting on the debt that doesn't fail.
    This is why banks don't see CDS contracts as a problem - a fatal mistake brought on by the use of mathematics over logic applied to a market assumed to be rational (which considering it is comprised of irrational humans - is somewhat unsurprising)."

    You points raised on counterparty risk are valid, and I would say that this risk was "under-rated" shall we say a couple of years ago. I think things have improved in this regard however, and collateral requirements are well managed. In addition, I would say that counterparty risk is a problem for all businesses, not just banks (in fact small businesses suffer terribly due to customers going bust when they are on a 90 day payment period).

    I think the risk still not yet understood is the risk of multiple defaults (when the system as a whole fails) as opposed to a single counterparty going broke, but efficient collateral management should allow an institution to survive all but the harshest storms in my opinion.

  • Comment number 73.

    56. At 1:50pm on 06 Aug 2010, SmilingEdBalls wrote:

    "Indeed. WOTW claims to work in a bank, but if that is true clearly isn't very busy. Mind you, people who have passed their pre CFA foundation courses are indeed in much demand."

    I have tried to explain previously, but you don't seem to understand. Some people in this world can do more than one thing at a time!

    Yes, that's right, I'm actually working with one side of the brain and batting off your baseless claims with the other.

    Just imagine, I'm only using half of my brain (even less if you count the part which is thinking about my next coffee) - whilst you're struggling to compete with all your mental ability.....and the full power of the internet

    (I'm referring to the fact that you didn't know what an IMC was 2 days ago, but with a little bit of research - you're now an expert in the field, quoting CFA at me at every opportunity)

    Hope that helps (although I fear you're long past help)

    I've also decided on getting that coffee - so that's 3 things I've done within this 30 second post.

  • Comment number 74.

    #31, #44:

    An update from an RBS saver - a letter this morning informs me that my branch and the accounts will be sold to Santander, and they "expect the sale to take around 12 to 18 months to complete".

    I think I can be forgiven for suspecting that my accounts and those of others in the same position will now be managed as zombie accounts for anything up to two years, and my best course of action is to start looking now for a bank (or better, building society) that can at least pretend to have some interest in offering competitive services to its retail customers.

  • Comment number 75.

    Another few million jobs lost worldwide in July - wonder whos gonna pay there bills?

    Govenments going to make mass strikes illegal - wonder why?

    If we are not worrying about our futures and any overvalued assets we have now then we should be.

    However, in the land of the BBC and other media outlets controlled by Bankers money repossessions and bankruptcies are down



  • Comment number 76.

    55. At 1:49pm on 06 Aug 2010, Jasp27 wrote:

    "As my previous posts will have demonstrated I'm no great defender of the banks, but the issue here was the recklessness that resulted in state (i.e. our) aid being required in the first place. This divestment is seen as a punishment for RBS - it hardly seems fair to now castigate them for serving the sentence in full?"



    I guess you don't have an affected account with RBS then. It's the customers who are losing here. Its all very well saying that RBS are "serving their sentence" but they are being rewarded in the process. It's their (soon-to-be ex) customers who are to be inconvenienced and potentially worse off.

    The customers are being sold and RBS is pocketing the fee. Pimping might not be the right word, but it is not far off.

  • Comment number 77.

    ...and lets just see how that other bastian of free market Capitalism is getting on shall we?

    http://www.boston.com/news/nation/washington/articles/2010/08/05/food_stamp_use_hit_record_408m_in_may/

    That's 13% of the total population on bread line measures.

    One in eight people (and remember this is all people) in the US are reliant on basic Government aid.

    Isn't Capitalism wonderful - really improving the development of the human race as more and more rely on Government handouts each day.

    All you Capitalist supporter must be beaming with your achievements. Now get back to 'inventing wealth' so we can all pretend we're kings and queens of the muddy lake - just like Yurkel the Turtle.

    Snipers! - take aim. I'm sure I've made a few spelling mistakes in here somewhere, maybe some grammatical errors you could pick up on...

  • Comment number 78.

    So any truth in the rumour that RBS is going to sell WorldPay?

  • Comment number 79.

    62. At 2:27pm on 06 Aug 2010, RiskAnalyst

    SmilingEdBalls - he's bloody....he's on the ropes.....will he come back for more?

    You see folks this is what I have been saying for ages - the Spivs think they know it all, they poke fun at the rest of us and try to blind us with non-science.

    However the people that know their stuff can explain it to the rest of us - comments of "you're too dumb to understand" or "you don't understand markets" or maybe "it's too complicated for me to explain" are all methods of deception.

    I ask you to read what RiskAnalyst has said and then read what the spiv writes - and tell me, who would you entrust your money with?

    Then tell me you're still surprised when incidents like this happen - people don't like to hear the truth, especially when it impacts on them 'making a profit' (a phenomenon they cannot explain clearly, only mumble talk of 'exchange' somehow producing wealth)

    http://news.bbc.co.uk/1/hi/business/7880292.stm

    "Separately, the Tories demanded an urgent inquiry into claims that one of Gordon Brown's key advisers, Sir James Crosby, sacked HBOS executive Paul Moore, who warned about excessive risk taking.

    Sir James, who was HBOS' chief executive at the time and is now the deputy head of the Financial Services Authority, allegedly sacked Mr Moore in 2005 after he warned the bank's board about its potentially dangerous "sales culture". "

    I present to you all "the problem with banking" - this argument is nothing new to me, I see it every single day. Risk managers only keep their jobs while they 'sing the right tune' - if they dare try to do their job they get shut out.

    ...and that's something which even the credit crunch hasn't changed. Maybe one day the Beeb will get round to investigating the 'unusually high turnover of risk staff in banking'.

    The lies are falling apart guys - it looks like you need a new set.
    (and guess what - I've finished my tasks for the day, I'm starting on Monday's work now - SmilingEdBalls, you need to up your game)

  • Comment number 80.

    Congratulations! I'm not halfway through RBS's 303 pages of ho-hom boring results. Of course most financial statement are boring, which is likely one of the chief reasons that financial institutions can get away with just about anything.
    What do you think of the "derivative" accounting?
    To me, even the logic seems cross-eyed: the contract becomes more or less valuable according to "perceptions". Since when do we account for "real value" based on "perceptions", especially when, "the impact of the changing valuation of the contract is material".
    Personally, I don't feel that RBS is behaving like a good corporate citizen...YET.
    It's taking more control of its 10-year joint venture with Aviva to sell the insurer’s products, but it will do at a one-off cost of £235M; meanwhile, hopes of the bank recovering the almost identical £237M owed to it by Liverpool FC have risen, on the speculation (Dig this!) that the state-owned Chinese Investment Corporation is funding the bid by Hong Kong-based financier Kenny Huang.
    In other words, RBS will buy out Aviva’s right to 50% of profits from their bancassurance venture. Is your head spinning yet? Don't worry, it gets worse. It follows hard on the heels of Aviva’s new five-year bancassurance deal with Santander, suggesting a tightening hold on the mass market by big insurers. Just what we need: Insurers too big to fail!
    The existing venture means RBS customers are offered only Aviva protection, pension and investment products. The new deal is aimed at “better aligning each party’s incentives”, according to the bank, which continued: “Aviva will be the manufacturer of protection and selective pension products while RBS will receive all of the profits from the distribution of these products and will also manufacture and distribute its own investment products (sounds a lot like bundling to me, as in bundled derivatives).
    “The agreement will position RBS to compete more effectively and to respond to developments in the bancassurance market.” I'm sure it will!
    Brian Hartzer, a bank executive, said the bank’s move to greater control would bring “added flexibility to ensure we help customers to make the right choices”. Right choices for what?
    However, RBS’s investment banking arm, SOURCE OF ITS TOXIC DEBTS, which led to a rise in core earnings in the first quarter, is expected to have a less profitable quarter as trading volumes have fallen (Speculation is 41%.). Progress on bad debts is all tied up with profitability and perception.
    Then there was the announcement this week re the £1.65B sale of 318 branches to Santander, the City is still awaiting news of the expected £2.5bn sale of its global payments business, most probably to a private equity consortium.
    And here's the prime statement:
    The bank is also expected to confirm that it remains on track to lend £50bn to small businesses, which is in line with the promises it made to the Government. Well, that's nice - wheeling and dealing with investments, which includes derivative bundles, while setting aside a neat little 50B for small business.
    Someone ought to tell RBS exactly what it thinks about all these investments and sell-offs and perceptions. No wonder the RBS' pages number 303.

  • Comment number 81.

    69. At 2:56pm on 06 Aug 2010, copperDolomite wrote:

    And, just so everyone knows, Johann Hari has a really good article today worth a browse. When people get to gether and stick together, the powers that be get wobbly legs and back down.

    http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-and-now-for-some-good-news-2044578.html

    ===================================================
    Thanks for the link - rushing and busy as I am, I was not expecting to be moved, in fact I was enjoying reading the posts as I whizzed through them, now you have reminded me of the bigger picture, so much of our 'world' depends on human beings treated like battery hens... phew thanks
    I don't care who is cleverer than who now.

  • Comment number 82.

    75. At 3:21pm on 06 Aug 2010, PetersKitchen

    Who is going to pay their bills? The auterity plan is a long term plan towards leaving no way of paying personal bills. Only those of banks and the global companies will merit welfare. Hadn't you noticed?

  • Comment number 83.

    70. At 3:00pm on 06 Aug 2010, Ian_the_chopper

    Nice article (I'll finish it at home)

    I see PFI as 'Private equity for Government' where you sell your assets and then effectively 'rent them back' to show a short term improvement and push the consequences into the long term.

    Unfortunately 'ol Gormless didn't know who he was going to sell it to, PE firms use their contacts to convince the market that there's a good deal going - Gormless didn't have any contacts.

    As someone who lives in London I have seen the full consequences of PFI. We 'sold' the maintenance contracts on the underground to 2 firms, one went into administration, and both failed to deliver the contracts. Now they have both been 'bought back' by the Government who have lost out on the sale and repurchase - and still have to complete the work themselves!

    PFI has 'simplistic city idea' written all over it - they must go on courses to achieve such brilliant schemes.

    One thing that really hurts about PFI is there was no shortage of people saying it would be a disaster, before it started - and boy were they right. What a shame nobody in power ever listens - which is why they all have to go.

  • Comment number 84.

    72. At 3:07pm on 06 Aug 2010, SmilingEdBalls wrote:

    "You points raised on counterparty risk are valid, and I would say that this risk was "under-rated" shall we say a couple of years ago. I think things have improved in this regard however, and collateral requirements are well managed. In addition, I would say that counterparty risk is a problem for all businesses, not just banks (in fact small businesses suffer terribly due to customers going bust when they are on a 90 day payment period).

    I think the risk still not yet understood is the risk of multiple defaults (when the system as a whole fails) as opposed to a single counterparty going broke, but efficient collateral management should allow an institution to survive all but the harshest storms in my opinion."

    Aw - don't come over all mature and reasonable now - we were just getting to the good parts.

    "but efficient collateral management should allow an institution to survive all but the harshest storms in my opinion."

    Well we're going into the harshest storm you've ever seen, so we will be able to test this theory as the defaults begin.

    If you want to see 'well managed collateral' in action, take a look at JPM's exposure to the Calafornian municipal bonds - and ask yourself why nobody has declared the state bankrupt yet.

  • Comment number 85.

    76 Paul_42

    If we own them, won't we pocket the fee? No maybe not.

    78. copperDolomite

    Yes, true, announced today.

  • Comment number 86.

    72. At 3:07pm on 06 Aug 2010, SmilingEdBalls wrote:

    You points raised on counterparty risk are valid, and I would say that this risk was "under-rated" shall we say a couple of years ago. I think things have improved in this regard however, and collateral requirements are well managed. In addition, I would say that counterparty risk is a problem for all businesses, not just banks (in fact small businesses suffer terribly due to customers going bust when they are on a 90 day payment period).


    I think the risk still not yet understood is the risk of multiple defaults (when the system as a whole fails) as opposed to a single counterparty going broke, but efficient collateral management should allow an institution to survive all but the harshest storms in my opinion.

    -------------------------------------------------------------------------

    So what kind of collateral are you accepting these days? I cant remember fully, but weren't some banks posting CDO's as collateral in the golden days? Also what haircut are you taking on this collateral on your elaborate delta-hedge strategy. The only collateral that truely insulates you in the event of a default (assuming the counterparty even met your margin call) is Govt debt, I gaurantee you no one is posting Bunds to you for your long CDS position. Selling collateral after a default is pointless unless you hold a large enough haircut, which I doubt you are.

    Secondly, what makes you say things are have improved? Didn't John Meriwether of LTCM fame say the same thing after he launched his new hedge fund, which subsequently blew up?

    Also your comment nicely supports my posts from the past 2 days. The only way banks post profits, is by masking the nature of their risk undertaking.

    Its not suprising that you can't think for yourself, seeing as you're still 'plugged in' to banking Matrix. However I look forward to your free-thinking allegiance in thefuture, we welcome reformed bankers.

  • Comment number 87.

    79. At 3:51pm on 06 Aug 2010, writingsonthewall wrote:
    62. At 2:27pm on 06 Aug 2010, RiskAnalyst

    SmilingEdBalls - he's bloody....he's on the ropes.....will he come back for more?

    You see folks this is what I have been saying for ages - the Spivs think they know it all, they poke fun at the rest of us and try to blind us with non-science. "

    zzzzzzzzzzz.........yet another long rambling post from WOTW that says nothing much at all.

  • Comment number 88.

    Don't worry folks - I have the solution.

    The banking industry can be useful and productive - because we can use it to power our cars!

    http://www.bbc.co.uk/news/uk-england-bristol-10881080

    ....an unlimited source of energy I think you'll find...we can start with that 303 page of document RBS produced today - Robert - have you finished with your copy yet?

  • Comment number 89.

    86. At 4:27pm on 06 Aug 2010, RiskAnalyst wrote:
    72. At 3:07pm on 06 Aug 2010, SmilingEdBalls wrote:

    You points raised on counterparty risk are valid, and I would say that this risk was "under-rated" shall we say a couple of years ago. I think things have improved in this regard however, and collateral requirements are well managed. In addition, I would say that counterparty risk is a problem for all businesses, not just banks (in fact small businesses suffer terribly due to customers going bust when they are on a 90 day payment period).


    I think the risk still not yet understood is the risk of multiple defaults (when the system as a whole fails) as opposed to a single counterparty going broke, but efficient collateral management should allow an institution to survive all but the harshest storms in my opinion.

    -------------------------------------------------------------------------

    So what kind of collateral are you accepting these days?"

    CASH - inital margin + daily MTM.






  • Comment number 90.

    "The bank refused to rule out a move abroad should an independent commission looking at the issue rule that Barclays should be split between its investment and high-street banking arms." [Express.co.uk]

    Banks will gravitate offshore anyway, whatever we do.

    Why? Take the banks' exploitative behaviour towards its customers, employees and the general public. It is a natural partnership with totalitarian regimes, dictatorships and communist states. The links can only grow stronger.

    Johann Hari (#69 copperDolomite) states "After slavery was abolished in 1833, Britain's GDP fell by 10 percent". British people - the ones I know - would be honoured to make such sacrifice to rid society of its parasites and their progeny, including those Chinese human battery farm factories.

  • Comment number 91.

    88. At 4:32pm on 06 Aug 2010, writingsonthewall

    Genius!

    It means we won't end up having to burn our books, I mean the good stuff, just to keep warm (and stop us accessing alternative ideas, of course) as the winter freezes us all out.

    Re your earlier post on US poverty. I hope there are New Detroits popping up all over the States, all walking away from the nightmare dumped on them, ignoring what is going on in the Beltway and just getting on with a new life.

  • Comment number 92.

    86. At 4:27pm on 06 Aug 2010, RiskAnalyst wrote:
    72. At 3:07pm on 06 Aug 2010, SmilingEdBalls wrote:


    Secondly, what makes you say things are have improved?"

    I think there is far greater focus on both collateral and counterparty risk since 2008. After Lehmans, people realised that even the big players can go belly up. I remember back in the day if someone missed a collateral call it was no big deal - just pay tomorrow. Now any missed collateral call will have the alarm bells ringing at senior level.

  • Comment number 93.

    87. At 4:31pm on 06 Aug 2010, SmilingEdBalls wrote:

    zzzzzzzzzzz.........yet another long rambling post from WOTW that says nothing much at all.

    -------------------------------------------------------------------------

    I also forgot to add to my last post.

    Your logic is flawed in more than one way. A well collateralised exposure may cover you in one default, but in your own words how does collateral cover you in a concentration of defaults? Who would buy your collateral from you? Who would you sell it to? What about the net exposure of your bank, your desk may be collateralised but what about overall and globally? This is typical of a spiv, the ability to insulate them from reality and consider their own predicament in isolation.

    Also why don't you twell us a little about your educational background and what function you perform in the giant ponzi scheme... sorry I meant financial institution.... I do appologise!

  • Comment number 94.

    86. At 4:27pm on 06 Aug 2010, RiskAnalyst wrote:

    "Secondly, what makes you say things are have improved? Didn't John Meriwether of LTCM fame say the same thing after he launched his new hedge fund, which subsequently blew up?"

    Ah yes - when genius failed, the Aesops fable for bankers. Mathematically made it impossible to lose - everyone's a winner.
    So many big banks were sucked in - which demonstrated their level of due dilligence, no-one wanted to be 'left out of the financial revolution' (that's greed to you and me)

    A recommended read from writingsonthewall - it's not a heavy book at all and it really shows how banks think about risk and profit - much of which hasn't changed.
    Best of all you'll see familiar names in there - people who still work in investment banking today and who were still supposedly 'shocked' by the recent events and who today profess that hedge funds contain no threat to the wider economy.

  • Comment number 95.

    89. At 4:40pm on 06 Aug 2010, SmilingEdBalls wrote:

    CASH - inital margin + daily MTM.

    -------------------------------------------------------------------------

    I was hoping you would say cash :o)

    Firstly, not many institutions collateralise with cash, there is simply not enough cash in the system to post that much cash daily one way or another. So I am disputing the fact that you say you receive cash collateral

    Secondly, if you do take cash, you must be posting it to the other leg of your delta-hedged trade, so you are not holding the collateral physically.

    Thirdly, you most likely have to pay overnight interest on your cash collateral. Which is most probably through a repo, so you actually incur more risk by accepting cash collateral.

    Shall I continue or is your corner ready to throw the towel in?

  • Comment number 96.

    90. At 4:41pm on 06 Aug 2010, PacketRat wrote:
    British people - the ones I know - would be honoured to make such sacrifice to rid society of its parasites and their progeny, including those Chinese human battery farm factories.


    And for those who aren't glad to do so, think of this

    http://en.wikipedia.org/wiki/Industrial_Revolution

    'During the period 1813-1913 there was a significant increase in worker wages .[31][32][33]'

    With no free labour, suddenly things improve for ordinary people.

    Let's just skip the free labour bit and get on with improving the living standards of those here in the UK and elsewhere in the world while pulling those with excessive wealth, back down to planet earth to join the rest of us in reality.

    All we have to do is to make sure the Chinese can't buy off our governments to impovirish us further as a means of relieving their own troubles.

  • Comment number 97.

    I also forgot to add to my last post.

    Your logic is flawed in more than one way. A well collateralised exposure may cover you in one default, but in your own words how does collateral cover you in a concentration of defaults? Who would buy your collateral from you? Who would you sell it to?"

    No need to sell collateral - I have cash.

  • Comment number 98.

    ''So the chances are(,) that the taxpayers will pocket a handsome fee for the insurance(,) and never pay out to RBS.''.

    Yep.
    That definitely sounds like insurance to me.
    Charge someone for something that ain't going to happen.

    Mind you, the markets might think differently the next time.

  • Comment number 99.

    Who gets the money for the sale of the branches to Santander? Was this sale pre-arranged or were other banks given the chance to bid for an instant network in the UK?

  • Comment number 100.

    Well,

    I though it was bad enough that the banks employed Banksters to deal us out of money and themselves into it. Now there seem to be legions of Bankocrats whose role seems to be to confuse even the learned folk on this forum.

    If Stephen Hawking can explain the origin and likly fate of the Universe in a couple of episodes on the Discovery channel, it must be possible to understand what the banks are up to - correction SHOULD be up - to in a few paragraphs.

    Nobody, but nobody seems to know or understand.

    I wonder what valid reason there is for this?

 

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