Now somebody's saying the banks will be nationalised!
My post today on bank balance sheets has prompted a lively discussion (see below). I've just been sent a research note from banking analyst Bruce Packard of Pali International. I will give you the title and the first paragraph:
"The N word: Nationalisation, we believe, is on the agenda for UK banks. We have looked at the Nordic banking crises of the early 1990s for potential lessons that might be applied to UK banks. A worrying measure is that UK indebtedness (loans/GDP 150%) is currently much higher than in the Nordic countries during the Nordic banking crises (less than 100%)."
I should add that Pali International is not some kind of offshoot of the Militant Tendency but a global stockbroking firm. I am not endorsing this view but in light of the current situation it is worth a look.
Mr Packard goes on to detail the low cost of nationalisation to the Nordic countries that had to do it, and outlines the FSA/Bank of England model for dealing with a bank collapse, issued six days ago.
He outlines the similarities and differences between the situation of our banks and those of the Nordic countries in the early 1990s and points up one salient fact I will also highlight: Denmark, despite having the same precarious lending conditions as the rest, also had very tight capital adequacy rules and thus did not suffer a single banking collapse.
He also offers a graph which is worth looking at (above). It shows what it is costing banks to make "credit default swaps" (explanation here, plus see my colleague Alex Ritson's piece on Newsnight 2 weeks ago). Basically, even if you struggle to understand what a CDS is, or a spread, you can see it's costing certain banks more to do this complex kind of transaction - ie, as Packard suggests, that the markets don't yet believe they are adequately capitalised.
He concludes nationalisation is some way down the road, and not immediate. He told me before he sent it it might me "controversial". I suspect it will be. As I pointed out in my previous post, and as Packard confirms, it is shareholders not depositors who get hammered in such circumstances, which has prompted him to weight the sector "underperform".