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Hrwilliams

Listed below are comments made by Hrwilliams between Saturday, 9th August 2008 and Wednesday, 1st July 2009.

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Express exit 5:49pm on 01 Jul 2009 Robert, there is another angle here that you really should cover - and that is why National Express (and the other franchise owners) commit to pay these huge sums of money to the taxpayer in the first place. Every few years, the government holds an auction of franchises. They let bidders know the price they expect to receive, and in return indicate where and to what extent fare rises would be acceptable. In order to get a very high price, they encourage bidders to put unregulated fares up as much as possible. This is nothing but another stealth tax, but no one ever mentions that. If, for sake of example, the franchises were simply given away, then the bidders would have no need to earn a return on the capital they commit to pay to the government. That would obviously look very generous, as bidders would be earning profits for no outlay, so you would then need a different regulatory system, in which bidders were incentivised to improve operating efficiency and service levels while maintaining or reducing fares rather than putting them up.

To sum up: National Express has committed to pay the government £1.4 bn over its franchise term. Depending on how that payment is phased, it could easily represent a total cost to the traveller of £2 billion or more once NE's return on this capital is taken into account.

I have no problem with privatisation, and no problem with any private company earning a return on capital it invests into a business. I have a fundamental objection to the government taking huge sums of money from franchisees and then pretending to object when they put up fares in line with the encouragement they have received from government.
Lloyds and HBOS humbled 12:10pm on 17 Feb 2009 There seems to be some revisionist history here. I certainly got the impression that a couple of weeks before the merger completed, Lloyds was finally getting cold feet (of course, it should have done so months before). But that at that point the government railroaded it through - presumably to save face - by telling Lloyds that if it didn't buy HBOS it would still be forced to take a massive capital injection from the government.

These figures would appear to bear out the view that Lloyds really didn't need that cash as a stand-alone entity, and that the government was going to force them to take it solely to 'encourage' them to go through with a fatally flawed merger.

Right from the beginning, though, this deal demonstrated the idiocy of many of the government's policies to this situation. Why merge a bank that is too big to fail with another one - just to create an even bigger bank that really cannot be allowed to fail?
Hampton for RBS 6:29pm on 16 Jan 2009 This is a much more believable view on why Barclays is getting crushed today. From FT Alphaville site.

What’s rocking Barc?
Posted by Sam Jones on Jan 16 16:45.
BARC down 24.85 per cent. RBS down 13.03 per cent.

- On an afternoon when the market is up, and the next nearest faller is Lloyds, down 5 per cent.

A flurry of rumours abound. Talk that Barc won’t be included in the putative UK government bad bank scheme; talk of monoline exposure; and talk of the impact from the downgrades on credit card companies to which Barc is exposed.

None of which, as rumours, seem to have the mettle to force Barc to lose a quarter of its value on a Friday afternoon - by our judgment at least.

Mayfair’s finest must certainly be enjoying this. It certainly seems like there’s been a raid on the day the short selling ban on UK financials expired. (Though on the other hand, Barc’s performance has been dismal all week.)
But we would draw readers’ attention to one other set of facts - presumably not the proximate cause of this afternoon’s panic, but certainly worth bearing in mind.

Last week, Sir Nigel Rudd resigned as deputy chairman of Barclays amid rumours of a spat with chairman John Varley over the valuation of certain assets on the bank’s balance sheet (a notion which has been dismissed by friends of both Rudd himself and Barclays).

Barclays is an industry leader in synthetics - corporate CDOs, structured credit products, et cetera. Before Christmas, there were a number of warnings circulating about the potential for disaster in this market - on almost the same scale as that seen in ABS CDOs.

Yesterday, rating agency Moody’s issued this notice (emphasis ours):

New York, January 15, 2009 — Moody’s Investors Service announced today that it has revised and updated certain key assumptions that it uses to rate and monitor corporate synthetic CDOs, a type of collateralized debt obligation backed by a pool of credit default swaps referencing corporate credits.

Moody’s is revising its assumptions to reflect the expected stress of the global recession and tightened credit conditions on corporate default rates, which are likely to be more variable and extreme than those in other recent historical downturns. Specifically, the changes announced today include: (1) a 30% increase in the assumed likelihood of default for all corporate credits in synthetic CDOs, and (2) an increase in the degree to which ratings are adjusted according to other credit indicators such as rating Reviews and Outlooks. Moody’s also announced an increase in the default correlation it applies to corporate portfolios as generated through a combination of higher default rates and an increase in investment grade and financial sector asset correlations.

Based on initial assessment, Moody’s expects to lower the ratings of a large majority of corporate synthetic CDO tranches by three to seven notches on average. The actual magnitude of the downgrades will depend on transaction specific characteristics such as tranche subordination, vintage and portfolio composition.

Those kind of cuts could have disastrous implications for banks’ asset risk weightings under the Basel II regime. Although many banks use their own internal methods to calculate risk weightings, rather than relying on an external rating-based approach, it will be very hard for banks to justify to auditors the use of models that are out of line with the kind of assumptions the rating agencies are now adopting.

Conclusion: any bank with large holdings of synthetic CDOs may be forced to make large writedowns and more seriously, stump up huge extra amounts of regulatory capital.

And which UK banks are big with synthetics? Barc and RBS, by our memory. More info to follow.
Hampton for RBS 6:14pm on 16 Jan 2009 This really has nothing to do with the short ban being lifted and everything to do with what's going on in the US, Ireland, and the rest of the world. We have a government that is trying to tell us that there is nothing wrong with our bank sector and that they have pumped enough money in, and a bank sector that hasn't yet confessed to the full scale of its troubles.

If you read the Bank of England's stability report for, I think, Q3 last year, there is an extensive discussion of the bail-out. There was also, in that report, a hint that even then the Bank recognised that the banks might need more capital. That report was based on a rather more optimistic set of assumptions about the likely depth of the recession and the likelihood that the banks could generate some profits themselves than I think would be remotely credible today.

So...just as last time when the short-sellers were blamed for the woes of the bank sector, we should all recognise that sellers (whether short or not) are just messengers. People sell shares because they are overvalued. The bank shares remain overvalued, because the majority are slowly going bust. It's as simple as that.
Humbling of our banks 6:11pm on 12 Oct 2008 So after all the pain and suffering, HBOS finally looks like it's owning up to a huge capital hole. If Robert is indeed right about £10 billion (or more?) being required, what does that say about the actions that the much-maligned 'spivs and speculators' took in selling down HBOS stock before the Lloyds merger was forced through? It's an amazing repeat of the short-selling 'scandal' before the earlier HBOS emergency rights issue of a few months ago. Why has the FSA wasted so much time chasing down phantoms and banning short-selling when it looks as though reasonably sophisticated investors, who refused to follow the herd, were right all along?
Cross-country course will sort the men from the boys 09:00am on 09 Aug 2008 Why is all the coverage so dumbed down? Adrian Childs may be great for the Apprentice, but does he know anything about sport at all? It's certainly not obvious from his interplay with Hazel Irvine. With all the brilliant commentators at the BBC, why is he fronting this? Also, can we get away from the studio chat and start seeing more events - there are tons of events going on right now, but you wouldn't know it as the BBC concentrates only on spotting GB athletes and ignoring anything else.

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