HBOS says independence equals nationalisation
HBOS's board has this afternoon explained why it sees the independence of the bank as a highly unattractive option.
In a document sent to shareholders about its plan to raise £11.5bn of new capital and to be taken over by Lloyds TSB, it says that it would need to raise more capital were the deal with Lloyds to collapse, by order of the City watchdog, the Financial Services Authority.
What HBOS calls a "preliminary indication" from the FSA - given a few weeks ago - was it would need to raise £12bn as an independent bank, a 4.3% increase on the amount HBOS is currently raising.
But HBOS fears it may have to raise rather more and on worse terms, were it to go back to the Treasury at this later stage and reopen negotiations on the fund raising. It tells shareholders there is no certainty about quite how much additional capital it would need to raise.
The letter to shareholders from HBOS's chairman, Lord Stevenson, is pretty alarming, It warns that independence could lead to "the loss of private sector status", or de facto nationalisation.
HBOS fears that all the increased capital would probably have to come from taxpayers - and that would give the state a large majority shareholding in the bank, perhaps of 70% or more.
Which explains why HBOS has rejected calls from the prominent Scottish bankers, Sir George Matthewson and Sir Peter Burt, for HBOS to remain independent.
UPDATE 06:00 PM
Some, such as Burt and Matthewson, will say that HBOS doth protest too much about the risk of the business losing its private sector status and becoming a nationalised bank.
After all, HBOS has confirmed what Burt and Matthewson contended, that the FSA had originally said that an independent HBOS would need only a few hundred million extra pounds of capital.
So for HBOS's case to be taken over by Lloyds to remain totally and utterly compelling, its chairman Lord Stevenson needs to demonstrate that he is right to fear that the FSA would now demand that the bank raise more capital and also that the Treasury would provide this capital on worse terms.
Shareholders may insist that he prove that he is not being alarmist.
Which in turn probably requires that the Treasury and the FSA both come out of purdah and state precisely how much capital they would want an independent Lloyds to raise and also the price of that capital.
PS This is the important part of the HBOS document:
7. Importance of voting
The HBOS Board unanimously recommends that shareholders vote in favour of the resolutions required to implement the Recommended Transaction.
It is important that all of the Resolutions are passed by the requisite majorities. This is because the Capital Raising and the Acquisition are interconditional and, together, they form the Recommended Transaction proposed and unanimously recommended by the HBOS Board.
If the Resolutions are not passed, none of the Acquisition, the Placing, the Open Offer or the HM Treasury Preference Share Subscription will proceed, and HBOS will be required to find alternative methods of increasing its capital base, and funding its business. On 11 October 2008 the FSA gave a preliminary indication to HBOS that if the Acquisition were not to occur, it would require HBOS to raise £12 billion of additional capital, made up of £9 billion of HBOS Shares and £3 billion of HBOS Preference Shares.
However, whilst HBOS would seek to raise additional new capital in those circumstances, there can be no certainty that the amount required would not be more than £12 billion or that HBOS would be able to successfully raise capital or as to the terms on which capital could be raised, including the terms of any participation by HM Treasury in any capital raising, or as to whether such fundraising would be on a pre-emptive basis. There can also be no assurance that HBOS would be successful in increasing its capital to the levels required to qualify for access to the Proposed Government Funding arrangements or to satisfy the requirements of the FSA on an ongoing basis.
This could result in an increase in funding costs arising from any credit rating downgrades or increased reliance on Government supported liquidity schemes; contraction of HBOS's balance sheet; and a longer time horizon than the one contemplated by the Recommended Transaction for the resumption of any dividend payments on HBOS Shares. Any capital raising might also be more dilutive and is unlikely to be available within the same time period as the Recommended Transaction.
There can be no certainty as to sources of capital if the Resolutions are not passed. The HBOS Directors would expect the UK Government to take appropriate action consistent with the policy objectives set out in HM Treasury's announcement of 8 October 2008 on Financial Support to the Banking Industry, which are to ensure stability of the financial system, and to protect ordinary savers, depositors, businesses and borrowers. Such action may include the issuance to HM Treasury of HBOS Shares on a basis which could be more dilutive to HBOS Shareholders than the Placing and Open Offer and the issuance to HM Treasury of other securities on terms less economically advantageous and more restrictive than the HMT Preference Shares or the loss of independent or private sector status for HBOS. The occurrence of any such action may cause the value of HBOS Shares to decline substantially with negative implications for HBOS Shareholders.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~16~RS~)
Comments
Sign in or register to comment.
Why nationalisation at all? Why not administration and winding up? Those questions have not been officially addressed, everyone acts as if the answers are obvious. Spell it out for the rest of us please, Robert.
Complain about this comment
The letter to the shareholders should mention that Hornby and the like will resign as that is what they want to here!
Steve Andover
Complain about this comment
It's the government that forced the takeover anyway, so it's evidently omnipotent either way.
Complain about this comment
Bert - the more you write and read about this it is obvious that they all conspired to put Northern Rock down - think about it of all the banks they were the easy target and their model no different from the rest
get some inside info here on who did what and we'd all get an eye opener
Complain about this comment
#1 Nationalisation means Gormless Gordon has failed to derail the Scots Nats.
Administration means that he has failed Scotland and will never get elected there again !!
It is a choice of the lesser of two weevils, as was said in "Master and Commander" !!
Complain about this comment
The public are in a state of shock.
Shocked at their gloomy future.
Shocked at the financial abyss.
But most of all, shocked at the realisation of what incredible fools have been running our banks, overseen by a government that has been asleep.
Complain about this comment
I think the short story is that there are no prospective private investors and the economies of scale obtainable in a merger allow the government capital infusion to be less than that which would result in total ownership.
A more interesting story would be why the avenue of break-up and selling off has not been explored.
Complain about this comment
Game, set, match.
Complain about this comment
Are there any qualified accountants, actuaries or bankers on the HBOS Board? Being able to stack shelves in ASDA does not exactly provide someone to make decisions that determines a company's future, does it?
No doubt this saga will run and run. Will the deal be done by Xmas 2010, or am I too optimistic?
Complain about this comment
as i stated in earlier blog hbos is damaged goods and cannot remain independant now becouse all trust in them has flown.
lloyds seems to be the only answer becouse the government wishes it.
when the banking problems struck this government had an opertunity to resolve the problems very easily and fairly but there ineptitude and missmanagement has made our banking industry a joke and easy prey for overseas sharks.
soon if this government continues as it is we will have no uk owned banks and our pound will become a third rate currency.
thank you mr brown and government i hope you have been well paid for selling us out.
Complain about this comment
As HBOS shareholder, I agree that, in current financial and economic situation, the takeover by Lloyds is a good idea for Lloyds, HBOS and the UK. One big bank is more effective and stable than two.
However, the ratio of 0.605 is too low. HBOS is undervalued. The ration does not represent the size and strength of both banks. Before Lehman's collapse of 16/9 HBOS shares were equal or more expensive than Lloyds for years. After collapse of Lehman Brothers whole financial market could not be considered normal. There were a lot of fears, irrationalities, panic, money markets froze, etc. Lloyds have exploited this environment to get a real bargain price for HBOS. Management of HBOS did not do a good job in negotiation of takeover terms.
Money markets now are returning gradually to normality. In several months, once the dust of this turmoil settles people will realize that HBOS was undervalued in this deal.
Complain about this comment
1. At 4:55pm on 14 Nov 2008, WerringtonSilent wrote:
Why nationalisation at all?
HBOS is basically a mortgage company, letting it fail would threaten each homeowner with a HBOS mortgage. Individually a repossession, collectively an implosion of the the UK's mortgage market.
It would also send the signal that Capitalism and a free market is not the panacea of the western worlds prosperity.
At this time, the worst that can happen to any commercial bank is government intervention or buy out.
The capitalists will do absolutely anything including socialist ideology to maintain control
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
The whole this financial mess shows the incompetence of people who govern countries, banks, look after financial stability.
It has been developing for years and highly educated, highly paid people either were creating it or allowing the mess to be created.
Complain about this comment
6. At 5:22pm on 14 Nov 2008, stevewo wrote:
.....But most of all, shocked at the realisation of what incredible fools have been running our banks, overseen by a government that has been asleep.
Why fools? Greedy yes, but have we not all been greedy? We have all geared our borrowing to levels far in excess of our salaries trying to get further up Jacobs Ladder.
We have not got another system, would you have elected Michael Foot or Tony Benn 10 years ago? I doubt it. The Government and the western political system has been born from idea that as the western world discarded the shackles of manual labor, a world of asset growth and borrowing from asset growth would sustain it.
So desperate to fill the hungry mouth of the fractional system that existed to feed on the fed they had to lend to status previously supported by the state. This was only sustainable up and to the cyclical downturn that expansion/contraction models follow.
The result is what you see now.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
Stop bleating HBOS shareholders. You had no value until the bailout and a marginal value with bailout is better than no value pre bailout.
Investment is about risk. Ultimately, Directors are answerable to shareholders. It is they, and they alone, who bear responsibility for managing the share capital of the business.
No one complained about ever rising dividends in the past. Investment is a two way bet. Win or lose.
Unfortunately, our global interdependency in all economic facets now will become more and more important in the future.
Tax cutting today does not give fiscal stimulus. Most people will save the money that can afford to save or pay off more debt faster. Why not, with falling inflation and interest rates, this makes perfect sense. Moreover, the taxman gets no benefit either as consumption continues to gradually decline. In other words taxpayers and the national economies of the West engaging this mantra will be in a deeper recession in the short term.
This recession will be hard for us all of that there is no doubt. However most of us should be able to survive. In the future, there will be bigger problems to worry about - food, resources, population stress. One for our children to think about I'm afraid.
Complain about this comment
# 11
Before Lehman's collapsed, a lot of things were different! Specifically in relation to Lloyds and HBOS, for a long time everyone loved the aggressive expansionary policies of HBOS (and NR before them). Lloyds was seen as plodding and getting left behind. Now Lloyds is seen as prudent, and HBOS' business model is seen as being completely discredited due to its exposure to UK residential mortgages. Hence the change in relative value.
The objective measures of relative value are compelling. Lloyds originally offered about 0.8 shares for each HBOS share. They then revised this down to the current 0.6. Throught this period the relative value of Lloyds/HBOS has valued HBOS at less than the revised Lloyds offer, so you're being offered some premium to the current market price.
Had Lloyds not stepped in with an offer, I think we can be fairly sure that HBOS would have collapsed within a day or two. All its funding lines were being withdrawn and the share price fell by about 60% over two days.
If HBOS were undervalued by the Lloyds bid, then even in current conditions it's reasonable to assume a rival bid would have emerged by now. It hasn't. Similarly, I'm sure HBOS would remain independent if it could, if only because most senior managers at HBOS are going to lose their jobs as a result of the Lloyds acquisition.
My guess on this is that the mysterious rival bidders will allow Lloyds to take control and then seek to buy some parts of HBOS, eg some branches where there is a Lloyds branch close by. That's cheaper than buying the lot, and hard for anyone to oppose as it would diminish the longer-term competition issues associated with the Lloyds/HBOS consolidation. It would suit Lloyds too: probably get better prices for buildings sold, and reduce the redundancy costs.
Complain about this comment
POST 8 You can't be serious ? The board still have to face a fearless shaaareholder final charge into their vaaalley of debt [tennison i would say]]
Florence kNightingale[a darling]will pick up the bodys of the fallen sick hundreds who paid their farewell taxis
Complain about this comment
# 13
Not sure what the point of your post is. If you're suggesting Building Societies in general are somehow immune from this crisis, I think you're misinformed. They will be announcing big bad debt increases at year end too. Several smaller ones have already been forcibly married, though I acknowledge Nationwide is one of the strong suitors that's doing the buying. In general, Building Societies, just like the banks, have stopped lending, though at least one small Society CEO I know suggested to me that it was borrowers who'd stopped borrowing, and his Society had adequate funding to meet any reasonable level of demand he expected to see.
And if you cast your gaze a little wider, 2 of the 6 institutions that had to be fully guaranteed by the Irish government were Building Societies.
Complain about this comment
Halifax - the company I have loved and worked for, for a very, very long time.
How dare Messrs Brown, Darling, Hornby, Stevenson and the FSA ruin it. It is a terrible shame. It will never be the same again.
Cannot believe the times we are living in!
Complain about this comment
Remember the days long ago when there was national debate on the Social Chapter, specifically regarding worker representation in the company decision making process?
'We cant have the unwashed hoi-polloi in OUR nice clean boardrooms' was the attitude.
Shame the idea was trashed....
Complain about this comment
Post 15,
Not all of us have been greedy some of us live within our means, unlike this Government, who are trying to borrow their way out of trouble, is that not the exact problem borrowing or am I missing something here?
Complain about this comment
This deal is becoming increasingly difficult to understand.
On the one hand HBOS needs to raise 11.5 billion and then merge with Lloyds and everything is cushty.
If the Lloyds leg of the deal falls away then HBOS has no idea how much it may need to raise other than it would be more than 12 billion, and it also has no idea how much this would cost.
Therefore the idea must be that the existing Lloyds business is, in the short term at least, going to prop up and cross subsidise the existing HBOS business.
However if no-one knows the amount of Lloyds subsidy required (i.e the difference between 11.5 billion and something more than 12 billion) then how can anyone know that HBOS isn´t so toxic that it could terminally poison Lloyds? There are a lot of numbers that are bigger than 12.
Is it not the case that HBOS raised 4 billion earlier this year. Presumably they must have burnt through that in order to be in their present predicament.
Was it only a few weeks ago that AIG were in the hole for $86 billion, and only a few days ago that this was revised to something over $150 billion and counting.
Something very fishy going on here. Not least the fact that the man from HBOS may as well get a neon sign on his head saying "I AM STUPID" Why would anyone, especially Lloyds shareholders, listen to such people?
Complain about this comment
"So for HBOS's case to be taken over by Lloyds to remain totally and utterly compelling, its chairman Lord Stevenson needs to demonstrate that he is right to fear that the FSA would now demand that the bank raise more capital and also that the Treasury would provide this capital on worse terms"
Why does Lord Stevenson not clear off and let some other person not tainted by his failures make the assessment about how much capital is required?
HBOS needs a new board.
Complain about this comment
Sorry to change the subject, but has anyone heard anything about the Co-Op Bank? Am I right to assume that no news is good news?
Complain about this comment
11. - HBOS shares are only worth what people are willing to pay for them at any given moment in time. Nothing more, nothing less.
What they were worth before Lehman's folded is less than irrelevant.
Complain about this comment
POST 15 ,Bankers wil make millions on their mortgaged housing chains by costing off the shekels of manual libor
Complain about this comment
That HBOS's current management, led by Chairman Lord Stevenson and Chief Executive Andy Hornby, have failed shareholders through risky lending strategies and careless expansion.
That is an allegation of criminal negligence against Stevenson and Hornby. Questions need to be answered:
1:Why is the Serious Fraud Office not investigating this?
2: At what point did the FSA become aware of HBOS's negligence with shareholders funds?
3: To what extent is the Government involved in a conspiracy to cover this up?
The shareholders in HBOS as well as the general public need answers.
Complain about this comment
It would appear that i am banned from commenting on HBOS as the majority of the posts have beem deleted.
Complain about this comment
Ultimately, Robert, the bank is safe following either route. But from outside the boardroom it is mighty difficult to tell what the real situation is.
It could be either - we really did screw up big time/the situation is even worse than we have admitted so far/we know we need a hell of a lot more capital and private shareholders are going to be diluted so enormously, that left independent, we will be as near as dammit nationalised.
Or it could be - we are very embarrassed about how we've got into this mess/we feel we should stick to the first plan suggested/if we changed our minds now the board would be left with no credibility whatsoever, so we feel we should stick with the existing plan.
Which route is best for shareholders?
Difficult.
But I'd say I know which route is best for the personal interests of the Board of Directors.....
Complain about this comment
#12: In a winding up, mortgage borrowers would be under no threat. Their mortgages would be sold to another company for servicing for pennies in the pound, leaving the shareholders and bondholders with almost nothing. Bad luck for investors, but that's how risk goes and the assets just pass from one capitalist to another. In a bailout, investors are merely diluted and taxpayers will bear the losses arising from defaults. I do not see what we the nation have to gain from this latter model.
Complain about this comment
What I and many others find abhorrent about the bailouts of the financial system is that these vast sums of money were presumably always available, you can't just pluck 5,000 billion pounds out of nowhere..
So why wasn't this money used in the UK for improving the 'real' economy? New roads and a radical overhaul of the Rail Network, affordable high quality social housing, free university tuition and a lot of other 'quality of life' projects could have been paid for with a fraction of the money used to prop up the banking system.
No-one in the civil service is going to accept a 2 percent pay rise 'because thats all the government can afford' when they see the vast gobs of money handed out to financial institutions, for once the great union term 'derisory' is actually applicable in its literal sense..
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
*21 Porthcressa
I have no time for the Halifax. I remember them doing me over in my student days and when I protested to my branch for them to rescind their 'computer said no'! This was despite me having a part time job (which was paid directly into my Halifax account) with a couple of months left on my course they froze my account. I could've been left homeless if it wasn't for friends lending me money! This was not long after they became a plc. Good riddance to 'em!
Complain about this comment
23. At 6:46pm on 14 Nov 2008, steveng781 wrote:
Not all of us have been greedy..........
Collectively we have, enough to technically bankrupt the nation. Fact.
The only thing removing the technical part of it are the mortgages. They are secured and therefore, can be paid and (if the system works) will be repaid over time.
The government debt plus the mortgage debt collectively are the uk's bond of repayment for world investors. Take out a mortgage bank or two and you have Armageddon UK (note UK not world, this is a very British problem).
Uniquely, we are unable to sustain mortgage linked failure.
The Banks, the production worker, the railway operative, the gardener,the window clean, the spy and all our lovers have succumbed to bonus related pay (bonuses).
Over production of goods that do not fail, Brands that say ''quality and staying power''
Capitalism that preaches the bonuses will continue indefinitely, just keep on selling.
In this (western) world greed is success, success is greed and we are all part of it whether we practice it or not
Complain about this comment
32. At 7:03pm on 14 Nov 2008, WerringtonSilent wrote:
#12: In a winding up, mortgage borrowers would be under no threat.
Tell that to Northern Rock Mortgage holders
Complain about this comment
Administration is a viable option,let the loan book run out.
Sell the branch network to a new operation that can only act as a bank with no lending powers just providing deposit and payment services.
Even at zero interest it would be worth it not to worry.
Complain about this comment
33. At 7:26pm on 14 Nov 2008, citygambler wrote:
What I and many others find abhorrent about the bailouts of the financial system is that these vast sums of money were presumably always available, you can't just pluck 5,000 billion pounds out of nowhere..
When a natural disaster occurs, do you think the millions of pounds donated by us on behalf of our government is real money?
When the government announces on our behalf that it is going to buy Northern Rock, do you think Alistair Darling sends a BACS payment to the Board?
The Money Tree is fictitious, its bytes on a computer database
MORE IMPORTANTLY IT BUYS INFLUENCE
There is no such thing as national charity or international charity.
If you would care to look at how the IMF supports nations and the how they insist on very very capitalist processes to be implemented before computer bytes are lent, you will have an eye on the Westerns world and its ethics.
The same ethics that bang a 83 year old women for not paying her poll tax, control
Maintain control an thou will maintain power
Complain about this comment
32#
Do you pay into a pension fund?
Complain about this comment
On the subject of dilution of shareholdings by quasi nationalisation, is'nt it Lloyds intention to have a rights issue once the takeover is complete. If shareholders cannot afford the take-up then dilution will happen anyway!
Complain about this comment
#37: "Tell that to Northern Rock Mortgage holders"
They are perfectly fine if they bought at 3x income, put 20% down and budgeted for the interest rate hitting 10% as it inevitably does over the course of any 25 year repayment period. After all, that is just common sense. Everyone did that, right?
#34: "Put a bank into receivership and confidence in the banking system would be totally shot. The assets at the moment wouldn't reach anywhere near fair value, whilst money markets will completely frost over."
It would not be totally shot, investors would breathe a sigh of relief knowing that is one less trap for them to fall into. Money markets would thaw. They are frozen because no-one trusts anyone. They would be liquid again once everyone who is insolvent is bankrupt and not nailed to a perch. And what is "fair value" of assets when they are based on collateral valued at twice its true value?
Complain about this comment
38#
Not viable unless all the staff are volunteers.
Complain about this comment
# 38
The institution you describe already exists. It's called A Matress.
Complain about this comment
#40: I pay into a pension fund, but I am the cash sitting on the sidelines waiting to see who is left standing. I want to know who is broke and who isn't before I budge.
Complain about this comment
#13 you are sadly deluded, I worked for them they are as reliant on the interbank market as anyone else - have you forgotten about the subprime exposure (granted limited compared to some) they have to what was UCB Homeloans (soon to be defunct and replaced by the Portmans sub prime book)? It makes me smile, all of a sudden we have "experts" who really have not got a clue!
Complain about this comment
The HBOS board - ALL of THEM - should resign immediately !
Why ? - 2 Reasons
1. For getting HBOS into the mess it is in now.
2. For actually admitting that if the LloydsTSb deal does not go ahead, they have not got the faintest idea how the company they are supposed to be running will carry on - will they need 12 Billion pounds - will it be more or will be less ?
The Chairman is a disgrace to come out with bullying tactics.
Will someone organise an extraordinary meeting to sack the lot of them !!
Complain about this comment
Robert
Why on Earth (or even Mars) does anyone take the HBOS board seriously ? This board has presided over the destruction of a bank.Tramps from the Embankment would have created better shareholder value!
The shareholders should vote this board of Directors into the dustbin of history. As they have been useless all recent decisions should be 100% reviewed - especially the Lloyds-TSB merger.
The spirit of Malachi Malagrowther lives on, lets hope the shareholders share his vision.
Complain about this comment
As a Lloyds shareholder I would like to thank these two gentlemen profusely.
What they have managed to do is to cause HBOS to reveal the true extent of the basket case which Lloyds is being asked to take on and, as a result, to greatly increase the possibility of Lloyds shareholders voting it down.
Unfortunately the bottom line is likely to be that the HBOS shareholders are totally wiped out when HBOS is nationalised, broken up, and sold off in bits. The only consolation might be that if the purchaser of the retail banking portion is an overseas (middle east?) investor, then they may see some advantage in preserving the trading name as Bank of Scotland, which is waht seems to be the only important aspect for many people.
So, it will be good for Scottish self-esteem, good for the prestige of the Scottish Nationalist (who will claim to have save the bank from the dreaded English), good for Lloyds shareholders (who will no longer be saddled with a enormous and probably unquantifiable burden), but sadly no good for the current HBOS shareholders but they were probably not SNP voters.
Complain about this comment
It's a bit concerning to know the Government needs to pay market rates for the "world class" management the banks need to see them through this crisis. Given that the banks have been paying millions of pounds to people who have done more damage running their banks than would someone brain dead in a coma, just how much will the going rate be?
Complain about this comment
45#
If you pay into a pension fund you are part of the capitalist system.
Complain about this comment
49#
"sold of in bits", what's to sell? HBOS has already sold off Bank West in Australia for a 658 million loss which incongrously helped their capital position!!!!!l
Complain about this comment
Mr Peston,
On this matter you are good at acting as downing St standard bearer, not so good at asking the right questions.
Apparently, Bank of China (reputable international bank, part owned by RBS) was about to announce a bid. This was sabotaged by a premature leak to you and, we learn, a cold shoulder from the government.
Why were we not allowed to learn what was to be in the Bank of China bid?
Would it have been better than the Lloyds bid?
Would it have save thousands of jobs in Yorkshire and Scotland?
Would it have saved £11.5bn of taxpayers money by replacing the government capitalisation?
Are such investors not welcome?
We do not know the answer to these questions because the BoC was scared off a matter of days before showing their hand.
The real story, possibly an unhappy, even scandalous, one is to be found in the answers.
Instead, you chose to be an instrument of powerful anti-competition, anti-consumer, job-destroying business interests by colluding in efforts to destroy a possibly better alternative.
As for this latest blog, is this the best HBOS can do in arguing against independence?
It is shocking that these people, already promised lucrative contracts by Lloyds are allowed to sell sharholders, stakeholders and customers down the river.
What are we missing?
Complain about this comment
50. At 9:37pm on 14 Nov 2008, Anarchyrulesok wrote:
It's a bit concerning to know the Government needs to pay market rates for the "world class" management the banks need to see them through this crisis. Given that the banks have been paying millions of pounds to people who have done more damage running their banks
12% is a good return until inflation kicks in
paying million of pounds..
Paying a % bonus on fools that borrowed above on a false promise that the helium balloon will still pump enough happy gas in it to sustain friction
Damage the banks?
Its a fire sale not contained to the banks and as the ash falls on the floor. Those in the rafters saw the flames and jumped ship months ago, those at the bottom will have their Pompeii
Complain about this comment
i don't get this as i've said before im not a banker and don't seem to understand this (nor does anyone else for that matter) but why on earth would Lloyds takeover HBOS when the entire amount of mullah needed is unknown??? that defys logic (correct me if im wrong)
would you buy a smashed up car off someone if they told it needed not only a new clutch but potentially new brakes, engine, tires e.t.c....
Complain about this comment
hi rob, I found this pic of you writing one of your midnight blogs
http://i62.photobucket.com/albums/h115/mcjhn/pc1.jpg
Complain about this comment
Winding up and adminstration for defaulting businesses! No more bail outs.
Complain about this comment
Hi,
It seems like an age ago now but when HBOS was initially in trouble and Lloyds TSB offered to bail them out a figure of around 12.4 Billion was mentioned. Subsequently it was revealed the Lloyds TSB was also in trouble and needed help from the government bail out.
So were Lloyds TSB deceiving us and was there initial interest in HBOS an opportunist action to pick up HBOS on the cheap?
Lloyds TSB are effectively using the governments cash to finance their takeover?
It looks like Lloyds TSB lost 12.4 Billion and more in the space of a couple of weeks, are they fit to manage another bank?
It is now clear that both banks need help. It appears that the government thinks it will be cheaper if the two banks are merged. The fallout in terms of jobs losses is bound to be significant.
I would prefer to see the management of HBOS fight for it's independence, even if it has to grovel to the government for a bigger share of the Lloyds TSB/HBOS handout. But perhaps HBOS still have to much ineptitude to hide.
Complain about this comment
The 12 percent loan notes(/or whatever they are called) pay a far higher coupon to HMG than the banks pay to their customers but why should normal small savers have to subsidise the government?
Yet another question with no good answer! (Let alone the 14 percent that Barclays are paying!)
PS Anyone any answer as to why lowering interest rates now will not simply stoke up another, and even more unsustainable, housing bubble! I am really interest to know. These 'smart' bankers (Greenspan etc.) admit that interest rates were too low for too long in the past decade and this stoked up the bubble. So what is the logic behind doing the same thing again to fix the problem? There must be an economist out there who can answer my question.
Complain about this comment
#58 JOBS!
That's is the only thing worth preserving here (but not the members of the board).
Shareholders have been slaughtered by the spectacular incompetence of those utter morons in bank board rooms.
When will justice be served? Surely they have acted so recklessly that they have endangered the security of the country. (Anti terrorism laws might as well be used for something)
Complain about this comment
What is becoming very clear is that no one knows what the hell will happen next.
We are all in uncharted territory. As a Lloyds shareholder. I am inclined to vote against this merger. I am fed up with all the self interested comments on this blog. Some supposed intelligent comment is still only guess work. My forecast for the Ftse at the year end/early next year is 3500, my guess, which is as good as anybodys is that this will be at the bottom.
The damage that has been done and is being enacted by the group of 20 will burden our children and grandchildren for years to come.
Robert you and your sidekick Nick are mere tokens in what is a very big game
Complain about this comment
...and so it seems that no-one has a rationale for this deal - other than fear of the consequences of a failure to conclude.
What about a fear of the consequences of succeeding with this bogus, irrational, stupid idea?
Through the BBC your Government is speaking, orbiting your living room, and cashing in the bill of rights.
How can you have an FTSE 100 company whose management has no idea how much money it needs to continue to function? How can you have another top 100 company who wants to acquire a company whilst it is in complete ingorance of the value of the target?
None of this makes any kind of sense. This is not capitalism, this is not socialism, this is deranged ga ga business. How can anyone take this seriously?
Please, please someone explain to me how this works.
Complain about this comment
To a mere mortal like me (with no vested interest at all OTHER that what ethically seems right) there are a number of unescapable facts here.
1. HBOS would never have gone under. Does anyone on this blog seriously think the govermnent would let a retail bank, wth its hundreds of thousands of BUINSESS (never mind personal) account holders, go under. GET REAL.
2. if NR was allowed to be nationalised, then why not HBOS? For 1 we dont lose choice and options where to bank. 2 - thousands of skilled financial sector workers keep their jobs, homes, familes in a time of crisis - meaning less unemployment benefit. 3 - the money will eventualy be paid back on advantageous terms to the taxpayer ( i dont care how long it takes) when the banking sector recovers (and it will) .
4 - the reports suggest that it might take - wait for it - up to £12 billion of taxpayers money for HBOS to be saved. Well, if £12 billion is good enough for RBS to be saved, its good enough for HBOS in my eyes.
So who loses out - investors. Well guess what? I dont give a monkeys. These are the people who have made a fortune out of the complete greed and mismanagement of the banking sector over the last 7 years (at which point there was no GAP between what the banks loaned and what they actually 'owned' to loan). I've lost money through the stock market and put it down to mistakes. Never in my life would I put my 'mistakes' before thousands of peoples jobs.
Its about time everyone stopped thinking about their own personal greed and starting thinking about the bigger picture.
Jobs, the future growth of the UK economy coming out of this disaster, and and a prosperous economy for our kids in decades to come.
Lets not forget - the UK is today one of the worlds top service based economies (much to my dismay that manufacturing is dying a death). We can't let our top service companies disappear from existance. If we continue to let this happen, what on earth does the country have left to offer .......
Complain about this comment
"If you pay into a pension fund you are part of the capitalist system."
Born and bred. That is why I want the assets of companies that fail auctioned off to someone who might make better use of them.
Complain about this comment
Can Robert tell us what is in this for Lloyds? the directors must by law act in the best interest of the shareholders, i fail to see how buying a "pig in a poke" can be of any benefit to Lloyds shareholders!
Complain about this comment
There is much talk about the board of HBOS being incapable of getting itself out of this crisis were it to remain independent.
However, if two of the most experienced and most successful bankers in Europe if not the world, Sirs Peter Burt and George Mathewson were to take the senior positions on the board it would then have the leadership it needs to steer its way into calmer waters as an independent entity.
All we need is for London Labour and its unionist allies in the press, not to mention the BBC Mr Peston to step aside and allow it to happen.
As it is, the shareholders will decide, not Brown or anyone else.
Complain about this comment
#20 "In general, Building Societies, just like the banks, have stopped lending, though at least one small Society CEO I know suggested to me that it was borrowers who'd stopped borrowing, and his Society had adequate funding to meet any reasonable level of demand he expected to see."
Either way, it is all a matter of semantics. If a lender raises the cost of lending high enough, he will drive away most of the borrowers except those who have the most solid collateral backing.
What will cause this system to fail is when the government force the lenders to lend at extremely unrealistic rates to extremely risky borrowers without due regard to risk management. Lending by dictat !!
The Communist government of China forced their banks to lend in just such a manner to their State Owned Enterprises (nationalised industries). Just prior to China's ascension to WTO membership in 2000, China had to write off trillions of its SOEs *toxic debts* and re-capitalise its banks in a massive way. Fortunately for them, they had the hard cash to do so but it still caused a huge dent in their reserves which took them a while to recover from.
Britain has no (nil, zero, zilch, zip, nada) reserves to write any of this off against. On the contrary, Britain is eyeballs deep in debt itself. Any lending by dictat will only dig Britain deeper into the hole.
Knowing this, the foreign money is punishing the Sterling for the sins of the government.
Complain about this comment
From the stand point of poker Gordon has won a pot for Britain ,as the pound ditches our debt diminishes ,we can live without more,soon to be less cheep chinese imports and our landfill sites are nearly full anyway [Demonstrating a dastardly plot by the Chinese politbureau to end chritmas as we know it ],
Now that the Gordon banks are in the first eleven , Barclays doesnt want to play ball and wants to run off with the silver bonus sandheaders in close play
And to think that Gordon came riding into town on the back of a Don quixote whom the public greeted with hail hosanna ,maybe they thought he was foinavon from the westminster stables .Well gordon got him over the hedges and won national leadership and thats all that matters
Perhaps Jesus should have let the bankers turn over their own tables like Gordon Brown did, with his encouragement of them to get carried away with the irrational exuberance of "things can only get better" and "no return to tory boom and bust "[who doubts it now that we are absolutely buzst lightyear to infinity and beyond]
Anyway Its about time that it happened again and it is part of the 2000year economic cyle
Gordon was right ,there wont be a boom and bust like it for another 2000years
Thanks to the BBC and posts like this Gordon will survive despite those who wish to nail him down next to a couple of ceo's for thinking he was better than foinavon augustus
And as Gordon goes up in the world enterprise with his right hand Peter the Rock Man. having denied him thrice , those awaiting for the soaring olympic penta cost whilst sinking into the lickquidity, should shout
"save us Lord G,beam us up Scotty "
Complain about this comment
" UK in for 'prolonged recession'" - BBC headline
I thought it was from the Department of the Bleeding Obvious !! Many have already commented/predicted this situation in this and other blogs. Why does it take the British Chamber of Commerce so long to make it "official" ??
Complain about this comment
#68 In the '70s, the writing was on the walls !! The message said -
Jesus saves
....with the Woolwich !!
Complain about this comment
#66 "All we need is for London Labour and its unionist allies in the press, not to mention the BBC Mr Peston to step aside and allow it to happen.
As it is, the shareholders will decide, not Brown or anyone else."
It would be for the best all round if it was so. However, for it to happen, those two "experienced bankers" and the shareholders will have to dig so deep into their sporrans that they may find holes at the bottom of them.
All the posturing and rhetoric has come and gone. Now is the time for whoever has the *real* hard cash to put up or shut up !!
I am not for or against the government-sponsored back-door nationalisation of HBOS. I am just looking at the realistic chances of the future operations of that organisation. I feel for those thousands whose livelihood hang in a balance while politicians of all stripes and colours posture and use this as a political football !!
Complain about this comment
" Budweiser takeover gets clearance"
"Some US politicians had expressed anger at the prospect of a foreign takeover"
Great !! So now the Chinese can simply re-nationalise Tsingtao beer from Anheuser Busch by pointing out that *THEY* are a foreign company !! Since a large proportion of the profits of Anheuser Busch come from China, the shareholders will not be happy chappies !!
Protectionism works both ways !!
Complain about this comment
"Meeting on the sidelines of the (G20) summit, the Japanese, Chinese and South Korean finance ministers said they might expand their mutual currency swap arrangements."
Ha bloody ha !! This is just turning a "de facto" into a "de jure" !! They've been doing this for yonks on the quiet. Throw in the South East Asians and you get the true picture of their financial power !!
It's all down to those ghostly spiderwebs of family alliances that date back hundreds, if not thousands, of years, that are the true conduits and drivers of commerce and industry in the Far East !!
Complain about this comment
No 53
I agree with you.
The bid of BoC would save many thousand jobs that would continue to feed many families. It would possibly offer better value to HBOS shareholders and maintain banking competition. It was clear that BoC did not want to be named prematurely. Why Mr Peston named BoC and who asked him to do it is a mistery. Obvously there is an invisible power that is keen on Lloyds taking over HBOS.
Mr Peston, can you please explain why did you name the BoC?
Complain about this comment
Now Gormless Gordon wants to lecture us about tax cuts !!
*This man had cut taxes before* !! It was he who cut out the 10p tax and push the lowest paid people higher up the tax brackets !! So he is not lying about cutting taxes; he is just "economical with the truth" !!
It's no wonder he is so dizzy if he is spinning so much !!
Complain about this comment
#65
Agreed, there is a risk for Lloyds shareholders.
But, the answer to your question is that this deal creates a oligopoly and all businessman love an oligopoly because it allows margins to be maximised (read customer screwed). This is why there are competition laws - to protect the consumer.
Big institutional shareholders will vote for this deal. They don't care about the low HBOS price because they hold both companies and what they lose on one (HBOS) they gain on the other (Lloyds) and they get an oligopoly to boot.
Incidentally, this may be part of the government's calculation too because it will be a 43% shareholder. If profits are maximised at the expense of the consumer HM Treasury's tax take goes up.
In another time this would have been called a STEALTH TAX.
Don't expect Robert Peston to point any of this out to listeners/viewers.
Complain about this comment
Are the people who ran HBOS fools?
Oh yes but they're also industrially treacherous having failed to invest in Scotland or the UK's growth and they've happily provided funding to overseas buyers intent on buying what's left of our industry and to the dreaded Private Equity companies that have made huge fortunes without creating virtually anything new.
In Scotland risk equity capital availability fell from an already pretty small £15m in 05 and 06 to a frankly miserable £2m in 07. That's less than the CEO of the main banks earned that year.
Fools? Yes but dangerous and unpatriotic as well.
Complain about this comment
Comment 67 : ishkandar
"What will cause this system to fail is when the government force the lenders to lend at extremely unrealistic rates to extremely risky borrowers without due regard to risk management. Lending by dictat !!"
Isn't it said that this is exactly what the Clinton administration did with Fannie Mae and Freddie Mac; that the disequilibrium that this caused to the US mortgage market fed through to weaken the entire world financial structure; and that what made its ultimate collapse inevitable was the refusal of authority to recognise that the Clinton decision was a real-time mistake, that it needed to be reversed, and that the infection it had introduced to the system must be eradicated.
I'd be willing to absolve the Clinton administration from the initial responsibility for all this if I can be persuaded that the original Freddie/Fannie decision was a passive response to circumstances rather than an active attempt to change things.
But surely the central weakness that has led to where we are has been the huge over-confidence in the decision-making process being structured to produce the best decisions. This leads to a major bias in favour of tinkering with what we've got, even if reason suggests we'd be better off re-building to a new specification.
Complain about this comment
If HBOS do not know their liabilities, for the last 12 months:
1: What have the Internal Auditors been doing?
2: What have the External Auditors been doing?
3: What has the FSA been doing?
4: What were the Credit Rating Agencies doing?
5: What were the Treasury Inspectors doing?
Is it not criminally negligent to operate in this way?
Some of the above are RESPONSIBLE for checking aren't they?
Complain about this comment
cannot help feeling that if this merger goes through, then once we are through all the credit crunch problems, everyone will be demanding that this new massive bank is split up because it is too big and too powerful!
seems to be a complete waste of time and money allowing the merger now.
there must be a better solution than a super-bank!
Complain about this comment
No. 53 I read your post on BoC with interest, over the past week my ideas of what constitute this crisis are changing, and I now feel that a BoC investment in a major UK bank would be an asset not a liability.
At the moment shipping in the far east is landlocked, why? because western banks are not extending letters of credit to suppliers.
This situation directly affects the stability and security of far eastern nations as well as our own. Commerce has virtually halted.
BoC can not issue Letters of Credit to western commerce/industry, it does not have that ability.
Thus, if they obtained a foothold both here and in the US they securitise their own commercial interests in the east and this has the added benefit of securing our own.
If this deal was scuppered by the premature publication here on the BBC (and i dont hink this was the case) then it is very much against national interest.
And if GB pulled the plug... well, need I say more.
Complain about this comment
Did you know that Lord Dennis Stevenson (HBOS Chairman) is a long time, personal friend of Lord Peter Mandelson, and that Lord Stevenson is also Chairman of the House of Lords Appointments Commission.
Does that has anything to do with this proposed takeover deal ?
Lord Stevenson is also of course the man resposible for vetting all those peerages that were investigated by the Met. Police, with regard to the vast sums raised to fund the Labour Party.
Surely such a thing would not persuade the Government's Business Secretary, Lord Mandelson, to act in a way which would not necessarily be to the benefit of the Shareholders and the Public, but would instead benefit the Labour Party Financially ?
............. Shudder the thought..............
That would mean that the Government was corrupt, wouldn't it ?
Complain about this comment
Andy Hornby (HBOS' CEO) is offered a lucrative contract by Lloyds, which will come into effect if the takeover goes ahead.
It makes Mr Hornby to be personally motivated to push this takeover ahead and disregard other possible bids. Is there any confilct of interests here? Is it legal?
I would think that it must be ensured that HBOS management is not personally motivated to promote any particular option.
Complain about this comment
#83
The case of Andy Hornby is an interesting one.
A few years ago he was on the Board of Great Universal Stores, when Victor Blank was the Chairman there.
It wasn't long before that business was asset stripped, the various constituent parts sold off, and the company wound up.
Does that sound like a familiar scenario ?
...............................................................
Industrial relations law is relevant here, because someone who has accepted payments in kind or in cash from a third party, to carry on some business which is broadly similar to the business of his main employer, and which then affects the business of his main employer, is guilty of a breach of contract, and industrial mis-conduct.
The remedy in law, would be to compel Hornby to pay all the profits he has made from this arrangement to HBOS.
Furthermore HBOS are entitled to sue for damages, in compensation for any losses which they may have incurred due to the actions of Hornby. The 3rd Party or Parties involved in the moonlighting as the seconary employer, are jointly and severally equally liable, and they could also be charged with conspiracy to defraud under the 2006 Act.
This might mean that LLOYDS-TSB could be in an even worse financial position than they are already. The corollary is that HBOS would see thier own financial difficulties evaporate.
Complain about this comment
HBOS want this deal to go ahead and they have been discussing this with Lloyds well before September of this year. Lucky for them poor consumer confidence in HBOS coupled with bad business decisions wrecked the share price and made this all possible. As a staff member and shareholder it's interesting to see that no promised letter has arrived asking me to vote on what l want. HBOS no longer care it's business as usual and everybody will be much happier when we become Lloyds banking group. Actually no Andy H we won't because we'll be out of a job! But as long as you're okay that's all that matters!
Complain about this comment
Re #76
You have identified the major issue here, that this deal will produce an oligopoly.
The key issue here is that the government has suspended it own competition rules as it claims that this deal is 'in the public interest', but has failed to specify what the public interest is.
Reducing competition in any market cannot be of benefit to the public, so what is the benefit of this deal?
Will it save the taxpayer so much money that we will be happy to pay more for bank services and mortages in the future? well, the best info we have says the difference between the money we will have to put into the individual Lloyds and HBOS banks will not be significantly greater than the merged bank, and both the banks and the government seem to be reluctant to be any more specific, or even talk about it at all.
Final thought, how will the EU view this deal as it will certainly break their competition rules, so either we will be told to break it up or the government on our behalf, will have to give something to get the EU to look the other way, either way we lose.
Any real examination of this leaves you with only one conclusion, there is some dodgy dealing going on here.
Complain about this comment
I'm sorry.
I have no idea why any of you think these guys are fools. You don't get to the top of anything by being a fool. The very idea that they might be fools is ridiculous.
Complain about this comment
#86
Article 82 of the EC Treaty states that :
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
.....................................
I forsee a number of EU problems then with this proposed LLOYDS takeover of HBOS.
We can be sure that Banks in other Member States, will want to object that such a future leviathon will breach many of these conditions, and if Brown/Mandelson/Darling insist on this deal going ahead, then it could conceivably lead to an international impasse, which could easily cause serious strife in Brussels.
I cant see the German, French and Spanish bankers putting up with unfair competition emanating from "Perfidious Albion" yet again.
Complain about this comment
Re #88
That was (without all the exact language) my understanding of the EU regulations, so I suppose the question is - why hasn't the EU already stepped in to stop this merger? they don't usually wait until after the merger has taken place.
Complain about this comment
- How can tell a banker from a beggar?
- ?????????
- Some beggars are honest.
- Well, then, what's the difference between a banker and a fake beggar?
- Fake beggars have money
Complain about this comment
Re EU competition.
They have said there is no reason to object as the new bigger Lloyds group isn't in a dominant position within the common market or in a substantial part of it. (They think the UK is less substantial in this case than they average Brit does)
If it is dominant with in a member state only it is up to the member state (i.e. UK) to do something about it.
A non banking hypothetical example to show the same point: Tesco taking over Somerfield would be a UK only competition matter, Tesco taking over Carrefour would be a UK, France and EU competition matter.
Complain about this comment
Did I read somewhere that after the takeover of HBOS by Lloyds that the Tier1 capital required of the new joint bank was to be reduced by the Government?
How does that work then?
Complain about this comment
I did try to post a more fuller explaination of the workings of EU Law with regard to further obstacles due to the provisions of New Article 86. However for some reason the moderators have not allowed this to be posted, Why is that ?
Complain about this comment
#91
Whilst it is the case that the UK Government did attempt to restrict the usage of the old article 82, by the provisions of the Competition Act 1998, so that it would only apply to "cases within the United Kindom".
This is a double edged sword.
1. The Competition Act 1998, then provides that if such a case would not be considered for enforcement in a wider EU context, as you have remarked, then it would be valid to be considered by the UK Prosecution Authorities.
2. If the old Article 82 did not apply, because of what you say, then it is most likely the case that the new Article 86 would then apply in this case.
Article 86 of the EC Treaty (was Article 90 in the Treaty of Rome) makes provisions for the application of the competition rules to public undertakings and undertakings to which Member States grant special or exclusive rights.
Article 86(1) applies to States, and ensures the effectiveness of the free-trade, non-discrimination and competition rules set out elsewhere in the Treaty:
(1) In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89.
In particular, Article 86(1) it prohibits discrimination on the grounds of nationality through national rules governing public undertakings. It has also been interpreted as prohibiting States from creating or maintaining special or exclusive rights which would have the same effect as an abuse of a dominant position by the relevant undertaking.
Article 86(2) applies to public undertakings and to undertakings that have been granted special or exclusive rights by a State:
(2) Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in particular to the rules on competition, insofar as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.
Article 86(2) provides a justification for acts that would otherwise infringe the competition rules, in particular Article 81 and Article 82, insofar as they are proportionate to legitimate purposes arising from their having been entrusted with the operation of services of general economic interest (public services) or having the character of a revenue-producing monopoly (fiscal monopoly: monopole fiscal in the French text).
Article 86(3) entrusts the European Commission with enforcement of these provisions:
(3) The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States.
Complain about this comment
Where has all the money gone?
This is obviously a much larger question as it covers most of the UK and global banking systems.
The answer we often here is that it is mainly due to the collapse of the US subprime market, a term I'd never heard of 6 months ago, so I looked it up. Basically it is lending to companies and individuals with poor credit ratings ( a bad idea in the first place I would have thought). As far a I can ascertain this amounts to 6.8% of the US mortgage market or somewhere between 125 and 600 Billion dollars, so this can't be the whole story? Not all subprime loans are defaulting on their debt.
Then there is the plummeting value of banks and financial institution shares, many have lost more than 80% of their value.
Shareholders have clearly lost confidence in banks.
So, did most of this money ever really exist apart from on paper?
The way I currently think of it is that banks have loaned money to banks who have loaned money to foreign banks who have loaned money to people who cannot afford to pay the money back. All these banks have been showing these loans as an asset and inflating their share price as a result. Does this sound familiar, looks like an old fashioned pyramid to me. Bankers used to call this "flying a kite" when account holder kept switching money between accounts.
Now the bubble has burst and all those assets have turned to poison debt. Were all these banks relying on there governments bailing them out?
I hope we have pulled back from the brink, but I suspect HBOS will not be the only casualty.
Banks have taken us for mugs, the penalty will be that they are securely leashed.
Complain about this comment
Lloyds and HBOS will marry because it is in Gordon Browns interest that this happens
Brown knows that he will be out of a job and out of Downing Street in two years at most.
What better than to walk into the post of Chairman or roving Ambassador of a Super Bank he helped form?
Brown is driven only by ego and self advancement. His decisions are then easy for all to see. He has no love of Nation nor cares for the people of the UK. His love of self and power reigns supreme and drives every policy and every decision he makes
Complain about this comment
I know it is early days still but, from what reports have come out the G20 meeting so far, it looks like:-
1) the IMF will be leashed and will not longer be America's attack dog !! The major developing nations will have a greater, if not major, say in how it sets terms and conditions for all future "bailout" fundings to distressed countries.
Implicit in this concept is that if conditions in any G8/developed country are such that they meet the criteria that triggered the terms and conditions imposed on Argentina, the same will be imposed on these distressed nations too. There will not be any "one law for me and another law for you" !!
2) There will be tighter controls over how the World Bank operates and lends to developing countries and greater accountability of the funds lent !!
It will mean that the funds are lent for specific purposes and there will be local and international accountability for the funds i.e. no more syphoning off of funds by local political big wigs, as had been seen time and again, with the tacit compliance of the lending nations for their own political agenda.
3) There will be a global free-trade deal.
This means no more rants like "British jobs for British people" !! (or substitute "Scottish" for "British", if you like). No more protectionism on grounds of national security. This must please the Bushies(??)/Bushites(??) no end since they blocked the Chinese takeover of an American oil company !! I'm sure it will also please the Brownies(??)/Brownites(??) no end if they try to block the takeover of HBOS by a Chinese bank or major shareholdings in Barclays by Middle Eastern billionaires !!
There is always the option of opting out of the world economy and revert to barbarism since most of the critical components of today's society are made from imported materials. When and where was Britain's last titanium, aluminium or lithium mine ?? Without them, there will be no high capacity batteries for mobile phones, MP3 players and laptops and no cars, etc.
4) Ensure that there is financial market transparency and complete and accurate disclosure of financial data.
That's done in the barrow boys for a start. Off to the headsman with them !! No more dodgy deals re-packaged as AAA+ assets !!
No more off-balance sheet items (resulting a serious burning of midnight oil by HM Treasury to re-state Britain's financial position) which will result in the true state of Britain's debts !!
5) Ensure that banks and financial institutions do not incentivise (I truly hate this American word) risk taking i.e. send all the sales-oriented parasites to the wall and only reward (a much better English word meaning the same thing) their people when the deals are finally completed and the last penny of profit or loss has been accounted for !!
This will result in a boom in demand for financial axemen/headsmen, roving professionals that will chop the company's/institution's deadwood for a fee and allow the management to point fingers at them when "the peasants are revolting" !!
6) Strengthen the member countries' financial regulatory regimes !! No more jobs for the boys !!
Also, no more excuses about "not seeing the manure approaching the rotating object" or "it was that fault of other countries/the world, honest, guv"
7) Finance ministers of *all* G20 countries are to draw up a list of *FINANCIAL* companies or institutions whose collapse will endanger the global economic system.
This instantly excludes *ALL* car makers and other manufacturers except for the financial arms of those companies. This will please the Yanks no end if they are thinking of bailing out their car makers.
Picture of George Bush smiling sweetly as he hands this poisoned chalice to Nancy Pelosi !!
Also, picture of Silvio Berlusconi with all sorts of punctuation marks in his speech bubble as he tried to get the unions to agree to the final Alitalia bailout before global regulations slam the door on it !!
And finally, there has been many mentions of the Doha round of talks and implicit in them is that developed countries' subsidies for their agricultural sectors may have to be abolished.
The Imperial gunboats are finally sunk by the economic torpedoes of the newly developed nations. A new World Order is at hand !!
Complain about this comment
BTW, the picture of Gormless Gordon shaking hands seems to summarise this meeting rather well. One smirking and the other (Brown) trying desperately to smile !!
Complain about this comment
" Crisis squeezes Croat Christmas" - BBC headline
http://news.bbc.co.uk/1/hi/world/europe/7730813.stm
Hooray !! At least one sane man !! Now, all we need is for our lot to stop with this spend, spend, spend nonsense !!
Complain about this comment
Would it not be easier going back to small banks? HBOS could become Halifax & Bank of Scotland. RBS would be Nat West, Royal Bank of Scotland etc?
Then there might be more diversification, better understanding of Risk etc. The toxic stuff could be assigned to the right bank with govt support and the others could arise like the Phoenix.
The markets might just be interested in buying shares in Nat West on its own.
Complain about this comment
So HBOS (and others) do not know the extentent of their liabilities.
Where were:
1: Internal Auditors?
2: External Auditors (Accountants?)?
3: Treasury Inspectors?
4: The FSA?
5: Credit Reference Agencies?
Surely the odd few hundred millions either way would not be difficult to spot?
Complain about this comment
This situation seems to be caused by HBOS and others investing in toxic debt.
The toxic debt was hidden by the AAA rating given because the possible default on the debt was insured by monoline insurance companies.
There must have been claims against these monoline companies. One would think that the size of the claims would have busted some of these.
Does anyone know if this is the case or if it is likely?
Complain about this comment
this is basically a letter regarding the recession which everyone seems to be saying is the end of civilisation BUT surely 80% of people are better of during a recession THE ONLY PEOPLE WHO ARE NOT ARE THE ONES MADE REDUNDENT DURING IT .even people already unemployed and on fixed incomes are better of and the employed are much better off EXPLAIN/// WELL INTEREST RATES GO DOWN SO BUSINESSES AND MORTGAGE OWNERS ARE MUCH BETTER OFF [EVEN UNEMPLOYED MORTGAGE HOLDERS] ALSO ANYONE NEEDING A LOAN, THE PRICES IN THE SHOPS GO DOWN FOOD, CLOTHERS, ELECTRICALS .CARS [EVEN FOR UNEMPLOYED PEOPLE AND RETIRED PEOPLE OR PEOPLE ON FIXED INCOMES WHO STILL HAVE TO BUY ] SO EVERYONE IS BETTER OFF. AS WELL AS YOUR HOLIDAYS ABROAD ARE CHEAPER AND OUR EXPORTS ARE MORE COMPETATIVE [AS THE £ HAS FALLEN] SO CHEER UP AS SPOCK SAYS THE 80% OVERCOMES THE 20% rachie
Complain about this comment
I am a shareholder and yet I have not received any letter from the HBOS board. Could it be that this letter has only been sent to the BBC and to the larger shareholders that are likely to vote for the Board's decision?
Complain about this comment
Is there a high degree of self interest from those on the HBOS board in promoting the LTSB takeover and dismissing all other options? We are aware that LTSB have 'hired' Andy Hornby on a reported £60,000 per month as a consultant. How much influence will this have when he is issuing statements on HBOS future? Does anyone believe that in that position he contiunes to be impartial? What is the position of the rest of the HBOS board and what incentive do they have to pursue or assess an alternative bid or to examine the option of remaining independent with admittedly heavy government assistance? This deal seems to be in the interest of the government - face saving after it courted LTSB to make a bid before it's bailout package for the rest of the industry, and shareholders - The large corporations whose unchecked policies of greed placed us in this situation in the first place.
The losers are cetainly going to be customers - lack of choice and competition. Staff - A conservative estimate would relate 40,000 staff to the proposed and recently increased savings LTSB intends to make. Communities - Edinburgh and Halifax probably have the most to loose but the effect will be felt in communities throughput the UK.
It's time to re-examine the facts and a better solution
http://www.unitetheunion.com/socialcontract
Complain about this comment
Something about this take-over smells. Could it be greed and/or the decay of morals?
As a tax-payer, I demand, the Government ensure that all questions are answered before this take-over progresses further.
Complain about this comment
#102 "There must have been claims against these monoline companies. One would think that the size of the claims would have busted some of these.
Does anyone know if this is the case or if it is likely?"
Give you one guess what's happening to AIG, purportedly the largest insurer in the world !!
Last I heard Swiss Re., one of the largest re-insurance companies, insurers of second last/last resort, announced large *unexpected*(???) losses because of CDSs !!
Faith in these banks have been seriously eroded resulting in higher cost of borrowing and higher cost of insurance premiums.
Throw in any changes to the trading conditions of the world resulting from the G20 meetings and things could become interesting; in the manner of the ancient Chinese curse - May you live in interesting times !!
Complain about this comment
96,will it be a civil union ,and which bottom line will get the thin end of the wedge
Complain about this comment
No. 101. Toldyouitwould.
Spot on in your assessment. The people that should REALLY be hung from the yardarms are the EXTERNAL auditors.
FSA and BoE, well you can understand their inertia and lack of commercial knowledge and imagination, but every year the big, and I mean BIG professional auditors who DO employ top notch personnel passed the accounts of these institutions.
These are the ones who should be investigated for fraudulent activities by the police. These are the companies who should go to the wall. Now. These are the people really responsible for destroying global commercial activity.
And the result of their actions? more lucrative work winding-up institutions. Sheesh, beggars belief doesnt it.
Complain about this comment
#108 Now, now !! You should know that, in this country, what consenting adults do in their privacy is not any else's business !!
Complain about this comment
103 Rachie9260
"SO EVERYONE IS BETTER OFF. AS WELL AS YOUR HOLIDAYS ABROAD ARE CHEAPER AND OUR EXPORTS ARE MORE COMPETATIVE [AS THE ? HAS FALLEN] "
How can our holidays abroad be cheaper if the pound has fallen, please?
Complain about this comment
Who rates the Credit Rating Agencies?
They are obviously no good as they did not see this lot coming.
Stack of cards comes to mind.
Complain about this comment
Of all the companies in the world, is it not reasonable to assume that banks know their ledgers and accounts inside out? I am a director in a small business and know exactly what our assets and debts are. The other 2 directors do too!
I can only assume that the not knowing lies in the packaged sold/bought debt used as security for LIBOR purposes. As a further assumption I suppose the bad debt in such packages also included 'good' debt as a sweetener to buyers.
In which case, as one blogger rightly said, surely not all 'toxic' debt will default and equally 'non-toxic' debt may. Defaults are as a result of inability to pay. UK home owners honour their mortgage obligations with either state funding or themselves in most cases, where in the US (I read this on here) people can just walk out of their houses with no obligation to settle the debt themselves.
I'm wondering if the constant packaging and repackaging of various debts has now meant that US and UK debt are mixed up so much, noone can unravel which is which? Not only this, with so many people either becoming redundant or bankrupt on a daily basis, no financial institution can say what their exposure is likely to be? Especially as they won't know if the insurances will settle in timely fashion?
Ergo, instead of bailing out banks, perhaps more focus should be placed on making sure people can maintain their loan repayments?
My local bank manager once said to me that good administration keeps a business on track, bad administration can make a company fail.
If this is applied to our banks, it would suggest that their administration is rubbish! Alternatively, they do know exactly what their liabilities are, but are to scared to admit it as this would probably provoke reputcussions of the most horrible kind!
This whole situation with HBOS is but a drop in the ocean I feel. All hell has yet to break loose!
Complain about this comment
#108 Yes.
You do not have to be married (#96) either!
Complain about this comment
#109
"Spot on in your assessment. The people that should REALLY be hung from the yardarms are the EXTERNAL auditors."
Yes, I see. Like Arthur Andersen after Enron.
There must be a lot of accountants biting their fingernails (if not truly bricking it) out there now.
Interesting times, as another blogger said.
Complain about this comment
FSA is an anagram of SFA.
Any connection, do you think?
Complain about this comment
Who is responsible for the credit crunch?
When the dust settles [ as it did in the famous Laurel and hardy french foreign legion scene ,in which Stan laurel who was supposed to be leading the legionaries somehow took hold of the coat tail of the last person causing a virtuaaas circle to be inadvertantly formed ] we shall see everyone was copnnected to everyone elses tails pretending to be queuers [new labour]
Who in the credit crunch fiaaasco is Stan Laurel and will he please stand up
The contenderrs
Gordon ,the brownites ,and their fans
Complain about this comment
I have considerable funds in HBOS all this financial instability is very worrying
Jim
www.bulgariasfinest.com
Complain about this comment
100: walrus946 says would it not be easier going back to small banks?
And back to proper Building Societies, please and to building society levels of pay. All those small town faces should never have been let loose to play plc games.
And can we have some senior audit accountants appointed to our Upper House as Lords of Public Account, able to summon bank, Quango and charity boards (including non-execs) to appear before them and explain their outfit's performance and bonuses.
Once a few of these boards had appeared, most of the rest might be frightened into doing their jobs properly. They play with other peoples' money, if nothing else.
Complain about this comment
Each and every article written in this blog pushes the government agenda why dont you move to the treasury PR team Peston?
Complain about this comment
#97
Gordon's idea of a "Free Trade Deal" is one where we can buy as much as we like from other countries providing they use our financial services companies.
Complain about this comment
114 marriage would formally insaaanitize it
Complain about this comment
96#
What utter rubbish you have posted, you sound demented.
Complain about this comment
#120 wellr004
"Each and every article written in this blog pushes the government agenda why dont you move to the treasury PR team Peston?"
I do not think my post #101 falls into this category.
Have you read it?
Complain about this comment
118 There is no logical reaso to be worried..........
You should be... terrified, if your deposits are over the insured level ,since even a small %credit crunch caused by colapsing asset prices against their outstanding bank loans can wipe out a banks opperating seed capital on which the credit was originaly levered, as banks write off losses using what was supposed to be seed capital
Fortunately seed capital is now at last being augmented with a public capital stake, injected by monetary authorities moving initially faster than a speeding tortoise ,
[despite having 10 years to prepare from the colapse of long term capital management the forerunner to todays credit crunch , plainly revealing the weaknesses of what was through talking the talk supposed [ by the uninitiated] to be a stable system ]
and now at the speed of frightening lightning, trying to overtake the negetavive feedback loops including the colapsing FAITH ITSELF IN WHAT once PASSED for "market PRICES" that can potentialy destroy tier one capital through detering a new generation of potential debt junky monkies from taking on the old debt /assetprice ratios and making repayments on them theirby stabilizing a market price that is already downwardly exaserbated by the fact that transmision mechanisms of bank of england base rate cuts to existing and new borrowers are failing or non existant
[That was a death sentence]
You should approach any bank the way mother hubbard approached the cupboard
Remember the promice on your pound is to replace it with an equivalent piece of paper should it get unduly ruffled
when you open the cupboard you will find a peice of paper that says how many pounds ruffled or otherwise should be coming your way ,once in hand those notes will have a notional value that will become a substantial one when actualy used for a purchase .
Which brings us to matresses and how to fill them
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
#117 stilllitterarty
Who is responsible for the credit crunch?
I don't think one person or institution is to blame. I certainly wouldn't place all the blame on Brown and the Brownites. I don't know how you can completely exonerate all the banks when they lent money they didn't have to people who couldn't pay them back and on a huge scale. Let's face it, it isn't the job of government to tell the banks the basics of running a bank!
Is this similar to the media frenzy regarding the murder of Baby P? Everyone is accusing Haringey Council for letting this happen, yet they didn't kill the baby. Perhaps it's easier, or more fun, to blame government instead of asking awkward questions about society, about us!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
HBOS/LLOYDS saga - why did UKHMG not approach HSBC? Very small representation in Scotland - therefore no conflict of interest - negates jobs blood letting just over the horizon - public purse not required for such a small acquisition Of course they could not be bullied or coerced in the same manner as LLOYDS and of course were Santander to be given anymore financial favours then perhaps our gullible public might just start to demand more transparency to these so called necessary rescues/ preferential acquisitions. Given all the so called financial expertise held in both public and private sector why was time not called on short selling of HBOS earlier? Of course that would not have provided the political expediancy achieved by torpedoing Salmond/SNP and "Independance" in letting HBOS nearly go to the wall. You can just hear them in Scotland "Gordon saved our deposits" Of course in crushing SNP etc. jobs, shareholders and suchlike don't matter - at least not at this stage of the game! King - only in name - Now trying to talk down the economy whereby the pound falls and GB can maybe get into Political history as his ship finally sinks by introducing the single currency - we have had notes for almost one year which look like Euros and now predicted by Mervyn/Peston to perhaps reach £0.85p = 1Euro so come on guys its almost one to one so we might as well join!
Complain about this comment
As a very disillusioned shareholder it is wholly unacceptable that HBOS board are unable to predict what future borrowing they might need were they to continue independantly! They were my Bankers in business for 30 years. Every borrowing requirement was underpinned by at least 3 yr projections with P & L projections,cash flows and balance sheets. Their above statement is an insult to their customers and existing shareholders. Have they no look ahead mechanism in place of any description? However given the mess Hornby has achieved perhaps not, hence dismiss him immediately as a further insult is to pay this man a further salary - certainly not on the scale of £60K/Month. As regards LLOYDS - buy of the century so get on with it.
Complain about this comment
Can I point out to all these self professed "experts" Credit Rating Agencies - this is generally the consumer arm. Rating Agencies - these are the big boys.
Perhaps all the new experts and knowledgeable people that are posting on here should be posted to top positions within our banks? - lets face it, the fact you are not installed in such positions says a lot doesnt it?
Complain about this comment
HBOS should seek to transfer all of its business (to Lloyds TSB or elsewhere), and become a property holding company.
In the medium term, the architectural impressiveness of many bank buildings - those built prior to 1979, anyway - means that they will be bankable assets.
--
Much is being made (in Scotland) of the loss of the name "Bank of Scotland", yet this need not be the case.
After all, it is already the case that Lloyds TSB comprises two separate and distinct entities - Lloyds TSB Bank plc and Lloyds TSB Scotland plc - and there is no reason why the Scottish bank could not assume the name "Bank of Scotland plc" (posssibly showing its affiliation by adopting the black horse logo) and the non-Scottish bank could revert to "Lloyds Bank plc".
Complain about this comment
124#
You missed the point I believe, 120# was only talking about Robert.
Complain about this comment
132#
Lloyds have already said that they will retain the Halifax & Bank of Scotland brand names.
Complain about this comment
The problem here is the management want to ride the gravy train on the drivers foot plate. That way they get to dictate the journey and get the best view.
This smacks of the truly fantastic deal Qantas had put together last year with some private equity company. This was narrowly voted down and not just by the normal retail investors. When push came to shove one man was trying to leverage his position playing gambit at the last throw of the dice, and collectively the management screwed up.
Geoff Dixon the then CEO admitted yesterday that the takeover would have been a mess. The board were only interested in a big fat slice of the cake that the takeover company had offered them on success.
The company looking to take Qantas over (which was and still remains cash rich but was to be burdened with distributed debt) is on the ropes at the moment as its' debt mountain is weighing it down.
Mark my words, the management at HBOS want as fat a slice of any cake on offer as they can get, and they see a bigger slice coming their way from Lloyds TSB than the government. Any other interest is secondary.
It is about time the take-over laws of this World of ours was changed. Perhaps one shareholder one vote. After all if block voting was no good for politics, perhaps it causes similar damage to the corporate World where the cosy relationship between institutional investment managers and the boards of 'our' companies works contrary to the interests of the greater shareholding.
Complain about this comment
127 deceilar,thank you for your perfectly valid comment, ,my post 117 unfortunately didnt upload in the complete form ,in which i went on to satirize half a dozen key players in this financial fiasco including my self. Starting each time with isit ......
My computer started squealing and freezing which it has been doing of late and my attempt to upload was half succesful and therefore a complete failure to be balanced in the way i wanted ,maybe i shall rework it .
Given that the financial system that Gordon inherrited was completely unstable like an overloaded ferry , as proven by the colapse of long term capital management and the sweeping of it under the carpet at the time , he had not much option but to bluff his way with "no return to boom and bust"since a panic would have wrecked the financial system long before now ,maybe even effecting the emergeance of this very medium the computer that we so take for granted now .
Attempts to regulate the industry not long ago by the FSA were scuppered by the then PM Bair[ six home investment pack ]and his famous and missleading thumbs down speech of their attempts to fulfil their regulatory responsibility .
Peculiarly enough Gordon is the one that seems to me to be the least responsible for this crisis ,nevertheless his comments that he may well have had to make at the time place him in a good position on first reckonong to recieve the Stan Laurel legionaires award, which could also take some of the heat from the sun off him .
Complain about this comment
#131
How do you know none of us are employed at board level in the banks? In fact, I get the distinct impression that some posters are very much closer to HMG and banks than you may think!
However, if I accept your comment at what I think is face value, I did hear that noone on one bank's board of diectors had any time served experience of banking, just track records for ruthless profiteering! This, it would seem, is the root cause of this current worldwide pervasive evil!
In fact, if some of the bloggers were appointed, then there's a pretty good chance they would do a much better job than has hitherto been the case!
Come to think of it, perhaps your post is so derisory because you ARE a banking director?
Now there's a thought!
Complain about this comment
I just realised I mis-read the amount of money for Andy Hornby-I thought it was £60k a YEAR, not a month!
Even yearly that's still an obscene amount of money, especially when you add in the bonuses!
There are many highly qualified, honest people with INTEGRITY out there who don't even earn half that in a year-and they literally deal in life and death-more responsibility and accountability than Mr Hornby will ever have!
Time to make these fat greedy bankers earn an honest living. Give them £30k a year, no bonuses and make them accountable-that way the only ones who'll do the job will do it for the right reasons!
Complain about this comment
However expensive private money maybe, it is cheaper than being forced to try and bail out Brown by making crazy loans as the UK goes deeper and deeper into recession. If the lending levels were "reckless" in 2007 then the government demand to return to those levels in 2009 surely are worse. When people start defaulting on the new government mandated loans, is HBOS going to be in a better or worse position?
Complain about this comment
#131, can't speak for commercial banks but on a trading floor the power generally doesn't reside at the board level but with the traders.
Being a manager is a poor job in the trading arm of an investment bank given money tend to flow to revenue generators and obviously as a manager you aren't directly generating revenue and as a board member you have responsibility and no little power - as i think has been amply demonstrated recently....
Complain about this comment
#137, the root of the current evil is greedy customers borrowing beyond their capacity, [some] governments trying to spend way beyond their capacity ( cough, cough the UK ) and people not understanding that excess returns means excess risk and finally silly regulations that were just begging to be gamed.
Complain about this comment
#136, you on crack? Brown is "least responsible"? The control freak micromanager of the economy for the last 11 years? He is the one who spent like crazy, he is the one who knocked off one productive investment after the other, made sure interest rates were artificially low and in case the BoE thought about raising interest rates he removed mortage payments from their target.
He has had **11** years of near absolute power with massive majorities. He was perfectly happy to take credit, he was perfectly happy to berate anyone that thought he might not be the "economic genius" he claimed to be and he was warned on my count at least 5 times by the OECD and IMF and many many times by Vince Cable and each time he knew better. He could have acted in 2005 but didn't and his cure for the current hangover is to go out and get drunk again.
Complain about this comment
#127, irresponsible borrowers are ultimately responsible.
No one held a gun to their head to borrow, no held a gun to their head to overpay for assets and no one held a gun to their heads not to save.
The government may have gone out of it's way to punish the prudent citizen and any bank that didn't lend was punished in it's share price - note that the renumeration of the board is usually tied to the share price and it also happens to be a legal obligation of the board to do what is best for shareholders, which usually means making sure the price goes up - but at the end of the day, there were plenty of warnings and plenty of basic finance that could have told you the party was ending.
Complain about this comment
Robert Peston clearly is getting confidential information from the highest political level concerning the takeover. His high level informant is obviously using Mr Peston to sabotage possible alternatives to the HBOS/Lloyds deal (and by the way the Virgin bid for Northern Rock). Clearly Mr Peston is a willing volunteer but I detect the favour is being returned with favourable coverage of Mr Brown's 'miracles' in his coverage thus far.
Complain about this comment
With regard to post No.81 Todays BBC story, 'Financier discouraged from bid' seems to fit the bill.
http://news.bbc.co.uk/2/hi/uk_news/scotland/7732208.stm
And if true, it is, I believe, against national interest. It would not matter if BoC was major shareholder with the right to print banknotes etc, they would still be subject to Scottish/English law & scrutiny. UK democracy, No. UK free market, No. Corrupt gentlemens club, Yes.
Complain about this comment
I find the arrogance of government ministers in these matters to be wholy unacceptable. (see post
145)
'UK ministers added that any alternative bid would be treated fairly.'
This must be read in the same way as a minister stating that Brit troops have all the right equipment in Afghanistan 4 hours after the head of the territorial SAS resigns because of lack of said equipment and continual subsequent inquests find same.
I believe the term is mealy mouthed. I tend to use more down to earth phraseology which can not be typed here.
Complain about this comment
#143 Borrowers will be held to be responsible and borrowers will be labelled "irresponsible" and you and Rupert Murdoch will both be happy.
However such a simplistic analysis will reveal no truths, identify none of the players that have acted with malice aforethought and provide no understanding as to how any repetition of this stuation can be avoided.
People were effectively forced to borrow because they needed somewhere to live and the only way they could afford somewhere to live was by borrowing. The UK is quite cold at this time of year and a life on the street is not that cosy. Ever since 1979 social housing has been in decline - with the sell off of Council Housing, and the sell off of housing owned by large employers. The destruction of the availability of social housing has had adverse consequences for the working poor (as its authors intended). In traditional working class towns there is a very high correleation between increasing levels of owner occupation and housing poverty (e.g. lack of bathrooms, lack of central heating, general disrepair).
You say no-one forced them to overpay - but as long as they were buying at market rate then they weren´t overpaying, they were simply buying at market. For your point to be valid then you need to identify a whole raft of people who were willing to sell at below market.
Perhaps your point is that they should have worked out for themselves that prices were inflated and hence they should not have participated in the market. Don´t foreget that virtually all of the "professional" players - mortgage providors, mortgage brokers, estate agents, surveyors, the media - were all banging on about a new paradigm and how the new test was merely that of affordability, and by all measures affordability had never been better blah, blah.
Do these people have no responsibility? If they don´t then why doesn´t the Government compel them to make this crystal clear.
For most people saving is as about a realistic a prospect as travelling to the moon. The entire system essentially held a gun to their heads and forced them not to save.
Where, for example, is my pension gone? What am I supposed to do about it? Maybe I should increase the amount of contributions so that I can watch an even larger destruction of value. Or maybe I will choose not to.
Am I being forced not to save? Not literally speaking, but if I wedge even more cash into a pension fund, and even more cash suffers the disappearing treatment, then what am I left with? - Nothing. Then I´ll have to put up with smart guys like you telling me its all my own fault and that no-one forced me to save.
Complain about this comment
blog 2:
hear or here?
Complain about this comment
#131 andyn1981
"Can I point out to all these self professed "experts" Credit Rating Agencies - this is generally the consumer arm. Rating Agencies - these are the big boys."
Thanks for pointing that out for us. I have not seen anyone professing to be an expert on this blog.
However, taking your point, what were the 'big boys' , the Rating Agencies, doing?
They did not report any toxic debt, did they?
Complain about this comment
We still seem to be trying to find a scapegoat. We are all to blame as we stood by and pocketed the cash while commenting that it could not go on. The fundamental problem was asset price inflation without substance. We borrowed from abroad to fund spending when we had not created the wealth to spend. This inflation in asset prices extended to all assets including our currency- what tosh it was to suppose our bargain shopping in New York was the real world or that houses in Spain an France were that cheap. With HBOS, the Halifax along with the other mutuals, went PLC and went to the wholesale money markets to fund expansion and they went one better, they took over the bank of Scotland that has always been an adventurous corporate bank- absolutely fine when it had limited funds but all those deposits in Halifax allowed them to go a bit too wild and this happened at the same time as they shook out some of the corporate guys who had a decent sense of banking in their head. Add to this political pressure to fund some pretty dodgy deals with some very average Scottish companies and HBOS became very vulnerable. Is the Lloyds deal the right one- well the reality is that it is the only deal on the table. I am sure that Lloyds will split out its mortgage business when times have settled down and use the value to help retrieve some of the value lost by HBOS in the last couple of years. It has been tough on bank shareholders but sadly it is the same with us all- we have to spread our risk even though this time everything has gone down so that has not ben posible. But has it gone down in real terms or has the froth of the last few years now been taken off and assets are now at more sensible values- how many assets are lower than 2005 which is when I suspect we started really going into stagnation mainly because of the Iraq war and by then the fictions of wealth generous in the City - with the attendant bonuses based on bogus profits- had had a sufficient effect to start the ball rolling unstoppably downhill. Now as we are in survival road- we should not assume anything and just remember that it is about survival not trying to get back what we have already lost.
As a final point what an idiot Osbourne was- the markets have already dealt with the overvaluation of Sterling and I suspect we might see a rally of 5% this week as the dollar and the euro look at bit juicy with no substance now and at least Brown and Darling are determined to act . If I was cynical I might think that the Tories do not want to win the election in 09 or 10 as what a mess we might be in ( or else Brown will have pulled it off and will win on that basis and to be frank would deserve to) and much better to wait till we are at the bottow which I think will be in the winter of 2010 when the public sector will be getting some real cuts and Brown may even need to raise public sector retirement ages to 70 to avoid meltdown in public finances. Interesting times as the Chinese would say.
Complain about this comment
The events at HBoS in recent months are unfortunate for many people, not least the employees, customers and shareholders of the group, as well as the UK. But it is time to take stock of recent events, for there is a strong possibility that the natural overreaction of the market place to the present instability may rock the UK economy more than necessary if the wrong knee jerk decisions are made now.
Following the merger of Bank of Scotland and Halifax, the two brands were kept separate, quite rightly, for each had a good reputation in it’s own field, albeit Halifax had a dominant market share of the UK mortgage market, whilst BoS had a miniscule share of the overall UK Corporate market, despite being respected as a leader in the MBO sector, which was seen as less attractive to other Banks. The latter was seen as an effective method of opening up the UK Corporate market place to BoS, which had it’s roots in Scotland where it had only RBS as a major competitor. IE a very provincial and nationalistic market place.
Each Bank had a respected, well regulated, expertly staffed and effective credit policy, with a lower than average ratio of bad or doubtful debts compared to other major Banking groups, and also had a lower cost income ratio than other groups, i.e. they were a cost efficient business. These positions have not altered to this day, and both Banks (now called the Retail Bank (Halifax) and the Corporate/Commercial Bank (Bank of Scotland).
Following the merger the directors took decisions to expand the new Group rapidly, and to challenge other major UK Banks for increased market share in the Corporate sector, whilst maintaining market share in the retail Bank (i.e. personal banking (including Mortgages) market.
However this was not attempted in a cavalier fashion, and there was rigorous scrutiny of individual and collective credit risks. The market share started to increase, and the Bank (particularly the Corporate business) acquired a good reputation with customers. It has effectively challenged the market domination of more established UK wide groups such as Barclays, HSBC, Lloyds and Nat West.
It achieved this at a time when property and business values were increasing rapidly due the availability of credit within the global Banking systems, and has generally contributed well to the UK economy by being an effective competitor to the UK banking ‘cartel’ of HSBC, Barclays, Lloyds and Nat West. The government report on the Banking industry of only a few years ago emphasised the need for greater, not less, competition in the industry, and an independent HBoS has helped towards this.
A brief look back at the last global recession:- In 1990/91 the Bank of International Settlements, (under it’s Basel regulations) had drawn up increasingly stringent guidelines for Banks capital adequacy ratios. This was a response to the high number of mortgage bank collapses in the US. A global recession followed very shortly afterwards, as many Banks had capital tied up in massive property transactions, e.g. Barclays in Canary Wharf, etc. and under the new regulations were unable to lend further to existing customers. Therefore many UK businesses were lost in that recession due to lack of additional borrowing capacity to see them through difficult trading conditions. The economic strife unwound itself after global economies and Bank’s adjusted to the new capital regime, and the world economy started to recover.
What has contributed highly to the present global Banking crisis is the introduction of additional regulations by the Bank of International Settlements, in the shape of their Basel 2 regulations, and accelerated by the collapse of mortgage Banks in the US (sounds familiar??).
These new Basel 2 regulations take the capital adequacy requirements of Banks globally to a further stage, by seeking to RATE EVERY CREDIT (or bit of lending) by all Banks, and then requiring the lending Bank to hold reserve capital in a form acceptable to the regulator (BIS) against the aggregate risk of default and on a sliding scale. In other words the worse the risks the more reserve capital is required by the lending Bank.
(As an aside: do you believe all countries will monitor their Bank’s to ensure these individual credit regulations are adhered to?? The far east ?? (HSBC territory), the middle east (Barclays new shareholders??).).
Therfore if the Bank’s security values reduce, caused by falling property market or share prices diminishing, the PERCEIVED lending risk increases and more capital is required, IF you are operating a dynamic and frequently revisitied rating model for each credit. If the bank does not operate a dynamic rating model that responds to market
In particular HBoS has completed the work necessary to rate it’s credit risks to a higher standard than most other (UK or global) Banking groups, including the present suitors Lloyds TSB., which itself was formed when Lloyds took out the savings Bank, TSB, at around the time of the Basel 1 regulation introduction. (A merger forced by capital inadequacy???). This has forced it to face the fact that it has inadequate capital to support it’s present operations, generally very good, clean and efficient as they are, and is why the Bank will not be able to determine it’s capital requirement for the future, because dynamic market conditions are reflecting almost daily in it’s risk rating model.
With a high proportion of HBoS (ie Halifax) lending being in first home mortgages, which by their nature are generally good risks, but frequently have a high loan to security value ratio, the HBoS rating model will not reflect the risks well for regulatory purposes.
Mortgages also are far less remunerative to a Bank than commercial or corporate lending, but, as shown above, much more demanding on capital adequacy.
In other words the mortgage side of HBoS is dragging the HBoS business down, not because it is bad business, but because it does not meet the one horse model of the regulation requirement. Halifax is an important player in the UK housing market and has a social responsibility to the UK population as well as to it’s shareholders and employees. The mortgage side of HBoS will therefore NOT have the same profit potential as the Corporate (Bank of Scotland) side of HBoS. Lloyds know this, and having been left behind in the corporate field by other Banks following their own take over of the TSB Savings Bank, are seizing the opportunity to make up lost (profit and share price) ground through this opportunistic take over of HBoS.
They know that the mortgage side will not make money, but with market domination, also know they can hike the cost of mortgages to redress that.
Whilst a take over by Lloyds may seem to be necessary to meet capital adequacy regulations, and in the short term may be an effective solution, it is no more certain that the long term capital adequacy of Lloyds HBoS will be sufficient to meet Basel 2 regulations as they stand at present, than of an INDEPENDENT HBoS, supported by a mixture of government or overseas investment in ordinary and redeemable preference shares and short term liquidity loans at a rate of interest that allows the Bank to take a reasonable margin from it’s mortgage business. The government has a duty to be the lender of last resort, hopefully relatively short term, to help this important Bank align itself with Basel 2. If this means injecting £12bn with 75% as equity, then it will be a good UK Plc investment in all our futures, providing the government does not then run the Bank as a nationalised industry. It has to be allowed to operate on a commercial basis, if only to ensure a good return for shareholders (i.e. government et al ) over coming years.
It is up to the HBoS Bank management of the future to ensure that adequate profit, and consequently capital generation take place. If the Halifax (HBoS) mortgage market share diminishes over time it will be as a result of market pressures and competition in the mortgage market. If the take over by Lloyds happens, the dominant mortgage market share of the combined entity will have a more adverse effect on the UK public, by contributing to a mortgage market cartel, than of Halifax independently battling to make it’s mortgage business attractive to investors again. One thing is certain, mortgages are going to cost a lot more in the future than they have in the past and will be a lot harder to come by.
Regwart.
Complain about this comment
147 - Well said.
Borrowers have been no more irresponsible than lenders, probably less so/
And Companies & banks have been no more irresponsible than their investors have been for investing in them in the first place.
Complain about this comment
#131 andyn1981
"Can I point out to all these self professed "experts" Credit Rating Agencies - this is generally the consumer arm. Rating Agencies - these are the big boys."
You may be interested in this section of the G20 Statement:
----
Immediate Actions by 31 March, 2009
• Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products. This will help ensure that credit rating agencies have the right incentives and appropriate oversight to enable them to perform their important role in providing unbiased information and assessments to markets.
• The international organization of securities regulators should review credit rating agencies' adoption of the standards and mechanisms for monitoring compliance.
----
Seems like the credit rating agencies are the big boys after all.
Complain about this comment
#147, firstly, you could rent. I did for two years post 2005 whilst being lectured on how i was "paying someone's mortgage" and "missing out on asset values" and "its not like they are making any more and there will always be demand" etc.
Also yes the salesman do a sales job on you. It is their job. They also have a long list of warnings on the document you didn't bother to read before signing. The government DOES compel them to inform you about the risks - read your credit agreement, read the charge agreement on your property. It is called being responsible, if you didn't understand it then why did you buy?
As for pension, they were never a good idea in the first place and post 1997 you should have known they weren't, there was enough of a fuss on Crash Gordon's assault on the funds. If you really want to know where the real "toxic debt" is, think who would be motivated to make a short term punt but can hide any losses for years after the actual managers have left, people who are required to invest in "safe" AAA rated instruments but want to have higher yield.... I give you a clue, you have one and it begins with p and ends in n.
In terms of debts, you are in luck with hyperinflation your debts are going to shrink. Of course you being paying the same in real terms for all your electricity etc as it is all imported.
Complain about this comment
#147, PS given the historically high rates of debt the Murdoch empire is built on I suspect he is keener than you for inflation and interest rate cuts.
Complain about this comment
#152, borrowers been no less irresponsible? how you work that one out?
Complain about this comment
156 - I believe it says 'no more' but either way, both lenders and borrowers have behaved equally irresponsibly.
Lenders have lent to much, collateralised against fantasy growth figures and borrowers have borrowed too much with scant regard as to how they were ever going to pay it all back
Complain about this comment
#154 Good to see that you remain resolute in your determination not to "get it."
The destruction in the availability of social housing has essentially forced many more people down the route of owner occupation. Most rental properties are in the private sector, and most private sector landlords are interested in actually receiving rent, and hence they have an acute interest in the credit worthiness of potential tenents. To simplify; renting tended to be an option for credit worthy individuals. Perversely purchasing tended to be the best option for non credit worthy individuals.
If you´ve got money and want to rent something in Knightsbridge or Manhattan then you´ll probably find plenty of choice. However if you happen to live in say Abertillery then you may find you choice somewhat restricted.
This is because buy to rent merchants (at least the sensible ones) tend to purchase their properties in places and areas which are likely to maintain their value.
With regard to credit agreements: If you get some guy sitting down and asking for an explanation as to what all the small print means what do you imagine the "salesmen" might say? Half of that lot don´t understand the words themselves, and the other half will provide any kind of answer calculated to get the guy to stop asking questions. It´s for abilities like that that they get employed in the first place - that´s why companies perform psychometric evaluations and the rest of the garbage prior to hiring - they want to make sure that they are getting what they are paying for - either the intellectually challanged or those with a penchant for being economical with the actualite.
It´s a carefully put together system - and its main aim is, when things go wrong, to allow people like you to make the defence that you have done. Yes, technically it´s true, but in reality it´s wholly bogus and well you know it.
Most people are not investment bankers, hedge fund managers, or experts in complex financial derivatives. Most people assume that if you save for a pension then, rather like putting it in a building society, it will increase in value over time and eventually if you have saved enough it will provide you with a pension.
Clearly this is not true - and a lot of people, without understanding the micro aspects of the fraud, understand that the whole thing smells fishy. After all there is no law of nature that requires the pension industry to act as it does. However they still want to be prudent and still want to save, and a lot of these people have been guided toward the "rock solid investment" that is said to be property, and thereby the non virtious circle is completed.
I don´t see how it is reasonable for individual participants who work outside of the financial system and earn average wages to be expected to know all of the micro jiggery pokery that has been going on, and at the same time to aportion no responsibility to the well educated, bonus devouring sharks who have created and operated this entire system.
Some people saw all this coming, saw all the dodgy numbers, and saw all the snake oil salesmen - and those people have got themselves out of the way of the full impact. In part that is down to their own foresight and judgement, but rather like winning the lottery - they only won because a lot of other people lost. Surely that is not too hard to understand?
Complain about this comment
Brevity, someone?
Complain about this comment
Today the FT Lex column says HBOS has been ‘plundered by Lloyds’ and protagonists are accused of being slippery, lacking in transparency and disingenuous. Unusually strong words, but appropriate as directed - towards Lloyds TSB and the management of HBOS.
This is yet another sign, in addition to recent editorials in the Times, Economist and FT, that at least the argument has been won.
Do the Lex charges also apply to the UK government?
Transparency, responsible scrutiny and an arms length relationship between business and government lie at the heart of good governance, both societal and corporate.
A willingness to change one’s thinking when the facts change – to paraphrase Keynes - is a hallmark of sound policy making (the facts of this transaction changed when the government decided to take equity in the banks).
These principles have been abandoned in respect of the proposed merger: competition laws are waived, UK parliamentary scrutiny absent, a discredited HBOS management conflicted by tie-in to the Lloyds deal, most bulge bracket investment bank on the payroll of either Lloyds TSB or HBOS, an orgy of inappropriate leaks, misinformation and disinformation, all the while the government holding the key while pretending not to.
There is a sense in which the UK government, finding itself in a hole is still digging.
Why?
And shouldn’t you, Robert Peston, be throwing some light on this, if only to counter Sir George Mathewson’s charge that you are a UK Treasury lackey?
One detects a whiff of something very political, arcane and not very nice.
By the way, thanks to #151. Fascinating insight into banking strategy and further evidence how flawed the Lloyds TSB project really is.
Complain about this comment
#157, yeah sorry this is what happens when you reply off the cuff...
Complain about this comment
#158, Listen i empathize to a certain extent. My mother was sold "With profits[sic]" bonds, one of the greatest scams of all time. she was sold on "guaranteed interest payments" that were substantially higher than base rate and she got screwed. Am I sorry she did, of course, she's my mum. Am I angry about the scumbag who sold it to her, of course. Is it outrageous that a company can sell a product that doesn't even theoretically have a value, i would argue yes. However, at the end of the day, the risks were laid out in the brochure and she skimmed over that part of the microprint to focus on the "excess returns" - ignoring the excess risk she was taking - and some vague claim to "tax-efficiency" and as such she has to take personal responsibility. I also did point out that something that pays twice base must be taking a risk and it is probably safe to assume it is not the insurance company bearing that risk.
Why should a salesman point out what you can't be bothered to check? You want to tell me you ever read a credit agreement? You ever checked to see if the charge you give the bank can only be invoked if you default on your mortgage or whether they can invoke it on any other unsecured debts you may have? Or the ability of the bank to demand immediate repayment of all your overdraft at any time with no notice. Again fundamentally it is your responsibility to read it. If you don't understand it then don't sign and if they won't explain it to you then there is probably a good reason they want you in the dark.
Look at pensions, they are schemes just begging to be gamed. You stick your money in a pot that you cannot touch for decades based on the performance of the last couple of years. So the managers of the money in your fund have one incentive to maximise short-term gains with the additional advantage of your losses not be crystallised until 30 odd years from now. So guess what products they invest in? Sound, long-term portfolios or products that pay out a bit more now but in return pay out substantially less 10 years later?
The bottom line is that it is NOT reasonable for you to assume that any investment will make returns above that of the risk-free return - typically defined as the return on government bonds of that currency. If you are making more then you are taking risks, there is ***zero*** chance that a retail product offers risk-free excess returns.
The real way to stop these products being sold is for people to face the consequences of buying them. When lots of people lose money on investments then maybe they will be a little bit more careful next time - but i wouldn't count on it.
PS with regards to the situation with rental properties outside main cities, i have no experience or expertise whatsoever and so can't really give any informed comment. So my uninformed comment is something about a vague recollection about the boosting in social housing under Brown.
Complain about this comment
151. At 10:57am on 17 Nov 2008, Regwort wrote:
Regwort - I was awaiting similar detailed and lucid outline from Robert Peston but you have nailed it before him!
Complain about this comment
#162 - Sadly your post provides further confirmation that seemingly no one is fully immune to being scammed by these operators.
I agree on the pensions point, but in my experience it´s even worse than you say. I was employed out of the UK for about 10 years. My employer offered to contribute 8% of salary to a pension, but only if I contributed 5%. If I didn´t contribute then neither would they - there was no cash alternative.
I signed up!
If I´ve lost (and I´m still not sure, when measured against the alternative) is that my problem? - Absolutely.
Am I whinging? Not really.
But my point is that the "system" is absolutely loaded in these guys favour - even people who know they are being robbed are still essentially bribed to sign up.
I think a vague recollection is the best anyone can hope for with regard to any policy statements by Brown.
Complain about this comment
Comment 162 : laughingblacksheep
Personal responsibility. It's probably a bit philosophical for this time of the morning, but I think we need to examine the nature of the society in which we live, before being too hard and fast about how much we should be held personally responsible for the outcomes in our lives.
Imagine living in a society where the work/commercial mantra is "produce something of absolute value, and exchange it for other things of reciprocal value so as to improve ones life". In such a society, the focus of ones personal responsibility would be the production of absolute value, wouldn't it? There would be no need to accept responsibility for not being ripped off, because ripping people off wouldn't be part of the structure of society.
On the other hand, consider if society's mantra is "acquire as much value as possible, either through balanced production and exchange, or through legally taking ownership of the wealth of others at less-than-equivalent compensation". Would not personal responsibility in such a society be blurred between producing, acquiring and protecting wealth?
How do we bring up people in our society? What mantra do we project? That reciprocity is nonsense; it's dog eat dog; everyone's out to legally swindle us? Or do we nurture the thought that we are more social than this? That there is a respect for other people and their possessions that overrides inequitable acquisition?
It matters, because society cannot function unless there is a broad coincidence, within the law, between actual and expected behaviour. There must be complementary attitudes on each side of human transactions. If it is to be dog-eat-dog then people like your mother need to be weaned away from the default position of trust in human equity. On the other hand, if the general public are to be expected to trust the fairness of others, then it's essential that society ensures this fairness is what actually happens.
Complain about this comment
View these comments in RSS