HeartThais Posted January 22, 2009 Report Share Posted January 22, 2009 As I don't follow UK banks closely, the RBS announcement and the subsequent hammering of sterling took me by surprise. So I did a little research into the other UK banks because the potential for another shock like RBS would encourage me to move completely out of sterling assets. First, RBS losses. Most of it came from writedowns from the ABN purchase which it bought at the market top. About 8B came from writedowns of CDOs. The rest came from writedowns in its corporate division. I feel better that most of this won't be mirrored in the other UK banks. Except maybe Lloyd's which concerns me a great deal because they are the largest mortgage player. They have a low capital ratio (healthy is 8%+ and they are in low 6%) and they are heavily exposed to the mortgage market. Government owns 43% but if they do a similar preferred for equity swap, the government is the majority owner. I look at Lloyd's as the canary in the mineshaft. Barclay's has kept saying they will post a small profit but the markets are doubting. Barclay's isn't just another RBS. They have strong trading operations in many areas unrelated to the mortgage market like commodities. Also, I know anecdotally that they are aggressively recruiting in areas such as energy, commodities, and FX. I feel much better about Barclay's now than I do Lloyds. HSBC has a few things going for it. They've got strong operations in Asia and they haven't gone to the til for cash too many times. I feel the best about HSBC prospects. Now, the thing that worries me is what we can call the Bear-Stearns/Lehman effect. Even the rumors of ill-health can force a wobbly bank out of business. First of all, customers stop wanting to do business or pull deposits. Second, the customers that do trade (often other banks), require bigger margins which effectively raise the cost of capital. So not only does your volume drop but your profit get thinner too. In some instruments, a high cost of funding means you can't do any business due to competitive pricing. Add to that your competitors start taking the same bets that you will fail through credit default swaps so now they have a collective financial incentive to see you destroyed. Rumors in the finance industry can destroy. It destroyed Lehman and it came close to destroying Merrill. Already there are stories about US banks refusing to do business with UK banks. So the conclusions I draw from this are I don't think we see a repeat of RBS in another UK bank. BUT I think there is a signficant risk of entering a vicious rumor cycle that may cripple the UK banking industry. I think the start of that cycle, if it happens, would be some really bad news coming from Lloyd's/HBOS. It's really hard for me to make a call because I think the markets generally over-reacted in their sell-off recently. However, I would feel much more comfortable with my assets not in sterling for the next 6 months to a year. In other words, I wouldn't short sterling to make a profit but if I had non-sterling liabilities, I would short sterling for defense just in case all hell breaks loose. Caveat: I'm not a financial advisor or a currency trader. Just providing my opinion in hopes that it will be helpful in forming yours. Link to comment Share on other sites More sharing options...
Faustian Posted January 22, 2009 Report Share Posted January 22, 2009 Nice post and I agree with your analysis. HSBC seems to have avoided most of the bad press thus far. I continue to be shocked at just how badly sterling is being hit...as has happened before it seems to be a favourite for people to make money from. The UK economy is fucked, but it isn't like it hasn't happened before...However, this time the rumour mill is in full effect. Lots of speculating going on. I think the governments efforts to shore up the banks should demonstrate that things will be ok in the future (albeit not short term). It's such a shame that Gordon Brown is the PM though. At a time when an intelligent, charismatic, confidence building leader is needed, we have Mr non-personality at the helm....who I think is doing a very poor job. Anyway, most of my cash is held in the UK. I wont be touching it for some time. No condo buying for me then! Link to comment Share on other sites More sharing options...
Faustian Posted January 22, 2009 Report Share Posted January 22, 2009 Rather depressing editorial.... http://www.guardian.co.uk/commentisfree/2009/jan/22/financial-markets-recession Link to comment Share on other sites More sharing options...
Faustian Posted January 22, 2009 Report Share Posted January 22, 2009 More analysis, has some positives...just not many... http://www.nytimes.com/2009/01/22/business/worldbusiness/22pound.html?_r=1&partner=MOREOVERNEWS&ei=5040 Link to comment Share on other sites More sharing options...
Mekong Posted January 22, 2009 Report Share Posted January 22, 2009 If you think that is depressing Try This not seen a penny for nearly 4 months now. Link to comment Share on other sites More sharing options...
Faustian Posted January 22, 2009 Report Share Posted January 22, 2009 I fully appreciate that is awful, a really huge disaster. Must have hit a lot of people. Are you involved in this significantly? Link to comment Share on other sites More sharing options...
CTO Posted January 22, 2009 Report Share Posted January 22, 2009 I think he mentioned before enough to take up serious drinking! Link to comment Share on other sites More sharing options...
HeartThais Posted January 22, 2009 Author Report Share Posted January 22, 2009 http://www.bloomberg.com/apps/news?pid=20601110&sid=apYPclI7kHas At least Goldman has a positive view on sterling. Link to comment Share on other sites More sharing options...
Mekong Posted January 22, 2009 Report Share Posted January 22, 2009 I fully appreciate that is awful, a really huge disaster. Must have hit a lot of people. Are you involved in this significantly? As CTO correctly identified it knocked me for six for a few weeks and I sought solice in the place where I would never have found it, but my family and friends gradually eased my cranium from my posterior, for which I will always be grateful. Angst, Anger, Hatred and Betrayal are emotions one goes through and in my case tried to hide from, but it does not solve anything, life still goes on even when one is standing still and you miss out on a couple of moves in the game. I would like to think that maybe within the next 5-10 years I could recuperate a large percentage of my deposits but if it happens it will be a bonus, my mind is telling me you have made it once so I can make it again, I will be 45 next birthday so I still have age on my side. I have engineered myself into a position over the years where the home in BKK is paid for and I also have other assets, when I see the posts asking about "Property in Thailand" or "Why marry / Date a GTG" I have a smile to myself ... not a bad foundation to start over from. I am a hard nosed self centered egotistical cunt from Salford, simple rule I learned on the estate I grew up on if they punch you stand up and punch back harder, the only person who can defeat me is myself. Looking forward to meeting up with you one day! Link to comment Share on other sites More sharing options...
Faustian Posted January 22, 2009 Report Share Posted January 22, 2009 Jeez man, my heart goes out to you. From what I've read all is not lost and some money might be forthcoming, but you know it'll take a while...and probably be less than your dues. You know this, but hang in there. I'll keep an eye out for news too. I've always admired your attitude Mekong, you've a lot more fight then I. I hope to emulate you on this one day, I'm just a lazy fuck....I think maybe it's time for me to sort my shit out. As you say, you've a great base from which to rebuild and you and I are similar on our views on GTGs and property. I wish you all the best and hope to see you soon. I'll certainly be about when DS and SD get into town... Link to comment Share on other sites More sharing options...
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