Wednesday, Jan 27, 2010
Please sir, can i have some more.
Telegraph: Banks must raise billions to fend off crisis, says IMF
"Even though some bank capital has been raised, substantial additional capital may be needed to support the recovery of credit and sustain economic growth under expected new Basel capital adequacy standards". IMF. The good news was overshadowed by its fresh warnings about the vulnerability of the banking system. Banking analysts recently estimated that Barclays would need to raise an extra £17bn in capital to comply with the new rules, with other banks facing similarly large bills. Pitch fork anyone?
Posted by cat and canary @ 09:19 AM (1468 views) Add Comment
35 Comments
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1. inbreda said...
"additional capital may be needed "
They could have some of mine if they didn't offer such offensively low interest rates.
2. flashman said...
Any extra capital SOME of the banks MIGHT need, will be raised privately.
Also from the article:
"It lifted its world growth forecast this year by 0.75pc to 3.9pc, and in an unexpected boost to the Chancellor, Alistair Darling, it lifted its UK forecast by 0.4pc points this year to 1.3pc, putting it in line with the Treasury's own projection".
Put away your pitchforks. For you, the war is over.
3. britishblue said...
And how are they going to do this?
Domestic customers:
a. increase the difference between the base rate and the mortgage lending rate, so a 5%+ difference becomes the norm. With customers on lower equity they may even increase this.
b. Ramp up credit card charges so a 20% differential between the base rate and lending rate becomes the norm for average customers. for customers with bad credit ratings 30%+
c. Increase penalties on savers for withdrawing money and minimise the amount of interest that its paid
d. Stretch the legal boundaries on all sorts of charges to customers.
e. Increase penalties for moving accounts.
On small to medium business:
a. Absolutely cane lending and overdraft rates
b. Apply penalties to anything that moves.
c. reduce lending and then only increase it on punitive rates
On larger business
a. When fresh borrowing is required reset all other borrowing, so the overall yield is increased.
This might be a very basic way of looking at it and I am sure some of the more financial savvy on this site could expand on this.
The alternative would be to go the way of ireland and have a proper recession slump where everybody is suffering including the public sector who have enforced pay cuts/ increased taxtation.
Wahte are the implications of this strategy:
a. All political parties will let this happen as the alternative is to refinance the banks via increases in taxation. Generally people are stupid and would see this as an affront to their civil liberties. The slow death seems to be more appealing on the basis of hjam today.
b. GDP/ recession figures no longer relate to standard of living for the average man on the street. Even though we may technically get out of a recession and achieve growth, for very large parts of society overall standards of living are set to decline for sometime forth.
4. flashman said...
british blue: No, they wont do it like that.
Only a few banks will need to raise any fresh capital and the preferred method will be via rights issues and/or outside investors. There are plenty of banks (new and old) that don't need fresh capital, so if the more feeble banks start charging too much they will be quickly abandoned by their customers. That's one of the reasons why new (unencumbered) outfits like Virgin, Tescos and several Gulf funded banks are entering the market
5. cat and canary said...
flash, "only a few banks"...is not what the IMF said...
In comments which will reignite fears of a relapse into a second financial crisis, the IMF said that "banks have yet to bolster their balance sheets sufficiently and could be vulnerable to a whole range of shocks in the coming months."
please explain.
6. bystander said...
"Put away your pitchforks. For you, the war is over.".....a little patronising, care to explain. Do you mean that all, us little people, who are unencumbered by the huge social responsibilities of the hallowed banks/ bankers, investment or otherwise, should just get on with our unimportant existences, as if nothing has happened. The pitchforks will go away when the inequalities of reward for gross mismanagement and short-termist greed, against those who actually do provide socially responsible and positive services are flattened. I think, personally that much of mainstream banking, investing in business, peoples futures is good, as long as it is done long term and if it goes wrong, I, as a taxpayer do not have to step in to shore up CAPITALISM. Flashman, I believe you work in the City, from all you have said and are clearly pro-banking in all its forms, but don't patronise us, and if you are not please explain what it is you mean by, "For you, the war is over"????????
7. britishblue said...
Flashman a@ 4. i big to differe, Virgin and Tesco and Gulf banks may undercut the larger banks, but will earn more generous margins. What i have descriobed is already happening at all levels. I know of one compnay who have a 100 million pound facility. the bank are very keen to lend them another 5 million to invest in a new nursing home. The company is financially very stabel. But what the bank have stated is that all other lending neeeds to be reviewed and they are attempting to increase interest charges across the 100 mill loan as well. I think there is adequate proof on countless forums that the other things I mentioned are already happening,
8. britishblue said...
sorry . My spelling is all over the place. i should have said.
'I beg to differ'
9. flashman said...
c&c: It's a pretty poor article. You will notice that there are no quotation marks in the first paragraph (that contained your quote). That is because it is not an actual quote from the IMF.
Using the collective expression "banks have yet to bolster" is very misleading. Does it mean 2 banks, 5 banks, 7 banks or all banks? Banks are not one entity
I am able to say "only a few banks" because I know how to read a balance sheet and the capital ‘condition’ of the main players is public knowledge.
The article does later use some quotation marks: “additional capital may be needed to support the recovery of credit and sustain economic growth under expected new Basel capital adequacy standards". The key word is MAY and it is used in the context of growth, not melt-down. The whole article is shot full of might and could and only one bank (Barclays) is actually named …but not by the IMF. The anonymous “banking analysts” are the source on Barclays.
It’s a poor article that has been selectively sampled to reach a desired conclusion. I think that you are the one who should do the explaining.
10. happy mondays said...
Flashmen ! The war is over? You probably live a different life than me & most of the uk along with a few others, Change will come, hopefully in a civil way, but the public will not tollerate being F~~ked over the bankers / money makers desk anymore, eyes wide open to whats going on, why do you think GB & his stoogies have done every thing possible to keep the housing market stable ( @ stupid prices might i add ) Change is coming !
11. bellwether said...
Flash come on, we have no idea to what extent banks are undercapitalised, as it all depends on what happens next to asset prices and debt repayments. I think the most we can say is that if things stay as they are or get better or worse to an extent then capitlisation is fine.
Also occured to me that the GDP shrinkage is greater than adding the quarters together as each quarter as the calculation is rebased ie the reductions need to be compounded. This still won't give the figure I claimed yesterday but it wil be higher than the 6% or so that most claim.
12. estrader said...
"because I know how to read a balance sheet and the capital ‘condition’ of the main players is public knowledge."
Did you make a fortune short selling any of the main players before the GFC?
13. flashman said...
bellwether: the US capital ratios are published in the ‘call report’ and are widely considered to be reliable. There are two levels of adequacy (adequately capitalized and well-capitalised). Most of the banks are now under the well-capitalised category). In Europe we usea a slightly more labyrith method of reporting but it is all frequently published and strictly scruitnized under the strict Basell 11 guidelines. Debt is taken into account and there in provision in the reporting for worst case scenarios.
The reporting is so strictly scrutinised these days that it is reasonable to have faith in the numbers.
14. cat and canary said...
flash,
So are we arguing semantics here...
"the IMF said that BANKS have yet to bolster their balance sheets sufficiently"
"the good news was overshadowed by its fresh warnings about the vulnerability of the BANKING SYSTYEM"
"BANKS had still failed to reinforce their balance sheets sufficiently."
"Even though SOME BANK CAPITAL has been raised, substantial additional capital may be needed to support the recovery of credit and sustain economic growth under expected new Basel capital adequacy standards".
"BANKS face "a wall of maturities looming ahead through 2011–13" in their shorter-term funding"
banks, banks, banks. This is not "selective sampling"
My interpretation of the article is accurate, maybe the article is flawed as you summise. I don't have access to the full report, I will make up my own mind when I see it.
But I have minimal bias, nor vested interest. I'm a scientist. That is my explanation. Don't insult my intelligence
15. hpwatcher said...
I am able to say "only a few banks" because I know how to read a balance sheet and the capital ‘condition’ of the main players is public knowledge.
Unless the losses are hidden...didn't the US change the accounting rules recently.........
16. flashman said...
estrader: Strange question? The answer is no. I don't work in an arena that does that sort of thing.
17. flashman said...
C&C: Your list is missing the most important quote from the article (that is what I meant by selective sampling).
"It lifted its world growth forecast this year by 0.75pc to 3.9pc, and in an unexpected boost to the Chancellor, Alistair Darling, it lifted its UK forecast by 0.4pc points this year to 1.3pc, putting it in line with the Treasury's own projection
There is only one firm forecast in the article (the quote above) so you shouldn’t gloss over it. It is by far the most important thing in the article because if the world economy grows, then the banks make money and their capital adequacy grows with it. All the other stuff is mights and maybes
18. cat and canary said...
I read the revised growth figure, you mistakenly assume I didn't.
The article is not entitled "IMF upbeat about bank balance sheets due to revised world growth figures"
So either the news article is not accurate as you say (fine, I accept that), or it is an accurate reflection on the IMF report, and you have a bias that is clearly being exposed.
You say "all other stuff is mights and maybes" ....but a "growth forecast" is not a "maybe", is it not? Hence the revision...
Seriously, I read this article and I find it very difficult to see your point of view, I am coming to the opinion that you hold a strong bias. I reserve my right to correct my opinion.
19. flashman said...
bellwether: I forgot to answer your question on GDP. It is very easy to work out how much GDP has been lost in the recession. GDP is the total size of the economy, so all you have to do is go to the ONS site and take two figures: the last positive TOTAL GDP number from 2008 and the last negative TOTAL negative number from 2009 (3rd quarter). Take one from the other and you get the total GDP lost in the recession. Incidentally we lost 4.8% in 2009 and very little in 2008 because the year started off with positive numbers
20. bystander said...
Flashman you also forgot to answer my question and Happy Monday's question from 6 and 10 respectively. Any chance of you backing up your comment: "Put away your pitchforks. For you, the war is over."?????
21. estrader said...
@16 - I didn't think it was a strange question, I don't know what you do for a living. I just got the impression you were another one of those 'experts' on the way up but 'didn't see it coming' on the way down.
22. flashman said...
bystander: All I meant, is that you were on the wrong side and that we beat you fair and square. The bailouts have enriched us at your expense and you should at least have the decency to be magnanimous in defeat. JOKE
I actually meant very little by it. C&C said "pitch forks anyone" and my my comment was a meaningless bit of banter in response. I do not work in the banking industry and I have consistently expressed my distaste for most of the banking industry practices. I haven't had a sniff of any bailout money and the stock market rises since March, do no affect my line of work
Your sensitivity to the suggestion of defeat is interesting. Do you perhaps suspect that the war (whatever that might be) is over? I'm not taking the piss...just genuinely curious
23. flashman said...
estrader: Are you trying to impress the gang? If we are talking about impressions... I get the impression that you see things through the prism of an amateur day trader. All this strong hands, weak hands, trading seminar talk leaves me cold. I am not in the market prediction business but neverthless, yes I did see it coming.
24. flashman said...
C&C:Your title was "Please sir, can i have some more" and your closing comment was "Pitch fork anyone?"
These statements infer that the banks will be asking you (the public) for more money and that there will be some sort of collective will to riot if they do. I do not believe that you actually subscribe to either of these views (particularly the latter) and was therefore surprised that you would play to the gallery like that
It is extremely unlikely that any public money will be required by the handful of banks that might possibly need more capital and the public most certainly do not want to riot or hold a revolution.
I was initially mainly taking issue with the poor article (as opposed to your post) but it's easy for these things to get feisty
25. cat and canary said...
Allright flash,
Well, I hope you're right that we will not be duped again into giving public money.On the "pitch fork" issue, actually, I would march. And have done so. Although I did stop off for a pint half way round :)
Whilst we're on the issue, something stuck me earlier. We keep hearing the recurring threat of "if you curb bonuses and tighten regulation then bankers and banks will leave and its easy to relocate a bank in Singapore, Hong Kong" etc etc. And now the same arguments are being used at Davos.
But if this really was a genuine threat, and it was that easy, then why keep saying it? Why does Ackerman and Varley amongst a few, make so much effort and expense to be at all the big regulatory meetings and constantly lobby governments, if its so easy to leave and make more money in the East?
26. flashman said...
C&C: "We keep hearing the recurring threat of "if you curb bonuses and tighten regulation then bankers and banks will leave"
It's all bollo*ks. In private they joke that if you halved their salary they'd still be delighted. Where would they go? Regulation is being tightened everywhere except the sort of place that locks you up for snogging your girlfriend in public. Most bankers have children and they can't just cart them off to some dodgy new frontier. When I was in my 20's I gladly took foreign postings but nothing could persuade me to leave now. I actually like it here and so do most city folks. The press, as usual, have been exaggerating the threat of banks leaving
27. cat and canary said...
yeah, london is nice,
if you live within 50m of the river!!
but you gotta admit, its a PR disaster for the banks. One minute you're quietly making loads of money, wheeling and dealing, scarecely noticed by the press or public.
Next minute, you and your entire empire are persona non grata.
Wouldn't it be better to take a couple of punches and say "ok, we accept more regulation, we were wrong" ...then quietly set to work undermining the regulation, like they would have done anyway?
28. timmy t said...
Flash..."It is extremely unlikely that any public money will be required by the handful of banks that might possibly need more capital..." Whilst more "public money" isn't required, the banks are currently taking "the public's money" in the form of increased SVR's and reduced interest on savings. It makes little difference to most people whether they pay via increased taxes or higher mortgages and lower returns on savings, it is still money going from us to the banks.
29. flashman said...
Yes, it's unbelievable how staggeringly badly they played it. The problem is that most of these people work and socialise in the same tight group. They make strong arguments to each other and never hear an opposing voice.
There is also a more sinister reason.... most of them were very aware that there would be public outrage (the press have been reporting the outrage for more than a year) but making 10 million quid on one bonus cheque sets them up for life. They therefore don't care if their employer is consequently regulated to a standstill. This applies to the top management more than anyone. They sometimes earn hundreds of millions in one shot so why think further than early retirement?
It’s actually a microcosm of the whole financial crash. Estrader wondered earlier if I saw it coming. It is a common misperception amongst the public that the ‘idiot’ bankers and assorted city traders didn't see it coming. They all did. Even my grandmother saw it coming. The thing is that if a single bonus cheque is enough to set you up for life, then you tend not to give a shite about the consequences.
30. flashman said...
timmy: The banks have actually only reverted to the same sort of SVR terms and profit margins that they enjoyed before the boom years caused then to compete heavily for business. It's actually a good thing in a way.
Shakespeare wrote whole plays (Shylock) about the bastards and their usurious ways. Dickens wrote about Martin Chuzzlewit sending Mark Tapley off to make money in US real estate and about Montague Tigg robbing the population with the “Anglo-Bengalee Disinterested Loan and Life Assurance Company” scam. There is nothing new under the sun and all that. They’ve been fleecing the population for centuries. We’re just the latest generation
31. flashman said...
Obviously the play was called 'The Merchant of Venice'
32. bellwether said...
Flash we are not agreed on the capitilisation issue.
My point is that the Basel II rules do not describe adequate capitalisation for all possible outcomes so noone can say the banks are adequately capitlised merely that they are so based on certain assumptions.
Any level of capitilisation would be seriously compromised by say a 40% fall in house price, which would get us close to full value, a realistic liquidation of NP commercial real estate assets, another million unemployed or a permanent decline in GDP of say 10%.
33. bellwether said...
Flash we are not agreed on the capitilisation issue.
My point is that the Basel II rules do not describe adequate capitalisation for all possible outcomes so noone can say the banks are adequately capitlised merely that they are so based on certain assumptions.
Any level of capitilisation would be seriously compromised by say a 40% fall in house price, which would get us close to full value, a realistic liquidation of NP commercial real estate assets, another million unemployed or a permanent decline in GDP of say 10%.
34. flashman said...
bellwether: Basel II does actually specifically deal with crucial areas of house price falls that Basel 1 did not touch. Not surprisingly after the fiasco in America, house prices were one of the driving forces behind Basel II
Basel II makes the banks base their PD (prob of default) on long run averages but also through the whole cycle (TTC). It also forces the banks to make short-term changes to the PD based on migrations between risk grades. This means that the banks have to make immediate provision for changes in house and asset prices and also to changes in risk categorisation of assets. They also have to make specific provision for some pretty dire house price outcomes. They didn’t really have to do any of this under Basel 1, which is why we got into such a mess
Basel II mandates a very stiff RWA (ratio of capital to total risk weighted assets) of at least 8%. The banks have to demonstrate the output of modelling software that shows the effects of 20% 30% 40% etc house price and general asset depreciation. In other words they have to have a capital cushion that enables them to maintain their RWA under some severe economic circumstances. The American banks have already survived drops of 30 to 50%. According to published reporting, most European banks would be just about OK with 10 to 40% further drops in the UK (they are not all particularly exposed). A few would be severely impacted and would become takeover fodder.
To answer your post directly, a 40% fall in house prices would cause some severe or even terminal pain to a few banks but the outcome would be consolidation in the banking industry and not melt down. The disaster that took out Lehmans etc was infinitely more severe than even a 40% further drop in UK house prices because of the astonishing leverage applied to non-existent or even fabricated assets. Mind you, the effect of a 50% or more drop would probably have us all foraging for food.
In a round about way I actually agree with you but I think we just differ on the likely banking outcome of a severe HPC
35. mr g said...
Last week on HPC, I accused Billy Bragg of gesture politics when he threatened to withhold payment of tax in protest at banker's bonuses.
Whilst I remain firmly opposed to Bragg's political sentiments, I have got to say that I am coming to the conclusion that the only way to stop the banks taking the p*ss is to support his campaign if you can.