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New Bank Bailouts Imminent

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http://business.timesonline.co.uk/tol/busi...icle5527138.ece

A package of radical measures to get British banks lending more is due to be hammered out at the weekend in an attempt to prevent the recession souring into an even more serious downturn.

Amid a growing sense of urgency, ministers are working on proposals paving the way for fresh capital injections into banks, for relaxation of rules on balance-sheet strength and for government guarantees of toxic assets on bank balance sheets.

Treasury and Bank of England officials are bracing themselves for a hectic weekend as Alistair Darling tries to finalise measures in time for an announcement early next week.

The latest push came as bank shares slumped to lows not seen since the 1980s and as a warning was given by Capital Economics that UK banks would be forced to cut lending to householders and businesses by £400 billion in the next few years unless action was taken.

A reduction of that size, equivalent to 30 per cent of total national output, would be cataclysmic. Vicky Redwood, of Capital Economics, said: “It would put us into Depression territory.”

Gordon Brown yesterday promised action to reopen frozen financial markets and confirmed that measures to deal with the toxic assets of banks are being urgently considered.

With industry leaders such as Richard Lambert, the Director-General of the CBI, demanding ambitious efforts to restart lending to business, some ministers hope that a package could be ready for publication as early as Monday before Barack Obama's inauguration the next day as US President.

Banking chiefs are likely to be consulted over the weekend, as they were when the banks were recapitalised in October. Credit Suisse, which is advising the Treasury on the measures, has been shuttling between UK bank chiefs in an attempt to agree the rough outline of a deal.

The Treasury and Downing Street are cautious over whether a deal can be finalised by Monday, and sources said that an announcement later next week looked more likely at this stage.

A source close to the negotiations told The Times that Mervyn King, the Governor of the Bank of England, is pushing for a swift agreement, while Mr Darling is insisting that maximium care be taken before committing the taxpayer to risks. The source said: “It's not about saving the banks this time, it's about saving the economy.”

According to another source close to the negotiations, the Government could inject fresh cash into some banks in return for preference shares. However, the banks would pay a much lower interest rate on the shares than the penal 12 per cent that was agreed in the last £37 billion bailout.

Ministers are also considering relaxing capital rules, to let banks temporarily run down their capital cushions.

A third element would be the ringfencing of toxic assets on bank balance sheets, which would then be partly guaranteed by the Government. Ultimately this could be the precursor to the creation of a state-owned fund that would buy the assets outright from banks, the “bad bank option”.

Mr Darling is also expected to act to break the stalemate in wholesale financial markets by offering guarantees worth tens of billions of pounds to help companies raise money.

Capital Economics said that state decrees forcing banks to lend or full-scale nationalisation might be the only solution. British banks were set to lose £85 billion over the next three years, completely wiping out the £50 billion of fresh capital raised as part of the October bailout.

Bank shares fell yesterday on fear of further capital-raisings and ahead of the expiry of the short-selling ban at midnight last night. Wall Street jitters over fresh losses in Citigroup, which reports fourth-quarter figures today, and Bank of America added to the gloom.

Shares in Royal Bank of Scotland fell by 4 per cent to 39.9p as it emerged that Sir Philip Hampton, the chairman of J Sainsbury, was being lined up to succeed Sir Tom McKillop as chairman. Sir Philip would give up his Sainsbury role if he accepts the job.

This looks like the biggie.

Bailout 1 failed.

We could all see that Bailout 2 was coming.

The scary thing is not just that it has come so soon, but that they didn't sort it out the first time around, and what the consequences will be if they don't. I personally think that relaxing the capital requirements, whilst it may lead to more lending, is simply putting us back to before they started to implement Basel II. They seem to be saying that it is better for the bankrupt banks to be even more bankrupt in order to "save the economy"!

Given all this is happening, and given the shorting ban is now OFF, I would not take any positions in any banks over the next few days unless you enjoy extreme punting. Who knows what they will dream up over the weekend.

Scary times my friends, scary times. :unsure:

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Instead of creating a "Bad Bank", or pumping money into these ones, why don't they just create a good bank and let the others go to hell?

Would that be because all the people advising a so called socialist govt are the very bankers who need the bailout?

Is it Henry the mild mannered janitor?

Could be.

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Now, I don't want to be too controversial.... but I can't help but think that perhaps the enormous boom in house prices (cut to smiley news presenter : "Good news for home-owners!") fueled by enormous mortgages dished out to people who clearly were never going to be able to afford to (and this is the crucial bit) pay them back may have been just a teensy weensy bit of a mistake.

What say you, my HPC comrades?

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HSBC being in trouble, although they will get their money, is very worrying.

What what? Where? Did I miss it? Are they feeding at the trough now too?

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:lol: what capital cushions? they don't have any capital! :P

Yeah that's good that bit isn't it? It's the capital cushions they would have if they had the capital cushions they would have had if they had capital cushions. But clearly they'd didn't have them in the first place. So they're relaxing the rules. 'Cause no-one cares anymore anyway. Just shovel in another £20billion and tell them to lend. :unsure:

Edit: In fact it's beginning to look like capital is simply being replaced with an open ended IOU to the treasury. Avoids all that awkward Basel II nonsense. Need more capital? Just sign another IOU. Much simpler that way.

Edited by Red Kharma

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Yeah that's good that bit isn't it? It's the capital cushions they would have if they had the capital cushions they would have had if they had capital cushions. But clearly they'd didn't have them in the first place. So they're relaxing the rules. 'Cause no-one cares anymore anyway. Just shovel in another £20billion and tell them to lend. :unsure:

Edit: In fact it's beginning to look like capital is simply being replaced with an open ended IOU to the treasury. Avoids all that awkward Basel II nonsense. Need more capital? Just sign another IOU. Much simpler that way.

I'm not going to pretend I know masses about banking and regulation, but I am assuming that with mark to market regulation, this whole downward spiral will continue for a good while yet.

:blink:

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This truly is desperate. If they pull it off and it makes a difference it will change the way the world has worked for hundreds of years.

One day, in a stone age village the inhabitants discovered that by denominating pebbles as currency they could make themselves unspeakably rich, just by finding and hoarding more pebbles.

The village farmer said that the harvest had failed and that they would most likely starve this winter but the other villagers just shrugged their shoulders and said "we can find more pebbles and buy our way out of starvation". Hurrah for the pebbles!

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personally i dont understand why they need to give banks more more. i think its discusting.

if i were pm and the banks had messed up i would be in there making sure that all responsible were on dole wages, had no perks, that all money was accounted for and such

i would make it required that they did nothing other than aim for a position of total credit worthyness.

i certainly wouldn't give them huge amounts of cash when you could give it to people instead. The sort of money they are talking about could put a first class brothel in EVERY city in the country.

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Instead of creating a "Bad Bank", or pumping money into these ones, why don't they just create a good bank and let the others go to hell?

Because of the (global) systemic risk IMO.

i.e. other banks that are owed money by the failing banks would also go down.

Maybe that needs to happen, with new good banks being created everywhere in a coordinated manner. Would all be a bit NWO though, wouldn't it :ph34r:

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Because of the (global) systemic risk IMO.

i.e. other banks that are owed money by the failing banks would also go down.

Maybe that needs to happen, with new good banks being created everywhere in a coordinated manner. Would all be a bit NWO though, wouldn't it :ph34r:

That's the idea. ;)

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What what? Where? Did I miss it? Are they feeding at the trough now too?

Not at the trough yet, but Morgan Stanley pointed out HSBC need cash to stay solvent. I always thought of HSBC as Nationwide type bank, taking risks but with huge reserves to cover that.

In response to the frenzy MS came out again and reigned it in a bit, but the result is almost the same.

Government cash may be in investors interest, it's so flexible and for HSBC to go down is "in my view" the

end of the world. The drunken man staggering out of a club having drunk too much debt walking in front of

a bus, happens sometimes.

http://ftalphaville.ft.com/blog/2009/01/15...e-its-dividend/

It appears that almost as much has been written by other sell side firms about our HSBC note than we wrote ourselves. Within the comments we have seen, there has been some gross mis-statements, which we feel we need to clarify. We would suggest investors read the report and stick firmly by the conclusions in it - that HSBC will halve the dividend in 09 and potentially raise $20bn of capital.

..........

Finally, we point to the weak core capital position in Hong Kong and Rest of Asia. In HK, the core capital ratio is 6.8%, which on a Basel 2 group measurement basis for RWA’s falls to 5.5%, the second weakest in Asia. We appreciate that HSBC has lots of liquidity, but so does Hang Seng and BOC and they both have core capital ratios materially in excess of HSBC (>10%). To take the equity tier 1 to 9% we pencil in $5.8bn of capital injection into HK. This gives a total of $27bn, which we reduce to $20bn to account for the dividend cut.

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....seriously, though, this can't stagger on for much longer, can it?

Everyone/everything's already leveraged up to the gunnels. We're heading into a nasty and prolonged recession.

Interest rates are at their lowest since gawd-knows-when.

Sterling is taking a slide against all the other major currencies.

The banks have already had one huge capital injection. Now they want another one.

The CEO of Barclays thinks we should just go the whole hog and print... er sorry, I mean consider "quantative easing".

I've reached the point where I've stopped being angry, and actually started to become embarrassed at the spectacle of our desperate, clueless politicians frantically pulling levers and pressing buttons at random in the hope it might, somehow, all come right again.

Please someone, reassure me - this government can't get away with this much longer, can it? Something's going to happen fairly soon to make them sag at the knees and keel over? A full blown run on sterling, perhaps?

I suppose what I'm asking is.... does two plus two still equal four??

Edited by simpleton

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Thanks Mr P Er....Nick.....

Now weren't Barclays told they had to raise additional capital when they decided not to drink from the poison chalice at bailout 1? Did they do it? I can't remember :( I wonder if Darling will let them and HSBC off the hook this time as well? The article talks about renegotiating down the interest rate payable so perhaps it will be at a level which makes it more attractive for them to take it off the taxpayer now? Surely they have to make this the last bailout. If they **** this one up no-one is going to have any confidence left at all in any bank.

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Thanks Mr P Er....Nick..... Now weren't Barclays told they had to raise additional capital when they decided not to drink from the poison chalice at bailout 1?

They went to Middle East and Asian sovereign wealth funds to get cash and paid more than the gov was offering. It looked bold and independent at the time but if HSBC ever take a sip from the government teat it will just look stupid.

Shareholders were not impressed but stood by them after muttering about replacing those in charge, maybe now it looks a bit foolish to have refused cheaper cash, time to trim the fat.

I expect to see at least one bank who refused the offer to whore themselves out will end up on the street , begging for one more hit of pure 100% Sterling, straight from the press.

And the hackneyed writing award goes to....

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A third element would be the ringfencing of toxic assets on bank balance sheets, which would then be partly guaranteed by the Government. Ultimately this could be the precursor to the creation of a state-owned fund that would buy the assets outright from banks, the “bad bank option”.

This makes bank deposits secure... bank credit becomes a liability of the State. So then, can we trust Treasuries? They have the keys to the photocopier but are they willing to use it?

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Ahem.... Can't believe this has actually fallen off of page 1!

Chaps, the slack jawed confidence trickster wants each and every one of us to pony-up several grand in a feeble attempt to buy him a bit more time.

Rather than just admit that the entire economic policy/direction of the last ten years has, in fact, been a dreadful mistake - and consequently we are now broke - he wants a whole load of our cash so he can try to keep the plates spinning for a bit longer.

All of the above to be accompanied by a chorus of big, blundering lies.

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Bailout 1 failed.

What were you expecting was going to happen?

I think it succeded. The banking system still exists, albeit, in a somewhat denatured form.

Was it supposed to do something else? I'm not sure I heard anyone claim it would.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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