Saturday, Oct 10, 2009

Banks to be called to account

The Times: Government will compel Lloyds and RBS to lend £27bn to SMEs

Lloyds Banking Group and Royal Bank of Scotland (RBS) are to be instructed by the Government to lend £27 billion to small and medium-sized enterprises (SMEs) amid a fresh dispute over why they say they cannot meet lending targets promised to the Treasury at the time of the taxpayer bailout, The Times has learnt.

Posted by devo @ 11:20 AM (1641 views)
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6 Comments

1. fallingbuzzard said...

How bizarre? Since they are not the sole shareholder they simply can't do this. If they were an activist shareholder, maybe they could achieve this. But what are they going to do, threaten to dump all the stock? Hardly. I can't work out who's the dumbest among this lot but it clearly isn't Lloyds, and thats saying something

Saturday, October 10, 2009 11:46AM Report Comment
 

2. devo said...

Was a deal made?

Did the banksters squeal on the deal?

Stay tuned!

Saturday, October 10, 2009 11:49AM Report Comment
 

3. enuii said...

If the consumer can't or won't load themselves with anymore debt be it for housing, cars or other discretionary purchases why would any SME be looking to borrow (other than to perhaps stay afloat) when so many of it's customers or clients finances are going down the proverbial toilet.

Fair enough if a business has a sound base and good future prospects otherwise if due diligence is thrown out of the window for short term political ends the banking system will be further weakened. My best guess is that loans will be made available but the the rates of interest will be such as to put off most businesses from taking up the offer in a similar manner as has been the practice with personal loan rates and the recent reduction of credit limits on some mainstream card holders.

Saturday, October 10, 2009 11:57AM Report Comment
 

4. jack c said...

From Citywire on Thusday 9/10/2009 (www.citywire.co.uk/personal/-/news/markets-companies-and-funds/content.aspx?ID=360960)

Lloyds and RBS still face nationalisation risk says Neil Woodford

The threat of full nationalisation for RBS and Lloyds is not yet over, according to Neil Woodford, who has warned that the UK banking sector is still ‘broken’.

Woodford believes there is a ‘25 to 30 per cent chance’ the two banks could be brought under full state control in a bid to speed up their repair.

‘The difference between full nationalisation and where we are now is not that great. It’s actually a decision about politics rather than economics,’ he said.

‘Nationalisation could provide a quicker recovery in certain circumstances. It may well be that ultimately politicians decide the political cost of not nationalising the banks is too high.’

‘At what stage does the economy say, well hang on a minute, we’ve put all this money in and yet we’re still not getting any lending. Where’s the upside for the taxpayer? ‘

‘Maybe a quicker resolution is full nationalisation, explicit good bank and bad bank, and then you at least have the possibility of being able to sell back to the market a cleaned up bank which is then able to lend to an economy that clearly is in need of credit. What is then retained on the nation’s balance sheet is the bad bank that is pretty much there anyway.’

Woodford's, whose avoidance of banks helped insulate his investors from the worst of the credit crunch last year but has seen them miss much of the rally in 2009, argued that the UK was still in the midst of ‘one hell of a banking crisis’.

He pointed to the banking sector's need for ‘gigantic’ amounts of further capital in order to resume lending.

‘It’s only when you understand the scale of their balance sheets and the nature therefore of what losses might be embedded on those balance sheets that you can then quantify what I believe is their requirement for further capital,’ he said.

‘The reason that banks aren’t lending is of course because they are capital constrained. They know that they have large embedded losses – actual losses and potential losses – the majority of which they cannot afford to recognise.’

This means that banks are failing to foreclose on businesses because they do not have the capital to sustain the losses they would be forced to recognize, and there is not a secondary market for the assets they would have to take on.

‘There is a widespread attempt to sustain businesses that in any other environment would be allowed to close,’ he said.

‘It’s like what happened in Japan for so many years – the culture of zombieism.’

Speaking before reports that Lloyds was considering a £15 billion rights issue, which would be the largest ever seen in the UK, he said that banks would not be able to rely on the markets to raise the amounts needed to repair their balance sheets.

‘They may raise some money from the market but they won’t be able to raise enough to make good their balance sheets,’ he said.

He said the UK was half way through the process of bank recapitalisation. After repairing balance sheets and building up capital to deal with the losses already embedded on balance sheets, banks would need further capital to deal with the tighter regulation that will emerge.

Saturday, October 10, 2009 02:39PM Report Comment
 

5. crunchy said...

The Cuckoo's alive and feeding well.

The poor ignorant parents are still not getting it.

It will bring the whole nest down if it's not kicked out.

Saturday, October 10, 2009 02:47PM Report Comment
 

6. matt_the_hat said...

5. crunchy - the bigger problem is that all the bright cuckoo's will leave the nest

Saturday, October 10, 2009 03:43PM Report Comment
 

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