Saturday, October 31, 2009

Sounds like a right mess in the making to me

High street banks to be broken up

Three new Banks including the resurection of The TSB, Williams & Glynns and one from the wreckage of the Northern Rock with a naff name BankCo. Existing UK retail banks will be barred from purchasing the newly spun-off banks and the government expects likely purchasers will come in from the US, Australia or the Middle East.

Posted by enuii @ 09:16 PM (690 views)
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5 thoughts on “Sounds like a right mess in the making to me

  • mark wadsworth says:

    They are completely mad.

    It may well be a good idea to split up the larger banks (or it may not be, but let’s assume it is). But there is no need to sell off bits to anybody and certainly not to Johnny Foreigner*. All you do is to first recapitalise the banks via debt for equity swaps, work out who owns them (some are part-owned by the government, but debt-for-equity would reduce govt. ownership) and then split them up and give each shareholder shares in the new spin-off banks as well – just like any other demerger, it’s all tried and tested stuff.

    * The big advantage of selling it to Johnny Foreigner is of course that in future you can really mess them about without a domestic political backlash, for example forcing BAA to sell of a couple of airports – if BAA still had loads of small UK based investors, they would never have got away with that.

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  • I am not so clear about the relative merits of debt for equity swaps vs sell offs but have to say that I doubt this will be a good deal for the taxpayer.

    Governemnt vs private bankers. Who do you think will have the upper hand? Worse still, NuLabour don’t need to strike a good deal – they just need to get something that can be spun into good news as we approach the election (the article states that nothing will actually happen before next summer.) Private parties looking to bid for the good bits of the publicly owned banks know that the government is in a weak position.

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  • Mark,

    Surely splitting up the banks is the right thing to do? If all the banks are smaller, then none of them can be “too big to fail”?

    Quoting the article — “Private bankers will pick the plums out of Northern Rock and leave taxpayers with the lemons.” — There’s nothing wrong with that, provided we get a fair price for the plums. As QG says, it’s unlikely that we’ll get a good price. However a simple float might be best – returning the Rock to shareholders rather than to private equity funds. Now seems like a good time to sell, what with stockmarkets buoyant and risk appetite high. (Note: this is not trading advice. Markets may yet rise higher. However now seems like a far better time to sell than 6-12 months ago.)

    As for your * point, maybe that’s exactly what they have in mind. I doubt our government would be that clever though….

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  • Good luck! Whoever can turn these sleepwalking banks into viable businesses during increasing unemployment, increasing interest rates and decreasing land values deserves a knighthood. Branson wouldnt go near this deal – but dropping his name helps sell a more positive story. Hey, maybe Sir Alan might want to invest, it could be the next challnge on the apprentice – ha ha. The truth is that Britain is being forced to break up these state run finance houses under EU competition rules.

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  • Mark,

    Again on your * point – they got away with it with Railtrack!

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