Monday, January 4, 2010

Fresh banking blood

New banks to debut, as bidders race for Northern Rock

"Mr Chen, whose business will focus on lending sums of about £5m to smaller private enterprises" A vigorous new banking sector is taking root. They will have solid capital bases, sensible underwriting policies and more importantly, they will target growth industries and promising new businesses. We'd have got here sooner if they had let the decrepit old banks die but there is no point looking backwards. This is good news.

Posted by flashman @ 09:14 AM (1465 views)
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27 thoughts on “Fresh banking blood

  • I said I’d report back in the New Year, so here I am. Happy New Year too you all.

    I see that some nutter is still raving on about me being smugdog. Smugdog has added a much-needed bit of mischief, wit and insight to this site, so if I was he, I’d be happy to be me.

    I am looking forward to some vigorous debate but lets leave out the utube clips and class warfare stuff

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  • the number cruncher says:

    Sorry flashman – class war is not a dirty word to me, but the fundamental reason behind the policies that have created the debt and house price bubble. It is also the fundamental reason behind the policies that are stopping the house price crash.

    If you want to live in your own world of manufactured consensus, that is up to you, but it is not the world that I believe is true. Humans have a natural tendency to monopolise assets and control them and unless we have laws to redistribute those assets then the house price bubble will be the least of our concerns.

    Youtube is a very effective means of communication and I get a lot of good stuff from it such as the Real News, Al Jazeera (even if it is full of NWO rubbish from the likes of Alex Jones et. al.)

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  • ” securing a banking licence is taking longer than expected because the FSA has been redesigning its regime to reflect tougher regulatory principles.”

    which of course means that the old failed banks actually have a competitive advantage doesn’t it? They are (or at least have been) less regulated when setting up. There must be some things that the new banks can’t do – like be highly leveraged – which means they will not be able lend as cheaply

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  • tyrellcorporation says:

    HNY Flash, good to have you back. TC

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  • the number cruncher: This country has suffered more than any other from the corrosive effects of class warfare. It has caused us to elect unsuitable governments for decades. My mother votes Tory because she does. She doesn’t give it any thought. It doesn’t matter to her that the current Tory party still approves of the discredited Thatcher policies. Crappy Labour governments are voted in because millions of people hate toffs and have a car scratching mentality. Governments are bound to be bad if they underwritten by nothing more than these mindless class dividing lines.

    If I lived in Scandinavia I would vote for a socialist party because they are political grownups. I resent not having anyone to vote for in this country. If we knocked class warfare on the head, the politicians would have to follow suit and we might get a sensible government.

    Much as I hate class warfare, it’s a bit of a leap to identify it as a main cause of debt and house price bubbles? Care to expand on that?

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  • Thanks tyrellcorporation. HNY to you as well

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  • the number cruncher: I’ve just noticed your ‘class warfare’ heading. My post is a coincidence

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  • Hello inbreda: “which of course means that the old failed banks actually have a competitive advantage doesn’t it? “

    Not really because the new FSA rules also apply to the old banks. If anything the new banks will have an advantage because they are starting off with adequate capital. The crappier banks are struggling to comply with the new capital ratios, so they find it difficult to lend money even to the growth businesses. (only Barclays, HSBC and a small handful of smaller outfits have already achieved the new ratios)

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  • “Banks are expected to have core tier one capital of 12pc-15pc and hold around 30pc of assets in gilts”

    So from every £1 deposited 5p must be lent to the government.

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  • the number cruncher says:

    Flashman – I think we have different views on what is class warfare – I am a socialist and proud of it; I sit in envy of the Nordic socialists, who as you say are political grown ups, when compared to the pathetic excuse that is the labour party.

    I think class warfare is that which is waged by the elite, who have systematically manoeuvred to reduce their tax burden and increase that of the working person. In my eyes this is warfare and the lobbyists and mainstream media have been the weapons of the elites and done a brilliant job of discrediting socialism to allow them to win more power.

    Class warfare is not about envy or wasters scratching cars – that’s just mindless morons and nothing to do with class struggle. Class warfare is between those that do no work and form monopolies against those that work for a living.

    The main stream media have done a brilliant job of persuading working people that they are ‘without class’ and their real enemy is the underclass and not the elites.

    Remember only 2% of millionaires in this country actually earned their money – 98% inherited it.
    Most of our assets are owned by a small percentage of our population and they pay little tax on their wealth.
    I pay nearly 60% of my earnings in tax of one sought or another, My multimillionaire friend pays about 20%. – that is class war

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  • the number cruncher: Good post. I suppose the only difference between our class view is that I think both sides of the class divide are equally guilty. Are you sure about the “2% of millionaires in this country actually earned their money – 98% inherited it”. My (admittedly too small sample set) experience suggests that it is much nearer 50/50. What about all the newspaper tales of millionaire Patels and other immigrants? Maybe the millionaire thing is misleading because a million isn’t what it was? I think the issue might be further clouded by the people who got there by a mix or inheritance and their own endeavour.

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  • stillthinking says:

    Competition in the banking sector is all well and good, but how much further can they expand debt to gdp? The benefits of debt servicing costs being closer to BoE rate is all well and good, but the dream of this must be to further debt expansion.

    It remains to be seen when these new banks are in place if they are capable ( leaving aside whether good to or not ) of actually doing so. More efficiency through competition in the banking sector, excellent, but…what about the other problems? We are going to see which side is correct, are the banks constraining credit, or is there no appetite for credit. I think probably at the moment both are true, and that with new banks we will see the single driver that there is no demand for further debt expansion i.e. we are still in the sh*t on our current course because nothing will have changed. Whether the banks cover the costs of bad debts through societies interest rates, or government does through taxation, doesn’t make any difference, they haven’t been written off and losses accepted. These new banks may expose the unpleasant fact that in general, in the UK 2010, you can’t profitably lend money. We will see.

    As far as the class war is concerned, I kind of agree with number cruncher but that isn’t the class war being proposed by the Labour party. They are proposing to set the low paid against the middle wagers, who both work. There is no mention of shifting taxation.

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  • the number cruncher says:

    Flashman

    I got the info from a financial journalist friend of mine – he is a reporter for the BBC and when I meet with him we talk about such matters. I shall ask his source and post it sometime. Through my work I know a few millionaires and the vast majority inherited the basis of their wealth. Often it is inherited wealth that then allows the bright ones to go on and make even more money.

    I think the present labour party leadership and the Tories may have opposed motivations, but the upshot of their policies are the same. The sad truth is that they have limited power and are powerless in the face of the media and lobbyist who are the real class warriors. The working man is well and truly f***ed.

    Land Value Tax and other monopolistic taxes are the answer – put not even Vince Cable will dare propose it – instant political suicide

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  • krustyatemyhamster says:

    Happy New Year Flashman

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  • Leaving aside the question of inherited wealth, an imbalance that has been around a long time and is the source of the so-called class war as originally coined, there is now the problem of wealth imbalance as it has developed over the last 20 or 30 years.

    The question is how should the wealth of a country be distributed amongst its citizens. The working rich, so to speak, get that way by employing other people. It has always been the case that those who initiate enterprise and invest their money (having money in the first place is a great advantage of course) receive a return in addition to that for their own labour. What is happening nowadays, in considerable part due to globalisation, is that greater wealth accrues to these individuals and less to the “ordinary workers”. The upshot of this is a regression to earlier times when most of the wealth was in the hands of a few, the majority consigned to relative or absolute poverty. This is a consequence of the economic system and has nothing to do with the relative skills or merits of those in each group. In my view it is extremely damaging to society and the economy.

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  • stillthinking: Not all debt is bad. Indiscriminate lending is bad but lending to promising, well-managed businesses is good. Most of the worlds best companies borrowed in their start up years.

    “These new banks may expose the unpleasant fact that in general, in the UK 2010, you can’t profitably lend money. We will see”.

    I understand that you might have a dim view of UK prospects but we live in a globalised economy and most UK start-ups are not therefore limited to domestic business. Of course, the weaker Pound is a great help in this regard

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  • “we live in a globalised economy and most UK start-ups are not therefore limited to domestic business”

    Is that accurate? Surely most have have to grow through the domestic to international, so effectively limited to domestic while classified start-up.

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  • cat and canary says:

    Flashman,

    good to see you’re back. Whilst you’re on the subject of banking reform, I wonder what your thoughts are on the significance of the new Basal guidelines, published just before xmas? e.g, do you agree with Peston on “it would turn a particular kind of high-paying, securities trading, global megabank – the institutions that created and defined the boom-and-bust conditions of the past decade – into an endangered species?” Cheers,

    http://www.bbc.co.uk/blogs/thereporters/robertpeston/2009/12/new_ice_age_for_bankers.html

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  • rumble: yes it is correct. I am not talking about mom and pop businesses. I work in an industry that concerns itself with the funding of new ventures. Very few decently sized new ventures would even consider limiting themselves to domestic markets. The infrastructure that enables access to international markets is so much more complete than it was ten years ago

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  • stillthinking says:

    flashman,
    I do have a dim view of the UKs prospects but as I understand it, to maintain the economy at the current debt funded level means that we have to maintain the debt expansion and if we don’t what was previously an expansion in demand turns into a contraction. I don’t see that more banks or even cheaper debt servicing gets around this. while uk startups certainly have access to global markets but there is no increasing global demand (at our domestic production costs), and so uk startups of necessity will be required to either create a new market through innovation or take existing market share from somewhere else. i don’t see either happening and what is worse I don’t see that the real economy provides a competitive return in comparison with for example housing even, the term was STR (sell to profit from the housing cycle) not STI (sell to invest). while of course if all well-managed uk businesses chose to borrow to expand simultaneously that would be great and probably a sustainable expansion, i think what is more likely is that the well-managed businesses are the ones -least- likely to take on additional debt. new banks supplying cheaper working capital again, fine but that isn’t the end of it.

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  • hello cat and canary: Yes I do agree to an extent. They would become endangered but new types of institutions in new locations would spring up to satisfy the appetite for the wilder types of speculation.

    The big problem with Basel 11 is that it could cause the type of collapse that it is designed to prevent. The disclosure that Basel calls for is very dangerous, for example, to hedge funds because it prevents an outfit disposing of something in secrecy. Without a degree of secrecy, other hedge funds can see what another one is doing and they could consequently stampede for the exits (sometimes for no good reason). Hedge funds often exhibit a herd mentality so the occasional pointless market collapse complete with ensuing contagion is easy to foresee.

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  • stillthinking: I suppose where we differ is that I don’t see things in aggregate. I do see the same debt fuelled morass of aging uncompetitive business/banks that you see. However I also see virgin unfettered capital and virgin businesses. A decaying mess provides a fertile environment for the hackneyed green shoots. A good example of this is the lowered pound and the room created by the demise of uncompetitive businesses. I would have preferred to see the immediate extinction of rotten banks because fresh well-capitalised banks could have grown up in their place. However the rotten banks are hamstrung by their capital inadequacy and new banks with good capital ratios are therefore seeing an opportunity. The emphasis on property at the expense of production is largely responsible for global trade imbalances and debt bubbles. However the magnitude of the bust has taught some quick and harsh lessons. Banks are actively looking for productive new ventures while property development finance is thin on the ground. It’s a shame that it took a disaster for us to see the error of our ways. The debt bubble will be with us for a long time but not all capital or business is encumbered by the rot (which is what I mean by not seeing things in aggregate)

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  • Hi Flash. Good to read from you again.

    The fact that these banks that should have failed didn’t must mean that many new banks and new-funded venture capitalists coming into the market will have less barriers to entry. The arbritage opportunities here must be very interesting – as you say.

    Re Basel 11 hedge fund risks, doesn’t the argument follow that if people can see reasons for disposal, they’ll also see reasons for acquisition? This will surely reduce the profit margins since traders will be moving earlier as market knowledge becomes more transparent. Where “transparent” = less scope for big scoops.

    2010 is going to be very interesting. How are we going to all agree to do less “doping” in the economic race without the temptation to delay it enough to steal the march on our competitors running next to us? I can’t believe it will be perfectly even and smooth – so that’s got to mean some volatility coming up. Where “volatility” equals opportunity to make cash – or lose it!

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  • Hi growler: “Re Basel 11 hedge fund risks, doesn’t the argument follow that if people can see reasons for disposal, they’ll also see reasons for acquisition? This will surely reduce the profit margins since traders will be moving earlier as market knowledge becomes more transparent. Where “transparent” = less scope for big scoops.”

    Yes that’s absolutely true. My worry is that a synchronised mass disposal could damage the system beyond the point of making an acquisition worthwhile. However if a mass disposal can be contained before the system is damaged then buying opportunities will indeed arise. You’re also right that transparency could limit profitability. Mind you, I can also foresee a situation where a big player might use transparency to fake out their competitors and so essentially game remains the same.

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  • flash…

    … meaning that regulation does indeed drive innovation – rather than as conversely believed 😉

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  • Refusetobuy said:
    ” “Banks are expected to have core tier one capital of 12pc-15pc and hold around 30pc of assets in gilts”

    So from every £1 deposited 5p must be lent to the government”.

    Assets are things like mortgages they hold on their books. Liabilities such as deposits and money market funding broadly equate to assets.

    Roughly, 30% of all mortgages must now be held in gilts would be a fairer description I think.

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  • Happy New Year Flashman!

    I cannot recall seeing such contradictory sentiment from different media sources in a day. New players emerging on the banking scene implies opportunities but why now, when the dust will have settled after the election later this year and the small matter of debt repayment will be poking us in the face? Perhaps 2010 will be an interesting year for economists?

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