Βι¶ΉΤΌΕΔ

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Β£5 billion for this quarter?

what about next quarter?

Seems unlikely that this marks the end of the credit crunch.

I hope I am wrong.

i really dont understand some of this. Or am i misssing something?

so the bank messes up. badly. loses a LOT of money, has to raise money from shareholders so diluting their holdings, their dividends, their investment etc

and this makes that bank one of the strongestin the industry?

Go Figure!


And IF other banks (barclays being the example mentioned) have been more honest already and dont have to announce more loses, how come they will be weaker?

I just want all this to be over , and I can get my 125% mortgage and buy my dream home .
Just cant live of what I earn ;-)

Here we are with not just a credit crunch but also an impending energy crunch which demands new energy technologies to be developed.

Given the choice I know which is more deserving of the City's Β£10bn.

Seems that bad news might as well be really bad news. Trouble is, the problem is so endemic and deep, no one still really knows what the extent of failure will be until every counterparty transaction matures. That could take years. If Joe Public really knew what was going on, then confidence would evaporate overnight. There has been some real "smoke and mirrors" work done by Sovereign Governments and Central Banks to maintain the status quo. Like any good earthquake, the damage is often greater from the after shocks. We are still waiting for these in the financial markets globally.

Soros and Buffett have been doom-mongers for years, but were eventually proven right.

Everyone has 20/20 vision, but this catastrophe was avoidable.

When lending money, know your risks and your exit strategy. Clearly a trick missed here by Directors, Shareholders and Staff in their pursuit of growth and profit.

Now, where have I heard that phrase

"Back to Basics"

Hmmm!

I cannot for the life of me understand why Brown is offering to exchange the banks dodgy loans for gilts.

In exchange he has asked for more help for first-time buyers. The last thing young couples should be investing in now is a house for god's sake.

Why didn't he demand that the directors repay some of their bonuses, or that shareholders be squeezed to the limit first?

This new lamps for old policy cannot possibly cure the fundamental problem with the economy, which is too much bad debt.

Anyone who thinks the banks will start lowering their mortgage rates as a result of anything the BOE does is crazy. This crisis has a lot further to run yet.

Robert are you really this naive... we've heard all this spin about banks having fully owned up to their losses for the last three quarters in the US. Yet every quarter what do we get, another round of "unexpected" write offs...

Indeed I believe Bear Sterns did it twice didn't they before they went bust, all at the hands of evil speculators of course.

In fact let me quote them from USAToday Nov 30th:

"Bear Stearns taking $1.2B write-down, says worst is over"



3 months is such a long time these days in banking... apparently longer than people's memories these days!

These bankers must think we are stupid? Oh hang on they might be right!

As someone who has used the easy money available in recent times to fund a business start up (now repaid) I am not surprised we are where we are - no real questions were asked, I wouldn't have lent myself the money!

What amazes me is that institutions believe we still have the confindence to invest in them, bit like the govt really , inflation 2.5 % who actually believes that?

Let's pause a second. Writedown to subprime losses on asset values of US homes.

Can I point out that the increasing bulk of resets on those US arm mortgages are only just starting now and volumes will not be cleared and diminishing before Aug/Sep of this year. After that it take 1 to 6 month for arrears to accrue and the same to cause foreclosure. So anyone who thinks the losses are over is being very premature.
It's worth pointing out also how clueless the G7 were in asking for banks to 'own up to losses'. How can they when they don't even know what they will be at this point.

However , let's move to the second point. That's the US market now what about the UK property market. How much collateral value can we expect to lose here in the next couple of years. Yes, I know it won't happen here. Well if it doesn't the world just turned upside down ,because we have never ever had a property market bubble that did not correct substantially and this was the biggest housing bubble in UK history. So ,what is this going to do for the banking sectors balance sheet ?

Against that background it's pretty obvious that banking business revenues will fall subtantially this year against diminished lending and with it the earnings that have come off the back of incredible leaverage.
Quite why anyone who can fog a mirror could construe all of this to be good for shareholders is beyond me.

If I look back at what happened to LLoyds at the end of the 90's has it lost it's darling investor status and basically did not recover it I don't think it's too much of a stretch of imagination to forsee this to be the medium term future for the broad UK banking sector.
Boring investments basically.

@10
never a truer word spoken
How can borrowing more money solve the problem ?
When I was in debt I worked all the hours and went without to pay it off .

The chickens are coming home to roost

How do you know that RBS is "is to ask shareholders for about Β£10bn of extra cash" and that it "will make about Β£5bn of write-downs"? Has the bank announced it? What are you sources?

10. A couple of points.

1. Losses

The write-downs being recorded now and before Xmas are provisions for potential future losses, based on some fairly spurious market indices and markets in traded instruments which are by and large shut. The cash losses have, as you rightly suggest, barely started but the reality is that the banks (after this quarter at least) are more likely to have over-provided than under-provided.

2. "Bigggest housing bubble in UK history"

Absolutely not correct. 1988/89 was far worse. It would have cost a buyer of an average house on a 95% mortgage over 50% of his or her gross salary to service the interest in 1989. (After adjusting for MIRAS). The figure now is around 30%.

In most areas you can still get a 6% rental yield on UK property. That may not exactly be stellar - and will go up as property values come off and rents rise - but it is not negligible.

UK property may be significantly overvalued, but it is not a bubble in the same way as the dot.com bubble, for example, when people were paying huge multiples of expected future profits (or revenues) for assets yielding less than zero.

You know that a deception is being practised on the general public when...

Brown and Darling tell you 'no need to worry, eveything is going to be alright'.

When experts and informed comentators alike inform you that bad news is now to be regarded as good news and that there is 'no need to worry, everything is going to be alright'.

When a certain Ms Wright, head of the Bankers' Association goes on the radio and states that...

'this isn't the banks fault!

there is no need for the banks to say sorry!!

and (all together now) ...that there is no need to worry, everything is going to be alright!!!'

#13 ....regarding rents I would suggest you're wrong. People have been taking on huge multiples precisely in the expectation the values would (and can only) rise in the future. The banks were more than happy to lend to them.

I rent a very nice three bed house for Β£625 per month.

The same house would cost me Β£1250 per month on a morgage with a 95% ltv... completely unaffordable.

It is the link between value and affordability that has been trashed in the last 5/6 years. Property is overvalued in this country by (depending on which commentator you regard most highly) by between 20-45%. It has started to fall (led by new build flats) and wont stop until affordability (3.5 times? joint income) has been restored.

I work as an estate agent in Ipswich where the market for selling homes has just stopped basically... just two properties sold by our office since October 07. And personally I wouldn't advise any FTB to buy this side of a 2010 general election.

I would be interested to know whether this reported loss is a one-off loss or are furher losses of the same kind likely to be reported in future Company reports.

Why hasn't the media the guts to tell us the simple truth. The banks have been cooking their books with the help of the big accounting firms. This is institutionalised dishonesty. And now when the game is up, they are trying to make it look like it is the fault of a technical mistake called either subprime or CDS or something that sounds like an engine gone wrong. Our society suffers from endemic dishonesty.

'Coming clean' on such matters is at best an honest assessment at a given point in time. But three months on, some other asset or hedge in the portfolio that was assumed to be sound will itself have weakened - not least by someone else 'coming clean' in the meantime !

At the start of the year I predicted that the total of sub-prime write-offs would be half a trillion dollars. That was at a time when best 'official' estimates were one third of this amount.

If asked now I would guess nearer to one trillion dollars.

Robert,

There is an upside to this credit crunch.

Ordinary savers small time iinvestors like myself have been introduced to the real psyche of the global financial industry by reading yours and others blog sites.

But more importantly, I have realised that after you have shaken hands with the so called professionls of the financial industry to count your fingers.

Bank(s) owned up - shareholders lost out .

13.
My point was more how this downturn might compare to the last than whether property is over-valued or not. It clearly is.

I am genuinely interested in your situation around Ipswich, though. Your 95% mortgage estimate implies a property of Β£215-250k (depending on whether interest only or repayment). Can you really rent this for Β£625 per month? Either your landlord is asleep or the value disconnect in and around Ipswich is really bad.

Affordability is as much to do with interest rates as incomes. Given that the government cannot afford the political or economic fallout of any significant increase for some time (at least past 2010) - whatever inflation gets to in the shorter term - I would still maintain that the situation is nowhere near as bad as 1989 when interest rates were kept artificially high to keep the pound up and the ERM together. Having bought my first flat in London in 1988 at 3x joint incomes with 2 mates, trust me I do know!

The trivial loan pyramid run by the bankers has, as expected, collapsed. As with any pyramid scam, the first few waves of inventive scammers have enriched themselves leaving a huge loss to the majority. The bank exectuves themsleves were in such a paroxism of greed and envy at the apparent success of the hedge fund gamble that they broke every possible rule of prudency. Nothing changes. Until there is a robist mechanism for nailing down state-honoured, high-flying rogue dealers from City offices, the taxpayer will continue to pick up their bills convinced by the oldboys from the Westminster village that we all have to help them because we need them... I am happy to help the system provided that can get of the culprits.

They announced an 10% increase in dividend not 2 months ago. Why not use that and save their shareholders the 40% tax on it.

Don't worry about this guys, it's just Darwin at work - the weak and stupid go to the wall and the strong and intelligent reap the profit.
Don't worry unless you are one of the weak and stupid!

Well we are now further in debt by another 50 Billion. well people can't pay there mortgage thats there problem for taking big mortgages that they could not afford,
The tax payer to pick up the mess

drug dealers who invested in property
Landlords who have lot off mortgages
Oh we will borrow Β£20000 for a new car put it on the mortgage
were do you want to get married barbados Β£ 7000 on mortgage

Holiday Thailand Mortgage

Villa Bulgaria Mortgage

so the people who have kept there finances in order get punished

so 50 Billion Northern Rock, 50 billion poor banks who have no money

It looks like this capital raising is going to be in return for the Bank of England swapping mortgage backed securities for treasury bills. The Bank of England should learn from the Fed's mistakes and only lend on newly created mortgages. This way the liquidity should make it's way into the mortagage market rather than simply shore up the banks balance sheets. The Bank of England could then set their own criteria for the new loans that they will accept, such as low loan to value, high credit score and strict proof of income to ensure they don't get lumbered with the most risky assets.

I hope for RBS's sake this write down is not correct - especiialy after the press making a big fuss of how small their write down was only 4 months ago. How could RBS possibly not have known about this in December? Had they declared these write down's only 16 weeks ago where would their record breaking profits be then? Seems like bad news by all institutions is being drip fed but it will catch up eventually!

From Βι¶ΉΤΌΕΔ news 6.12.2007:-

The bank's chief executive Fred Goodwin said that the write-downs were based on what RBS thought its total losses would be.

There would only be further losses if the situation "got materially worse from where it is now", he added.

How can Angela Knight of the British Bankers Association say ;

"This isn't the banks fault. There is no need for the banks to say sorry."

Oh I forgot, she is paid by them to say that.

All bank shares must now be a great buy. The banks are smarting from losses and the public will be made to repay those losses. It is a wonderful advantage to the banks that they can name their own terms and interset rates and the public have to comply. The competitive aspects are handled by complicity and not rocking each others boat. Thank goodness all businesses cannot do this to us.

RBS will not disclose the full extent of their recent losses. As nobody in their right mind would invest in RBS.

Debt assets form the real backbone of the banking industry and supports the banking bodies.

Allow the unthinkable, unacceptable, to happen. The struggle or collapse of the greater part, parts or whole of RBS.

As the US begins to sink and China rises, the words faces greater challenges than that faces by RBS.

Smile!

The credit crunch is an ongoing process, I continue to be amazed by how equity markets continue to delude themselves.

As to the BoE using tax payer money against banks bad debts apart from being a disgrace (moral hazzard anyone) it will be about as useful as all the Feds "creative" manipulations have been, i.e. zero.

What puzzles and frustrates is that there seemingly are no guilty parties in this fiasco. My understanding is that the 'securitisation' of debts was clearly to bury dodgy debts amongst good ones. The people who did this presumably knew why they were doing it. The people buying the packages must have been aware of the risk. It seems to have carried on simply because too much money was being made, and most of that money is still sitting in the bank accounts of the people at the center of the problem bemoaning "THE CRISIS" as though it were a natural catastrophe, I doubt if many of the people losing their homes were
working in banks.

[[32. At 6:32 pm on 20 Apr 2008, newspapercynic wrote:

"The people who did this presumably knew why they were doing it."]]

Absolutely, and there is presumably an electronic trail for every duplicitous deal.

I want to see them all hanging from the lamp posts ;)

Welcome back, Robert…I thought they may have offered you a transfer.

Perhaps the phrase that could best have described Mr Goodwin was:
Fred said, shred.
But now it may have changed to:
Right. Shred Fred.

Seriously, I do not think they will give him the boot, yet. We Brits have a soft spot for losers, in the early stages. And there is too much still to come out. They would have worked this thing out backwards, starting with say GBP22b needed urgently. They would have concluded that the maximum rights issue below a panic threshold could be say one third of existing capitalisation. That is say 12b equity. Plus 5b write-offs which they could suddenly notice, plus 5b sale of assets.

They can worry about the next tranches later.

I used to work for a sub prime mortgage lender until I was made redundant.
Sub prime lenders served a purpose which could have been justified.
Problem was people at the top got greedy and lent to people they well and truly knew couldnt afford a mortgage. They also lent to fraudulent applicants but again knew these people had no intention of paying their loans.
All the people at the top were concerend about was how many people they had on their books good or bad because they knew their Americans owners would always bail them out.
When America went bad the reason it had a knock on effect is because we had the same mindset as the Americans which was "its ok because the property equity will sort it out". When this didnt happen the brown stuff hit the fan.
Then again the people at the top will be ok. Theyve had their pay offs and will move on to their next directorship, unlike the ordinary people on the shop floor.
I can summarise the whole situation quite easily. Sales people where put in charge of mortgage lenders instead of risk assessors.

I too, took a mortgage risk a few years ago, never thinking that the repayments would become such a problem.

I wonder if The Old Lady wouldn't mind bailing me out as well?

Whilst the banks wallow in the mess they have created, let's not forget the court case going on at the moment where we are all trying to get back the outrageous fees and charges that have been levied against borrowers.

What is the banks collective liability if they lose this case ?