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Robert,

The one thing I seem to be failing to grasp in all this is WHY (other than pressure from the FSA) the board seemed so set on rejecting the Resolution offer.

Two weeks ago, it seemed to present a better deal for shareholders than TPG's... so to have lost it was kind of poor... but now for this to happen?

Can you shed any light on what went on?

British banking circa 2008 looks as economically robust as Tulipomania, the South Sea Bubble or boo.com!

Dark times ahead for fiat currencies, buy gold!

BBG dont allow access to Cowdry and Co WHO then walk away then TPG have access to the books and decide that they don't want to know either??

When does the queuing start?
This isn't going to be more taxpayers money wasted, is it? Just let it go. It's broken the laws of economic physics.

Mr. Peston,

I recall a time when, if you wanted to invest in a solid and sensible sector of the market, people (and pension funds) would choose bank shares.

Banks were seriously interested about their corporate and personal customers' intentions and would rein in perceived excesses where necessary.

Where, when and why did it all go wrong?

Why did banks believe that hiring a bunch of gamblers would maintain stability?

Who was actually monitoring the excess investment in "buy-to-let" and sub-prime mortgage deals?

Did these folk understand that their employees were buying into junk? If they did, they should have been thrown out. If they didn't, they should also be thrown out, with no bonus, for failing to understand the risks being taken with their customers' money.

What is the point of the Treasury (Prudence Brown - specialitydoctorate in how Labour affected Scottish society - for a decade), the BoE and the FSA if there is no constraint placed on the very organisations we have to assume will manage money in a sensible way?

So we sit back and say that the BoE will "rescue" investors' real money?

Just what assets does the BoE have? It is a state-owned institution, but how can it "guarantee" every depositors' cash up to the value of UKL50,000?

What is the exposure on that? Can we afford it? Who will ensure that the BoE has real money to back a promise? If it has all that money, then why do we pay taxes at an incredible rate, when we own the BoE?

Risk and Reward
If you take the risk in an attempt to acquire the reward you must be prepared for the worst case scenario, and the pain that accompanies it, if the risk becomes too great.

This is the basis of a free market, an economy driven by the laws of 'survival of the fittest'.

If a person, an individual, Mr Joe Public; takes risks, loses, and incurs massive liabilities, does he receive the backing that so many of our banks are receiving? The answer is no... He is expected to be held accountable for his actions, and face up to his liabilities. Why are banks and building societies so different?

If he invests in a FTSE 100 company, their shares lose significant value, the house he bought 12 months ago was at the top of the market and is now in negative equity, he loses his job because the company is struggling, he must sell both his shares and house at a significant loss and incurs many thousands of pounds of debt. So much so that he cannot afford to feed his two very young children and put a roof over their heads.
Where is his bail out? Where are his parachute and safety net? Where is the justice in ordinary people being made to suffer while financial institutions are saved again and again for far worse risk and reward speculation?

If a financial entity becomes economically and financially unviable, it has broken the laws of the 'free market', has taken the risks, not received the rewards, and should be held accountable for its actions. Let it fail... From the ashes a new, younger leaner company or companies will rise to take its place.

Why isn't this allowed to happen? Old boys network... Protect the few chosen ones... Maintain control over the devils that you know...

Whatever the reason, it is a disgrace. Constant interference, if a bank or building society fails through excessive exposure to risk, those that have been prudent are in a position to carve it up and take it on... Where is their reward for not taking undue risks when the market was up?

Even the Northern Rock debacle. There was a private sector solution presented which was perfectly viable, what happened? More interference.

This is unfortunately the assimilation of the controlling mentality exhibited by this government raising its ugly head in the financial and private sectors. Or maybe, it is the other way around...

Sick to my stomach of all of this old boy interference, constant constraint, lack of accountability in a free market. Why should financial institutions been prudent when they know that if they get into difficulties through taking too much risk, they will always have the crutch of unfair and imbalanced interference to rely on? Why are the FSA running around to make this happen?

Robert,

Which Bank will be next? How much are the Hedge Funds involved in this?

It is interesting that the Ratings agencies who failed so spectacularly with the Sub Prime crisis, are still being listened to.

When will people realise that the Moody's etc of this world aren't worth listening to?

At least a Hedge Fund has failed to get a British Bank cheap, another failed Shortselling scam.

Of course the Shortsellers will look for other Companies to try to take over by the back door.

(Posts are not appearing!)

Mr Henry Paulson (along with Mr Alistair Darling) yesterday talked of regulation in one breath and then a free-market solution to the banking crisis. They did not seem to see the essential conflict between the statements.

Consolidation in the Banking sector is inevitable now.

Size is clearly shown to all to indicate strength especially in uncertain times.

With this in mind Mr Cowdery or someone with very much the same idea, will be back on the small Banks horizons before very long.

With of course the backing of the big shareholders as before.

Shortsellers will now try to undermine the Rights Issue afteall they do not like their scams to go wrong!

All very strange....

TPG have already looked at the books? Im pretty sure that they would be aware that a credit downgrade would be likley??

Do you have details on the break clause??

Can anyone remind me why the "Rating Agencies" have such power

Is it because the US and other regulators somwehat lazily forced banks to buy and maintain a portfolio of a certain rating ... rather than allowing them to make commercial decisions. And yet we all know who paid for the ratings - the sellers of the product. Must be true then.....

So which company will the rear entry specialists (hedge funds) try to take over next ?

I agree with #6 and #8.

Ratings agencies have no place to hide if they rate sub-prime as worthy of investment. Who monitors their activity and probity?

And how could so many so-called clever banking/finance organisations just follow the herd and buy into junk?

Banks that fail are no different from "real economy" companies that fail.

(In the real economy, you have to produce goods or services that people pay for either from necessity or desire. It used to be the case that banks provided the capability for other people or companies to generate real development. Now they seem to just be internally investing in their own casinos. Not really what the world needs.)

Northern Rock should be in administration. There was value in what the company had as assets. It is disgraceful that Brown's government seeks an auditor specifically tasked to report that it was worthless, to avoid compensating shareholders (of which I am not!).

But after the Network Rail fiasco, Metronet and other disasters, it should be obvious that Brown and his cronies have no understanding of how business works or why people who use OUR money should be held to account even more than PLCs.

You can see the lack of business nouse every day. Ministers get up and say "we have multiplied the money spent in this area", as if that means anything.

If a CEO got up and said he had doubled the spend to produce a new car, he would have to prove that it made sense, the car was better, was in huge demand and offered a return on investment.

I would not want a government run by business people. But there is such a lack of real-world understanding in this crop of MPs. It's what I call "I'm bright, therefore I'm right" generation of MPs who had good academic records, but never had to fight for their ideas within a commercial organisation. Being bright doesn't make you a CEO. If that were the only quality, why is it that so few CEOs have a First in PPE?

At least you would hope that, with so many lawyers in the House, laws and regulations would be thought through. But so many are sloppy, aimed at an ideological position and passed with little or no consideration for the outcome.

Priorities in this area seem all wrong. The man on the street must use banks and put money there so there should be statuary protection - funded upfront by the INDUSTRY - for their deposits. Outside of this the board of directors and shareholders must take the pain. If the management screw up then let the company go bust. Afterall why, aside from depositors, is a bank treated any differently to any other private, i.e. non-government, owned company. If the management knew they were not going to be rescued then they would pay more attention to what is going on. Also you need to make NEDs more liable for failures.

Why have B&B decided to proceed with a fire-sale rights issue? Apparently they want to raise Β£400m, which seems a fairly small sum in the scheme of things, and surely equates to about 2,000 mortgages - why then not employ the new Northern Rock business model whereby they raise their Standard Variable Rate to an unattrctive level and thus encourage borrowers to move their mortgages to pther providers? This would quickly see Β£400m repaid to them PLUS increase the income they receive from mortgage payments - double whammy! Instead, the company has decided to continue with an equity-raising exercise when the share price is hugely depressed. This is far from the interests of the shareholders when, according to the Executive Chairman, it isn't even necessary:

The firm's executive chairman Rod Kent said: "B&B continues to be well funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."

(from

5 fairlyopenmind:

I might be wrong here but as I understand it the BOE, like the FED is a private bank. Where will the money come from if there is a banking collapse?: they'll probably just print it.

(posting single paragraphs!)
1.Mr Henry Paulson (along with Mr Alistair Darling) yesterday talked of regulation in one breath and then a free-market solution to the banking crisis. They did not seem to see the essential conflict between the statements.

(posting still not working!)

Presently the state owns the liabilities and the free market owns the assets! That is the nonsense at the heart and the cause of the present problems.

to #16 fairlyopenmind

I agree with much of you post, but...

Northern Rock had assets that is true, but it also had liabilities. And when the realizable value of the assets is less than the provable liabilities then there is no value left for any class of shareholder. It is unheard of for assets to be sold for more than their book value in a liquidation sale these circumstances when they could no be sold at any price before the liquidation.

#19 doctor gloom

The BoE was originally a private company (set up by a Scot, to allow the government of the day to finance wars amongst other things!)

It was nationalised in 1946. So it belongs to us...

I don't know what changes were made to its charter, to give it some arms-lengths operation away from the government of the day, but it is still a state-owned (meaning owned by us) organisation.

I still can't work out what assets it has, to allow it to guarantee to pay every investor up to UKL50,000 held in banks that may fail.

How many Billions is that?

#21 John_from_Hendon

"The state owns the liabilities and the free market owns the assets."

The state owns the liabilities that the state chooses to run up.

I can recall when the UK state owned a lot of assets. GPO/BT, railways, steel, coal, car manufacturers, etc. To what benefit?

Just tax-payers' money thrown away. Sad, as UK management could have delivered much better results if the heavy hand of government could have been lifted. (Don't forget it was a Brit who helped establish VW as a major player in motor manufacturing after WW2... What happened to UK car manufacturing? British Leyland... Driven into decline by trade unions, just like ship building.)

Private (plc) organisations can own assets - and go bust. It's their money. If they are no good, they should quite rightly go out of business.

How can you manage a government that insists that educational standards are rising, when universities have to run remedial courses to get A level students to the standards needed to get with degree level learning?

For a real insight into "Bed and Breakfast" there was an in-depth analysis in the Private Eye issue 1212 (I think). It answers all your questions.

#24

Fairly,

I have been having posting problems to this blog fro some inexplicable reason. you quote the last line of a longer post that simply did not want to go!

I am referring to banks. The state owns the liabilities and the free market owns the assets of the banks. Depositor liabilities are down to the state (as in NR) but the profits are private!

Can this situation ever produce a 'free market' banking system that has any chance of working? I doubt it. It just makes monopoly/cartel profits fro the banks management and shreholders.

John_from_Hendon

When you buy a house, with the help of a mortgage, you only "rent" it from the mortgage provider until you repay their funding. That's when you a householder.

You may pay their fees, council taxes, etc., but if you fail to repay the mortgage, the house belongs to the company.

Lots of houses out there...

No asset value? Only if the company really screwed up. Which is quite possible.

Just like a government I have lived with for a decade.

#27

Fairly,

The house may have a charge over it but what the bank has is the asset of a loan that is or is not performing. Loans that perform have a value, however if the rate at which they perform is less than a purchaser of such a loan might expect the loan is worth less. If a bank could have sold on its loans it would not run out of money to carry on its business.

Mortgages are secured as a charge on the asset. Lets suppose we try to foreclose on all the houses that underly the mortgages - what price do you think would be achieved in the house market - a sub-prime price!

Let us say a bank has 100 mortgages assets and after everything a value of 2. So if the 100 was just worth less than 98 in the market then the value of the bank is zero.

23: fairlyopenmind.

Thanks, now I know.

How long before we see queues outside the branches of Bradford and Bingley ??

Presumably No 30 the Shortsellers would lose a lot of money in that situation.

After all the Shortselling is a root cause of a lot of the Stock market problems.

It should be strictly limited.

Whatever made these "expert" bankers think that buy-to-let, or 125% mortgages, or ludicrous house prices were all good banking sense?
Surely bankers receive such huge salaries on the grounds that they have foresight and wisdom.
It has dawned on most people that being a banker is money for old rope.

Re: #32 stevewo

Whatever made these "expert" bankers think that buy-to-let, or 125% mortgages, or ludicrous house prices were all good banking sense?


A sustained period of excessively low interest rates.

It amazes me that the majority of people still can't see the huge long-term problems that were caused by this short-term solution which was an attempt to defy the economic cycle by preventing the then necessary recession.

I can actually put together a cogent argument as to the link between the excessively low interest rates at the start of this millennium and pretty much every social and economic problem this country is now facing.

(One notable exception is the drop in the quality of secondary school education, but I'm sure there is a link there somewhere.)

And still people think that interest rates should be cut further because "a little bit of inflation is OK"...

Re 33 yummycarolkirkwood.

I believe, as do thousands of others, that in the last 20 years the entire British financial industry has become corrupt and fraudulent.
Failed private pensions, failed endowments, failed banks, failed union pensions.
All of these have cost the public trillions, and yet the bankers, their agents, traders and senior staff are all filthy rich.
The whole point of the industry seems to be to enrich this elite, whilst the public loses, loses, loses.
Long gone are the days of Captain Mainwaring and his ilk...people you could trust.
Nowadays you can only trust them to line their own pockets, at the publics expense.
Why fraudulent? Because the people who receive these huge salaries and bonuses are hired because of their expertise and experience, so that the average Jos investments and future are in the safest hands. Wrong...corrupt and fraudulent.

Re: #34 stevewo

Why do you think I personally manage all of my own investments? It's a matter of taking responsibility for one's own actions, something which has also become increasingly rare over the last 20 years. If you are simply going to hand over your savings to somebody else in the blind hope that they will manage them competently, then you really shouldn't be too surprised if it all goes pear-shaped in the end.

This country desperately needs to regain some of the backbone for which it was once world famous. My advice: take responsibility for your own future, rather than entrusting it to anyone else. If everyone were to do that, there would be considerably less to whinge about.

Re 34 yummycarolkirkwood.

I'm glad that you have done well by managing your own investments.
But most people do not have the knowledge or intelligence to do that.
That is why they entrust their futures to the financial industry, and get robbed.
We would all have done far better to give our spare cash to Granny to put in the Post Office.
Tragically, that is not a joke, but perfectly true.

Re: #34 stevewo

But most people do not have the knowledge or intelligence to do that.

I would disagree. Again, this comes down to taking personal responsibility. Ignorance is excusable (nobody is born knowing anything), but a failure to educate yourself is criminal, especially today when knowledge is so easily and freely accessible through a huge variety of media.


We would all have done far better to give our spare cash to Granny to put in the Post Office.

Or used it to buy gold, which, unlike money, can't be magically created out of thin air (or even destroyed, I believe). This intrinsic characteristic may become increasingly evident in the coming years...

The problem of course is that we are what we are.
50% or so of us have an IQ of less than 100. That's right 50% of us are subnormal.

The trick that successful politicians have to carry off is keeping a sufficient quantity of people economically active in order to provide a living for themselves as well as the inactive.

They have done this in the past by having huge numbers in manufacturing. The economy has moved on now to a service economy. That means that the government has to generate new money, which it distributes via the banking system, in sufficient quantity to avoid hardship but not too much as to cause inflation.

External influences such as commodity price fluctuations mean that the carefully planned expansion of the economy which would pay for everything all goes wrong. Result - misery for some.

The clever investment, hedging, by some will actually increase the misery of others.

Who would be a politician eh?
Everybody hates them. Everybody could do their job better than them.
And half of us are subnormal..

Sorry Prudeboy, but I have to correct you on a point of semantics. An IQ of 100 is supposed to be the average of the population, not a "normal" figure. "Subnormal" means outside the normal range of IQ, generally taken to be below 80. Quite a small percentage of the population have an IQ below 80. It's blindingly obvious that 50% of people have below average IQ, that's what an average means. That does not make 50% of people subnormal, thankfully.

Re: #39 haufdeed

It's blindingly obvious that 50% of people have below average IQ, that's what an average means.

Just to be pedantic, you can only argue that if the "average" quoted is the median average (as opposed to the mean average, which is what is usually understood when an "average" is quoted). Even then, if you have a large portion of the population with an IQ of 100, this would skew the result to make that assertion invalid.

8-)

My posts being bounced.

So which company will Shortsellers undermine next?

After all they can sell down any company they wish.

And then buy it on the cheap later.

They are trying to undermine B and B's rights issue.

But then these people (hedgefunds etc) are busy changing the rules to suit themselves.

Changing the rules to enable them to rob Pension Funds, and Insurance companies clients hopefully on the sly.

Except of course that people like me will keep pointing out what they are doing !

Still the Shortsellers don't care who they have to rob in order to get their yacht, flash cars and expensive American mansions.

There hasn't been a proper investigation of Stock lending yet.

One should be made, and the proportions of Clients Shares that can be lent by management agents (to the agents profit) should be strictly limited or even forbidden.

It is one thing a company lending Shares it owns for profit, thats fine.

Lending Shares you don't own for profit, and laughing whilst your clients Shares fall in value, is clearly outrageous.

But that is what is happening at the present time.

The City of London needs to rebuild its reputation for trustworthiness or it will lose its client base.

Hedge Fund and Private Equity behaviour reminds me of an old saying:

If at first you don't succeed, cheat.

Genuine investment strategies haven't worked for them so now they need through Shortselling to cheat the Market in order to meet their profit targets.

This comment was removed because the moderators found it broke the house rules. Explain.

Re: #39 haufdeed et al

It might well be blindingly obvious but that does not stop folk from racking up big credit card bills etc.

Bad investments also provide work for others. Meanwhile the world still goes round and folk of all abilities pay their way - somehow.
Shrewd operators can and do make fortunes. Others just shrug their shoulders and get on with life.

It's so funny how short-sellers always get the blame when the stockmarket takes a downturn. I remember the outcries after the stockmarket bubble burst at the turn of the millennium - dumb investors with overly large positions in telecom and technology companies that had no hope of surviving in real life. There were numerous and repeated calls for the introduction of regulation to curb the practices of short-sellers. But they provide a counter-balance to the over-exuberance that seems to become so firmly embedded in market moves: it is purely Darwinian. Just as it is folly to invest in a fundmentally unsound company, so it is folly to short a fundamentally sound one. The short-sellers are therefore simply returning a company's valuation back to a level that reflects the reality of its financial situation. To argue that short-selling should be restricted so that a company be allowed to remain over-valued in perpetuity is purely absurd.

re #34 and #35

I couldn't agree more. The financial services "industry" has become more or less institutionally corrupt and "investing" in the stockmarket is nowadays mostly a form of betting. The pensions "industry" (personal pensions) ties up your money for ever, doesn't give you a true picture of what you'll get eventually and leaves nothing for your heirs. Endowments.....(enough said) etc etc

Better to put your money only into things you understand. A safe savings account may be boring and possibly a poorer rate of return but at least you can sleep at night not worrying that you might lose the lot. (Spread it about to avoid the likes of Northern Rock) By the time you have paid charges/fees etc for more "exciting" investments often the rate of return isn't so spectacular and as many are finding out at present their hard earned capital is actually losing value.

If people avoided the more fancy investments plenty of people would lose their jobs but maybe in the long run it wouldn't be such a bad thing for people to share out the real jobs in the real economy instead of the fantasy world where all that happens is that vast sums of pretend money are shuffled around at the touch of a few buttons.

It is interesting how the beggar thy neighbour people in the city, typically the ones who believe stock lending is a great idea, miss the point that long term the City will suffer.

They personally may make thousands (or millions) of pounds breaking a Rights Issue, but the wider economic damage will catch up to them in the end.

After all trade implies willing partners.

Once all the normal Investors have been wiped out of the Stockmarket, who will these Scam merchants fleece ?

Maybe they will have to get proper jobs.

Except of course they probably aren't qualified for one !

More seriously the Credit Crunch will get worse, ordinary people will find themselves unable to get a Mortgage and if enough property is not built they may find they cannot get a home at all.

That is assuming they can get a job.

Of course the hedgefund folks won't be in this country they will be drinking cocktails on their yachts and thinking of where they can scam next.

The Government was in talks over a Supercasino a few years back.

Looks like the Spreadbetters of this world came in the Back way and turned the whole City of London in one big Casino.

And you don't need a high IQ to know that no punters win in a Casino.

If the truth be told, the people who profited the most out of Northern Rocks demise weren't British Tax Payers.

They made their millions shortselling stock they had borrowed, and left the British tax payer to pick up the Bill.

Hopefully they won't be so crass as to do it twice.

Or if they do, I would hope the Bank of England or UK Govm't would have the guts to pursue them through the Courts.

After all at what point does Sharp trading become malicious sabotage ?

It occurs to me that if the other Banks and financial institutions were genuinely going to support this Rights Issue (as they have undertaken to) why would they not intervene (ie Buy) in order to keep the market price at the Rights Issue price?

Or are they quite happy to see the Rights Issue flop ?

Or do they believe it will fail at 55 pence anyway ?

35 YummyCarolKirkwood

"It's a matter of taking responsibility for one's own actions, something which has also become increasingly rare over the last 20 years."

Sadly there are any number of examples of the above in Westminster and the City . Their ineptitude , greed and failure to accept their actions have caused grief to others is monumental. The ethos of taking responsibility for one's actions in Parliament has disappeared completely - in fact most of them deny any involvement or wrong doing of any sort . This is mirrored in the behaviour and attitudes of the city. The indifference by these groups of people have a large bearing on the situations that prevail making it hard for ordinary folk to get by. So don't berate some poor hospital porter working all hours to make enough to keep home and family going for not educating themselves - they are probably too tired to study all night so that they can understand the overly complex ( set up like that to bamboozle ) financial systems.

Some people forget that Civilization exists because of specialization.

Each individual cannot be their own Farmer, Plumber, Electrician, Banker, Doctor, Teacher etc.

People specialize.

People do what they are able to do.

However, People are expected to provide a fair and proper service to each other.

So Electricians have to show they have met standards before they can wire your House.

Doctors must meet standards before they can treat your Ills.

Thusly one would expect Bankers and Financiers to meet standards before they can look after your money.

So it is unacceptable to say it is Evolution that some people should be robbed because they do not understand the financial system.

That is a Thieves cop out.

Civilization is based on Trust and co operation.

Without Trust and Rules there can be no Civilization.

Interesting examples in the News:

Zimbabwe (breakdown of civilization)
Knife Crime (side effect of Society being seen as Unfair and Unjust)

In a free market the Banks are free to buy Shares in each other at such prices as they may see fit.

After all it's a free market !

Not only Hedgefunds can buy and sell Shares.

So hopefully they will feel able to cooperate to make the Rights Issue work.

I remember the Yorkshire Bank, that used to be owned jointly by Nat West, LLoyds and Barclays.

So precedents are there for stake building in other High Street Banks.

This comment was removed because the moderators found it broke the house rules. Explain.

I'm probably going to show myself up as a Dinosaur, but why doesn't B B offer the Banks and Institutions Convertible Preference Shares ?

They could agree a mutually acceptable rate of return on the Preferred Stock and I'm sure could reach agreement on a rate of conversion into Ordinary Shares.

Four hundred million pounds is pocket change for the Big Banks so why not?

For example :

They could issue 400 million One Pound Convertible Preference Shares at 8% return.

These could be Convertible at the rate of one for two into Ordinary Shares at a later date (as late a date as they wished).

I believe Preference shares would satisfy the Equity requirements, plus give the extra assurances to the Institutions.

The actual rate of return and rate of conversion would be up to the Institutions involved but they should be able to work something out.

These Preferences Shares could also be offered to their Retail Investors or they could do a combination of Rights Issue and Preference Issue.

Again, why not ?

There are so many options out there !

Re: #57 jabber_jabber

I know it will sound patronising, but what is "some poor hospital porter working all hours to make enough to keep home and family going" doing investing in the stock market???




supercalmdown: Perhaps you should.

Yes that does sound patronising.

Perhaps that Hospital Porter was lucky enough (and it is luck) to be born into a well off family and inherit or receive a sum of money from his/her relatives.

Very few people reach the top through merit alone in this world.

It is interesting to see how luck and accidents of birth play a major part in who does what job, and what opportunities people have in life.

However, evolution does not make one dishonest.

Dishonesty and the desire to obtain Wealth from those perceived to be beneath you (how snobby!) is an acquired trait possibly even a form of mental illness, that some people seem to pick up in their life.

Generally it starts with patronising.

Re: #64 supercalmdown

So, to paraphrase, "life isn't fair"?

Well, duh...

Let the bank go bust. They are more than happy to watch individuals go under, so why should they be given special treatment?