Friday, 27 June 2008

Banks can go bang

If you thought Citibank was in bad shape, then check out IndyMac - a major US mortgage lender. The share price fell 25 percent today and it is down around 95 percent compared to a year ago.

The share price fell after Moody's cut the its rating of IndyMac, citing concerns about the bank's lack of capital.

IndyMac was one of those "ask no questions" lenders that thrived during the housing boom. It often required little or no proof of income. With the US housing market tanking, that strategy has left that bank brutally exposed to foreclosures. Last month posted a $184.2 million net loss for the first quarter.

Could it happen here? Could a UK bank implode like IndyMac? Remember Northern Rock?

6 comments:

Anonymous said...

I see there was a rally back in January. Imagine if you bought at the top of that blip. Shares are treacherous things.

aSteve said...

Bradford & Bingley are trying.

Today Resolution pulled out of supplying them more capital when B&B refused to let Resolution look at the books!

http://uk.reuters.com/article/UK_MERGERS/idUKWLA551620080627

Utterly amazing... "We want you to give us almost half-a-billion, but we won't let you look at our accounts." What are these jokers playing at?

Anonymous said...

Could it happen here? Could a UK bank implode like IndyMac? Remember Northern Rock?

I was going to say Bradford and Bingley - but asteve beat me to it - by implication at any rate.

JD said...

B&B? Can anyone explain what those monkeys are playing at?

doggett said...

@asteve

The Reuters article you linked to quoted B&B as stating that;

"Resolution's revised indicative proposal did not meet the board's concerns relating to certainty, funding, clarity, change of control, and price" and that it hadn't "receive[d] definite details regarding the funding and ownership structure of Resolution's proposal and was concerned the plan amounted to an effective takeover."

You also write;

"Utterly amazing... "We want you to give us almost half-a-billion, but we won't let you look at our accounts." What are these jokers playing at?"

I'd assumed that Resolution took the initiative here; you think that B&B did?

A quote from one of the dailies/Sundays (can't remember which) from around three weeks ago;

"B&B has had a torrid time since the onset of the credit crunch last autumn, and its share price has fallen by more than two thirds in just the last six months. It has been monitored closely by the Financial Services Authority, the City watchdog, the Bank of England and the Treasury for months, ever since Northern Rock asked for an emergency loan from the Bank of England last September.

However, according to bankers and regulators, B&B's troubles are not comparable in gravity or complexity to those of Northern Rock. The Financial Services Authority has in the past couple of days been "all over B&B like a rash" to assure itself that the bank's depositors have nothing to fear, according to a banker. A regulator also told me that, unlike Northern Rock last September, B&B is not suffering from a shortage of liquid funds that would imperil its future. He added that its balance sheet was not particularly weak, even without the injection of new capital.

B&B's problem is that the housing market downturn has knocked the profits it makes from providing buy-to-let mortgages. "It has a trading problem, not a funding problem", said a banker. He added that the outlook for buy-to-lets was uncertain, which is why it makes sense for B&B to raise additional capital."

If this is a reasonably accurate assessment of B&B's current situation then it would seem that they are not in as bad a position as many think. Does anyone know why it may not be accurate and/or is misleading?

Anonymous said...

Point number one would be don't believe a word the FSA is spouting. They are a guard dog caught sleeping on the job and are now barking at everything and anything to avoid being beaten with a stick.

Nick