Wednesday, 17 September 2008

Something needs to be done about HBOS

Bank failure is a wretched business. It starts with a sliding share price, the rumours circulate around the City of London, and the balance sheet comes under scrutiny.

Then the deadly questions begin. How much capital does the bank have? What are its funding sources? What is the extent of bad loans? If the answers aren't satisfactory, the share price dives off a cliff, and bank suddenly becomes a political issue. Is it too big too fail; or can it sink?

The bank could be days away from an Northern Rock style bank run. Formally speaking, its deposits have only a limited guarantee. Perhaps I missed the memo, but I haven't heard the government offering to supplement the existing arrangements with a NRK-like blanket guarantee from the Treasury. Savers are already spooked by the demise of Lehmans. All it takes is just one slack teller with a largish queue in one branch and HBOS could come crashing down.

As far as the UK economy is concerned, HBOS is too big too fail. Mr. Brown is keenly aware that it is the country's biggest supplier of mortgages. Last year, it accounted for 20 percent of the market. According to bloomberg, Brom had a "conversation" with Lloyds TSB Group Plc Chairman Victor Blank earlier this week. The BBC also report that there are merger talks.

Lets hope that these talks conclude by tomorrow morning. The UK banking system can not cope with another bank run.


Anonymous said...

Peculation is what keeps the city going.

aSteve said...

Sure we can cope with another bank run - they're great exercise and a definite social opportunity. Best to get them over-and-done-with before winter sets in, though.

Bloomberg suggest that Brown is directly involved in trying to broker the takeover by LTSB... which is rather a revelation... especially as it does not seem to be going very well.

The volumes on HBOS, RBS and LTSB are through the roof - and, curiously, in spite of this LTSB closed at exactly the same price as yesterday.

Interesting things are happening.

Anonymous said...

Never mind another bank run... you should be running to get yer cash out now!!

...while the cards still work.

Ps any good at growing yer own veg?

HBOS employee said...

You think you've got problems...I bleedin' work for 'em!

A few weeks back they launched a new sharesave scheme with an option price of £2.20. They advised their staff to cash in all their existing schemes and take this one up.

Presumably they are all worthless now although fortunately you do get your money back with sharesaves - hopefully.

Personally I am planning to close them all and put the cash in the Nationwide where I can get at it in a hurry if I need it...

The last ten years seem like a party to which I wasn't invited, having not been able to afford to buy a property.

Anonymous said...

Protect the settlement and clearing system. Let anything else burn.


aSteve said...

HBOS employee....

That is extremely interesting "on the ground" intelligence.

If you are "in it for the long term" (i.e. 10-20 years plus) then I don't see a problem with the advice. If your time-horizon is shorter... erm... I'm not sure.

HBOS shares are not worthless - they are probably worth 0.8 LTSB shares each. Of course, the price of LTSB shares is uncertain.

If you plan to live in Britain, and you can survive without depending on pension funds for a good few years... it doesn't sound a bad plan to me. I wish it did... I hate HBOS with a passion - and I'd love for them to be ripping you off... but I'm not convinced it is an awful play... long term.