Yvette “tell it how it is” Cooper.
21st Century heroine.
The Treasury statement on financial support for our banking system has been made! Perhaps this hails the beginning of a new era when the Chancellor can stop flip-flopping from meeting to meeting and knocking-up air miles.
By now he should have collected enough points to buy a couple of banks.
The Treasury statement (all 899 words of it) is very light on numbers and has no mention of any changes in governance of any of the banks (and building society) involved.
These are the lending institutions which “have confirmed their participation in a Government-supported recapitalisation scheme.”
Abbey , Barclays, HBOS, HSBC Bank plc, Lloyds TSB, Nationwide Building Society, Royal Bank of Scotland, Standard Chartered
Another quote from the statement:
“In reaching agreement on capital investment the Government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers.”
It appears that the taxpayer is paying the banks to lend. To the taxpayer.
“A Socialist is an individual who has nothing and wants to share it with everyone.”
Perhaps that should be the new definition of a banker.
Last year, the banks declared (mostly illusory) combined profits of nearly £40 billion. There were self-congratulory dinners, awards, chairmen were frolicking round TV studios and radio stations, chief executives were granting interviews to the media and there was lots of corporate merriment. Sunny days.
These are the same people who, during the last few months have avoided the dark clouds of banking meltdown by remaining hidden in their gold-plated bunkers. They have kept their well-coiffed heads down and allowed their poorer politician cousins to take-on the stock market bullies.
How many reassuring statements have we heard from CEOs and Chairmen – apart from the very few self-pitying statements after a takeover or nationalisation? Where have all the numbers gone?
It would be very interesting to see some numbers.
What is the “debt” of each of the above institutions and what does it consist of?
It should no longer be acceptable to keep blaming the American sub-prime market, because the global figures that are currently being bandied about are well-in-excess of the $1.2 trillion apparently written in sub-prime mortgages.
These mortgages are now being discussed as if they are worthless. They are not worthless because at the end of the line, there is a property which has a value. We should see a calculation whereby each bank displays two numbers:
1. How much it spent on bad investments?
2. What is the current estimated value of those investments?
We could also ask why it is that banks stop talking in numbers when they make a loss and of course, it goes without saying that the govenment will be carrying out a full audit of the banks – or are we still taking their word as gentlemen?
And what is the smug bloke from Lloyds TSB doing on the list? Eric Daniels is his name, he is their Chief Executive and the claim was that his bank was OK because of their ultra-conservative investment policy. More hot air? CLICK HERE.
Finally, this is a time when we do need words – not from the bankers but from the politicians. Warm inspirational words, sentences dripping hope – a sunny painting of the world in twelve months time , lots of “doing” words and 100% honesty.
Yvette Copper has provided the most memorably honest quote: ” The bankers screwed -up”.
An understatement, but nevertheles memorable.
p.s. Why are we including the Santander Group and the Hong Kong and Shanghai Banking Corporation in this scheme?
This is the Treasury statement in full:
After consultation with the Bank of England and the Financial Services Authority, the Government announces that it is bringing forward specific and comprehensive measures to ensure the stability of the financial system and to protect ordinary savers, depositors, businesses and borrowers.
In summary the proposals announced today are intended to:
Provide sufficient liquidity in the short term;
Make available new capital to UK banks and building societies to strengthen their resources permitting them to restructure their finances, while maintaining their support for the real economy; and
Ensure that the banking system has the funds necessary to maintain lending in the medium term.
In these extraordinary market conditions, the Bank of England will take all actions necessary to ensure that the banking system has access to sufficient liquidity. In its provision of short term liquidity the Bank will extend and widen its facilities in whatever way is necessary to ensure the stability of the system. At least £200bn will be made available to banks under the Special Liquidity Scheme. Until markets stabilise, the Bank will continue to conduct auctions to lend sterling for three months, and also US dollars for one week, against extended collateral. It will review the size and frequency of those operations as necessary. Bank debt that is guaranteed under the Government’s guarantee scheme will be eligible in all of the Bank’s extended-collateral operations. The Bank next week will bring forward its plans for a permanent regime underpinning banking system liquidity, including a Discount Window facility.
In addition the Government is establishing a facility, which will make available Tier 1 capital in appropriate form (expected to be preference shares or PIBS) to ‘eligible institutions’. Eligible institutions are UK incorporated banks (including UK subsidiaries of foreign institutions) which have a substantial business in the UK and building societies. However applications are invited for inclusion as an eligible institution from any other UK incorporated bank (including UK subsidiaries of foreign institutions). In reviewing these applications the Government will give due regard to an institution’s role in the UK banking system and the overall economy.
Following discussions convened by HM Treasury, the following major UK banks and the largest building society have confirmed their participation in a Government-supported recapitalisation scheme. These institutions comprise:
HSBC Bank plc
Nationwide Building Society
Royal Bank of Scotland
These institutions have committed to the Government that they will increase their total Tier 1 capital by £25bn. This is an aggregate increase and individual increases will vary from institution to institution. In order to facilitate this process the Government is making available £25bn to be drawn on by these institutions if desired to assist in this process as preference share capital or PIBS and is also willing to assist in the raising of ordinary equity if requested to do so. The above institutions have committed to the Government that this will be concluded by the end of the year.
In addition to this, the Government stands ready to provide an incremental minimum of £25bn of further support for all eligible institutions, in the form of preference shares, PIBS or, at the request of an eligible institution, as assistance to an ordinary equity fund-raising.
The amount to be issued per institution will be finalised following detailed discussions. If the Government is to provide the capital, the issue will carry terms and conditions that appropriately reflect the financial commitment being made by the taxpayer. In reaching agreement on capital investment the Government will need to take into account dividend policies and executive compensation practices and will require a full commitment to support lending to small businesses and home buyers.
The Government will take decisive action to reopen the market for medium term funding for eligible institutions that raise appropriate amounts of Tier 1 capital.
Specifically the Government will make available to eligible institutions for an interim period as agreed and on appropriate commercial terms, a Government guarantee of new short and medium term debt issuance to assist in refinancing maturing, wholesale funding obligations as they fall due. Subject to further discussion with eligible institutions, the proposal envisages the issue of senior unsecured debt instruments of varying terms of up to 36 months, in any of sterling, US dollars or Euros. The current expectation is that the guarantee would be issued out of a specifically designated Government-backed English incorporated company. The Government expects the take-up of the guarantee to be of the order of £250bn, and will keep this under review alongside ongoing monitoring of capital positions and lending volumes.
To qualify for this support the relevant institution must raise Tier 1 capital by the amount and in the form the Government considers appropriate whether by Government subscription or from other sources. It is being made available immediately to the eight institutions named above in recognition of their commitment to strengthen their aggregate capital position.
The Government has informed the European Commission of these proposals and is actively talking to other countries about extending these proposals and has committed to work together with them to strengthen the international system.
The Government is moving ahead immediately with the internationally agreed proposal for colleges of supervision and other measures to improve supervision of the system. After discussions with the major economies at the G7 meeting on Friday, the Government and other countries agreed on the need for a meeting at heads of Government level.