Birmingham Post - Business Blog

Greek crisis: never mind the drachma - look out for our banks

Tue, 15 May 2012 08:46:12 +0000

To return to my refrain, pretty much monthly, since the financial collapse started: the issue is not currency (neither the Euro nor the Drachma); the issue is not deficits. The issue is banking - and bankers.

When the Greeks leave the Euro, clearly the Greek economy will, short term, absolutely tank. Import costs will rocket and so will the prices of basic commodities to the poor ordinary Greeks. Internally held Euros stuffed in biscuit tins and mattresses may help to cushion the immediate blow, and the drachma will float freely massively up and down making everyday life very difficult.

There will be real hardship for ordinary people and businesses who did nothing to cause this impending poverty crisis on our own European doorsteps.

But once the drachma settles down on the currency markets and stringent exchange controls operate (and other old fashioned levers get pulled) then the Greek economy will start to sell things to itself, localise its economy initially; and then eventually its exports will become attractive to all of us.

Never mind the cheapest winter and summer sun holidays available for decades for us poor, benighted, north Europeans!

Beware the (Greek) Ides of March - Beware of Greeks bearing defaults

Wed, 15 Feb 2012 11:24:08 +0000

The Ides of March will be upon us soon, in Idestide there will be momentous events occurring. The middle of the month is its 'Ides' and in the middle of March the Greeks have a bill to pay.

The soothsayers are now all straining at the omens to predict whether or not they will pay their sovereign debt on or about 20th March or bloodily default with a mess as bad as Caesar's toga.

There is a growing sense among Northern bankers and politicians that, actually, it might now be just best to grin and bear it. Let it happen and firewall-out the contagion (inevitably to mix my metaphors, here).

This has not been a feature of the soothsaying of the very recent past. That was clear: a disorderly default by Greece would be catastrophic for us all.

Why our dream of a return on RBS will be shredded

Fri, 10 Feb 2012 08:58:19 +0000

This is the blog version of my column from the print edition of the Birmingham Post, February 1st 2012

A knighthood freshly shredded, bonuses dumped (well, two bonuses), - RBS/NatWest is back to centre stage again where it would rather not be. Because therein lurks the real problem that won't go away.

The problem? The growing realisation that the pretence is not working. The simple fact is that RBS/NatWest is dead private meat. It will never actually be private again. Some people have got to get used to this.

The taxpayer will never get out (as the loss on sale to the private sector would run into tens of billions of pounds) and any talk about the "return" on capital invested here is a laughable proposition.

Those who seek to judge in simplistic terms that the taxpayers' £45 billion can be assessed against the current market value of the product they bought are co-conspirators in the desperately hopeful pretence.

To be precise, the estimated current market value of the £45 billion we are into is probably now no more than £21 billion (and that's being generous).

Monopoly on farmland suits only the über-rich

Thu, 12 Jan 2012 08:51:25 +0000

This is the blog version of my print column in the Business Post on 5th january 2012.

If you own farmland, you've had a good time recently. Knight Frank's last quarter 2011 report says that farmland values in the UK have increased by 84 per cent over the last five years, and have trebled over the last 10 years.

While commercial property has been very groggy, farmland values have soared and have outperformed just about every other asset.

It raises again the business and political question of who exactly owns UK plc's increasingly lucrative land and whether this is being properly owned, used, managed, leased and, most immediately, taxed for the benefit of UK businesses and the UK economy.

In particular - is this unreformed sector one which can help as a first port of call in deficit reduction?

A striking problem in the UK is that much of the freehold of the land surface is still held by our own UK oligarchs whose monopoly has stifled business growth in this sector.

While there might be a relatively thriving market in leasehold rural and commercial land, the freehold land business is stifled at each turn by a monopoly of about 200 individuals who have, completely without regulation, cornered the market. They own Britain.

The UK's über-wealthy oligarchs are not Russians, but titled British aristocrats - marquises, earls, dukes baronets and lords. As I've blogged in the Birmingham Post before, about 200 aristocrats now own at least £200 billion of freehold land. I make that 0.0003 per cent of the population.

It's a Wonderful Life - or it certainly could be

Thu, 22 Dec 2011 23:38:29 +0000

This is the blog version of my Birmingham Post print edition column from 15th December 2011

The greatest film ever made, I think, is the supposedly highly festive Frank Capra classic, It's A Wonderful Life, starring the equally great Jimmy Stewart. It is, in fact, much darker than most realise.

Right from its first moments, it is based around a man (a banker) who attempts to commit suicide, faced with financial ruin for himself and his family - and prison.

The film is also the best business movie ever made. It certainly speaks to our straightened economic times.

Along with Mary Poppins, it is one of a very few films to feature a bank run.

It explores two competing views of economics and business. One focuses on Jimmy Stewart's building society banker, George Bailey. The other focus is the banker and monopolist, Henry F. Potter (who outdoes business villains JR and pre-reformed Ebenezer Scrooge any day of the week). Fred the Shred probably took him as his business hero.

It further explores how the two models develop over decades in the typical American small town of Bedford Falls. As the film opens, one model has triumphed at the intense personal destruction of the film's hero.

George acts as one of the great silver screen advocates for a business world which gains success from human-focused activity and delivery.

Autumn Statement: Credit Easing waffle and National Infrastructure Plan woolliness

Tue, 29 Nov 2011 15:38:55 +0000

The Autumn Statement had 2 announcements I was anxious to see the details of: the credit easing programme; and the 'huge' new National Infrastructure Programme, apparently using pension funds - right up my street!

Unfortunately the statement came and went with next to no detail. I downloaded all of the official background documents and scoured them for detail: they led nowhere.

It leads me to quote the Bard and suggest that these plans were "Full of sound and fury: signifying nothing."

There's nothing there. Just bland statements of generalities.

"The Government is launching a package of interventions worth up to £21 billion to ease the flow of credit to businesses that do not have ready access to capital markets, with scope to increase the scale of this package in future if necessary."

"This will allow banks to offer lower cost lending to smaller businesses, subject to state aid approval." (Note that last caveat - Europe must approve!)

And that's it, really.

It strikes me that this is about guaranteeing banks, not businesses. We already provided £955billion of guarantees in 2009 to the UK banking system. If we slide into recession those guarantees might actually start to be called upon and our deficit will increase as a result.

Northern Rock - taxpayer losses mount, and will probably get worse.

Fri, 18 Nov 2011 13:50:40 +0000

Just to be clear - the UK Taxpayer forked out well over £50billion to save Northern Rock.

Yesterday it sold a teeny-tiny bit of it and its name for about £1billion (the 'good bank') at a further loss - probably half a billion quid.

It would have made massively more on this bit (and not at a loss) if they'd sold it last year, of course: bad judgement-call.

No-one could have seen that banks would tank again this year, could they? Apart probably from everyone who wasn't a banker, a Chancellor of the Exchequer or a Governor of the Bank of England.

So we are still on the hook for more than £49billion today. Let's not get too excited at this miniature exit.

Crises in Greece and Italy mask looming zombie debts

Mon, 14 Nov 2011 10:23:25 +0000

This is the blog version of my print column in the Birmingham Post, 10th November 2011.

It is now three years on from the start of the financial collapse.

It is still happening. It didn't go away. It's just that it's now getting worse. We are still stuck in the middle of it.

The pause button was hit for fear of allowing the action to play out. The upcoming scenes were just too horrific to contemplate.

The press of that pause button was the big bank bailout.

The idea was that we could hit the next chapter button after the pause. Unfortunately the horrific deleted scenes have appeared instead.

It seems like everything which was there the day before Lehman's crashed on September 15, 2008, is actually pretty much still there now: same teetering, dodgy, private sector debt.

And all of it in banks.

And more likely in banks owned by European taxpayers.

We pretend it's sovereign debt that is the problem. And the Americans strut around pretending the problem is now a European one and nothing to do with them, kid!

Eurozone Summit - taxpayers bail out banks again.

Thu, 27 Oct 2011 15:24:55 +0000

It's a Eurofudge song contest.

They're all singing from the same hymn sheet. The name of the hymn - 'Nearer, my taxpayer, to thee.'

There is no deal. There is only the pretence of one. The can has been kicked firmly down the road of cobbles made of Eurofudge.

All there is in the communiqué is an 'invitation' for what they laughingly call 'Private Sector Involvement' (PSI) to take a haircut:

"...we invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors."

"The new programme should be agreed by the end of 2011 and the exchange of bonds should be implemented at the beginning of 2012." (emphasis mine)

'Invitations' and 'discussions' and calls to 'develop' a bond exchange are the key words here. This is nowhere near a done deal. We will all be back again late next month on this.

Mervyn King at the Treasury select committee: asleep at the wheel?

Tue, 25 Oct 2011 13:10:28 +0000

"The scale and immediacy of the deterioration in the Eurozone could not have been foreseen before August."

So says Mervyn King, the governor of the Bank of England, in evidence to the Treasury select committee this morning.

Well, had the governor been reading the Birmingham Post or checked into birminghampost.net in spring and early summer this year he would have been better informed and alerted.

With all due modesty, I did write here and in the print edition in March this year:

"What I will confidently predict is that there will be another European Banking crisis again, probably this year.

"I suspect that this mess at the heart of European banking will ultimately do for the Euro itself."

"Unless we untangle this interdependent mess at its roots and get bondholders to take a serious short-back-and-sides haircut then we are simply putting off the inevitable."

I also warned last November that the Euro would be on the brink of collapse if we simply bailed out interconnected banks across Europe.

In mid-July, I was also clear that the attempted Greek rescue package would end in failure :

"It would seem to me that time has been bought until the autumn and no more.

"If after today, however, the Spaniards and the Italians are still paying about 6% or more on their own sovereign debt and that remains so for the summer, then last night will have been irrelevant."

"We'll all be back to square one in late September and whatever the mechanism used last night will have been a paper exercise and no more."

Moody's downgrades UK banks - buenas notches?

Fri, 07 Oct 2011 12:14:32 +0000

Notches.

It's all about Notches.

How many have you got? Are you top notch?

Well the UK banks are certainly not top notch at the moment. Moody's has downgraded 12 UK financial institutions today including Lloyds, RBS/NatWest and Nationwide.

In the world of International Ratings Agencies grade movements up and down are called 'notches'. These Agencies (you know, the institutions that got us all into this mess by grading sub-prime debt and derivatives as AAA+ when they were actually ZZZ-) think that the UK government is apparently unlikely to bailout their banks again.

Moody's effectively believes that in the economic hurricane about to visit these shores, the UK government would expect skinhead-style haircuts from private sector holders of debt this time. Even if the state stepped in to help bail out. The prospect of wholesale bailouts like the last time is considered so unlikely that downward notches have been applied.

Credit Easing made easy, Mr. Osborne - run your own bank!

Mon, 03 Oct 2011 13:50:56 +0000

George Osborne has concluded at his party conference that money is not getting to small and medium-sized businesses. Welcome aboard planet Bloomin' Obvious, Chancellor.

Consequently, he wants any new intervention into the economy by way of Quantitative Easing to get liquidity directly into SMEs. This will be his new policy of 'Credit Easing'. Excellent.

It is an admission of failure of past QE, and an expectation of failure of any future repeated QE, actually to benefit UK's small and medium enterprises - the vital organs of the economy whose health will determine whether recovery takes place.

It is also an astonishing acceptance of the failure of the UK banking system to do what it was saved to do - ensure that money flows around our economy supporting sustainable business growth and individuals' life plans.

Brummie Bonds next year? Municipal Bonds on the horizon.

Wed, 28 Sep 2011 18:30:15 +0000

PublicFinance.co.uk reports that Barclays is actively backing a serious market in U.K. Municipal Bonds with credit ratings for U.K. Municipal Authorities on the way to facilitate it, possibly by the end of this year.

Finally, something from Barclays which makes real sense.

It's time to run with this, Birmingham, and it should be the start of the renaissance of confident economic self-determination in this city.

According to the reports, council bond issues remain 'on the agenda' for the 'back half of next year', so apparently says Chris Hearn, head of local authorities and education at Barclays Corporate bank.

This is an exciting opportunity. I hope that one of the reported 6 authorities who are working on this with Barclays is Birmingham. We'll see. If not, we need to get on board immediately.

It's time to stand on our own two feet and make real decisions about what to invest in and how to invest it in Birmingham.

Instead of the nonsense of going cap-in-hand to London begging for a loan from the Public Works Loan Board (the old traditional route, which centralises) there is now a real likelihood of a new financial independence for this city. Literally independent, because we are not dependent on streams of finance simply from central government or traditional city routes.

It will require brave and bold thinking and a break with the past.

UK Bank Bailout 2 - what's the credit limit, Mr. Osborne?

Tue, 27 Sep 2011 10:31:46 +0000

George Osborne made a powerful statement at the end of last week in Washington which, though widely reported, led to little analysis of its implications.

He said, "I have made it a priority for the Financial Services Authority and the Bank of England to make sure that the UK banking system is adequately capitalised and have sufficient liquidity to deal with all eventualities. We have stress-tested sovereign writedowns."

Firstly, can we see the stress tests please? The European Banking Authority published the results of its stress tests earlier in the year involving 'sovereign shock' and including the 4 UK banks. What's the position now, George? Publish these stress tests so everyone can see the confidence you have.

Secondly, the Chancellor has made quite a hefty commitment there: he will ensure the UK banks are adequately capitalised and have liquidity.....and 'in all eventualities'?

To this second point - are we as taxpayers ready for this? Can we as taxpayers afford this?

The UK government is prepared to re-rescue our banks in the event of a Eurozone sovereign and banking collapse, is it?

If there is a Europe-wide banking collapse are we (are you?) prepared to do it all again? Prepared to pump money back into failing British banks who let the country down when it needed it most and instead saved the skins, and paid out the bonuses, of bankers?

I'm not sure we are, actually, Mr. Osborne.

Breaking China? Is the China Bubble Bursting?

Thu, 22 Sep 2011 14:08:06 +0000

Stock markets and commodity markets around the world have collapsed today, Thursday, even though, as predicted here on 7th September, the Fed did go ahead and do 'the twist'. It started buying long-dated assets with the sales of short-dated assets and maturing mortgages.

But the markets were not convinced.

It was enough to cause a panic. Enough of a worry in itself that it would be inadequate, it combined with sudden bad news from China: the screens went red this afternoon in the States and across the financial world.

The China Flash Purchasing Managers' index showed deceleration for the 3rd consecutive month.

China's biggest builder in the eastern province of Zhejiang, Greentown, appears to be in trouble and may provoke the start of contagion in Chinese property. Chinese property stocks are plunging (by 10% a day in some cases). Developers in China are starting to have their liquidity challenged and their access to finance locally and globally is drying up.

Property prices in the big cities are starting to show sharp declines. Sound familiar?