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RBS issue must be on commercial terms
Britain’s state-controlled banks appear to be playing a game of tit-for-tat. Lloyds Banking Group last week admitted it was looking for ways to reduce its exposure to the government’s insurance scheme for toxic assets. Now it turns out that Royal Bank of Scotland is also sounding out investors about tweaking its own involvement in the scheme.
That is where the similarities end, however. RBS is being much less ambitious than Lloyds. It still wants the government to insure all of the assets it agreed to put into the scheme in the winter. It just wants to pay some of the premium in cash rather than its own equity. This may look a superficially attractive way to de-risk the tax-payer’s huge exposure to bank equity, but the government should think hard before accepting.
Unlike Lloyds, RBS is not proposing to scale back its use of the government’s asset protection scheme (APS). Instead, the Scottish bank is considering raising at least 3 billion pounds, about a tenth of its market value, from shareholders to help fund the 6.5 billion pounds it has agreed to pay (but not yet coughed up) in order to participate in the scheme.
When the APS was negotiated in February, RBS offered to pay this fee by issuing the government with `B’ shares that convert into ordinary stock at 50 pence. At the time, when RBS shares were changing hands at around 20 pence, that looked like a pretty good deal for the bank. But the recovery in RBS’s share price now means it can contemplate raising cash privately at a similar price.
Are Lloyds shares cheap? Not as cheap as this funny money
Shares in Lloyds Banking Group are worth 150 pence apiece, according to the analysts from Royal Bank of Scotland, who think the shares offer “a compelling restructuring opportunity” around today’s 95 pence.
Lloyds, say the brokers, is going to recover sufficiently to pay a nominal dividend next year, and something quite substantial in 2011, thanks to margin expansion, cost control and normalising bad debts.
Aegon raises money to repay the taxpayer
LONDON, Aug 13 (Reuters) – As stock markets rally, a chief executive’s thoughts turn to getting the government off the shareholder register.
The strongest U.S. banks have already shrugged off the TARP, with its tiresome restrictions on executive pay. In Britain, Lloyds Banking Group has toyed with a jumbo capital raising as a way off the hook of the British government’s fiendishly complex asset protection scheme.
Time for Britain to close the GAPS
Britain’s asset protection scheme, invented to protect the banking system, is morphing into a bureaucratic monster. It’s time to kill it off. Though state support is still needed, there are simpler ways for the government to prop up its ailing lenders.
More than seven months after it was conceived, and five months after Royal Bank of Scotland and Lloyds Banking Group signed up to use it, details of the APS have still not been agreed. The sheer task of sifting through 585 billion pounds worth of loans to be insured by the government means any final agreement is months away.
Kingman to go private
So John Kingman is leaving UK Financial Investments “in due course” to spend more time with the private sector. That, at least, is the line put out by Robert Peston, the BBC reporter who could sometimes be confused for his personal press officer, on his blog.
As Pesto observes:
He’s wanted to move into the private sector for a couple of years – and said as much to the Treasury’s permanent secretary, Nick Macpherson, last summer.
Sir Win FTW at Lloyd’s Banking Group
It’s good to hear that Win Bischoff has a list of priorities in his new role as chairman of Lloyds Banking Group <LLOY.L>. Reviewing the position of chief executive Eric Daniels is apparently not at the top of it.
So what should he be doing when he formally takes the chair on Sept. 15?
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The first thing is to accelerate the integration of HBOS into Lloyds. The group needs to stop dribbling out restructuring announcements (a few job losses here, a few there) and come clean about what it needs to do to secure the synergies that were promised from this ill-starred transaction.
Kroes hits right note on EU bank aid
Neelie Kroes, the EU Competition Commissioner, is right to be taking a hard line on state aid to banks, which will distort competition if not repaid. However, she will have to fight member states like Britain and Germany, which are desperately encouraging banks to lend locally, nursing large losses on their capital injections or trying to avoid massive upheaval in their banking industries.
The reasons for her tough stance — laid out in guidelines she will unveil on Thursday, obtained by Reuters – are sensible. At their heart is the desire to maintain the imperfect European market in financial services that the Commission has done so much to foster. State aid risks distorting this market because of members’ differing ability and willingness to underwrite their banking sectors.
Managing incentives, UK banks edition
Confused about the British government’s approach to its bank investments? You’re in good company. Consider the following statements from Royal Bank of Scotland and its main shareholder(emphasis is ours):
June 23rd: Sir Philip Hampton, chairman of RBS, on the £9.6m cash-and-shares pay package awarded to Stephen Hester, the bank’s chief executive:
from Neil Collins:
Goldman shows a preference for Lloyds Banking
Too late to save Sir Victor Blank, Goldman Sachs has decided that the prospects for Lloyds banking Group are little short of glittering. Once the current crisis is past, says Goldman, the British banks will clean up.
Anyone trying to borrow right now would say they are cleaning up already. Loans carrying a small margin over Libor are a distant memory for most commercial borrowers, and woe betide any company that breaches a covenant, no matter how technical.
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