There never was a convincing explanation of Gordon Brown’s decision exactly a decade ago to dump Britain’s gold reserves at the bottom of the market. At the time, there was much flannel about diversification, the attraction of holding currencies that paid interest and the suggestion that gold was an archaic relic that had no place in the vaults of a modern central bank.
However, this week’s justification is a new one on me. According to the UK Treasury, “as a result of the [sale] programme, a one-off reduction in risk of approximately 30 per cent was achieved.” Unsuccessful fund managers might borrow this nonsensical explanation. “Your portfolio has missed a bull market which saw prices treble, but we achieved a one-off reduction in risk of 30 per cent.”
Once upon a time, when the problems in the credit markets were little more than an awkward lump in the inter-bank rates, and Northern Rock looked like a bizarre aberration, Royal Bank of Scotland shares cost over four pounds apiece. Today, even after the rush for rubbish that has characterised the current share rally, they cost just 50p. Surely they must be cheap?
Er, well, not exactly. After a rights issue and two government rescues, there are now 56,365,721,284 RBS shares in issue, compared to a mere 10,006,215,087 at the end of 2007. The chart for the market capitalisation of the bank shows a rather different picture to that of the share price. At 50p, today’s RBS is valued at 28 billion pounds, which is hardly a giveaway, even if the worst of the provisioning against the dud derivatives and doubtful debts is now past.
It’s hardly surprising that the shareholders in 3i, the listed private equity group, are deeply unhappy at the prospect of having to return 700 million pounds of the 1.75 billion pounds of capital they have received from the company in recent years.
The board has got itself into a hole. That paid-out capital, plus a further 400 million pounds in share buy-backs, was largely financed with borrowed money, and those debts are now coming up for repayment.
Can Russell Lawson, head of public affairs for the Federation of Small Businesses in Wales, be serious? Or has the FT got hold of the wrong end of the Severn Bridge? Lawson is quoted as complaining about the toll on the crossings, describing them as “a tax on coming into Wales”.
The pink ‘un’s report says that because it’s only paid on the way in, this potentially deters inward travel more than outward. It’s arguable whether we’d rather pay a tax on entering Wales or a release fee to escape, but surely even the smallest Welsh business can’t believe that it makes a blind bit of difference either way?
Indeed, someone did, long ago. Owned by the clearing banks and the Bank of England, the company became known as Investors in Industry, and after vicious infighting, was eventually floated on the stock market in 1994.
“Mr Deputy Speaker, the UK economy contracted by 1.6 per cent in the last quarter of 2008. For the first quarter of this year, I expect the economy will again contract by a similar amount.”
Thus spake poor old Alistair Darling at lunchtime on Wedesday. Less than 48 hours later, the first (of many) of his Budget forecasts was proved wrong, as UK National Statistics reported that the economy shrank by 1.9 per cent in the first quarter.
Tier 1 bonds sound like better quality assets than Tier 2 bonds, but don’t be fooled. It’s the other way around, and T1 bonds rank only just above preference shares in the event of the issuer failing.
The chart here shows the two-stage collapse of T1 bank bonds. The first slump followed the failure of Lehman Brothers last year, and the second the introduction of the 2009 Banking Act. But it also shows a small rally in recent weeks, as leading banks have come forward with offers to swap them at a discount for safer debt.