The thing about useful stuff is

Are Banks commiting to unwise lending practices? Monday, October 13, 2008

RBS, LloydsTSB and HBOS have all committed to maintain the availability of SME and mortgage lending at least at 2007 levels as part of the Government share scheme, agreed over the weekend.

This implies a considerable expansion of lending over current levels, which has to be considered precarious entering a recession. Whilst lending criteria might be tightened i.e. Loan to Value ratio is going to be less than 95% etc, it is hardly going to improve the bad debt prospects for the banks. Moreover given that this is now an explicit lending target, lending policies and rates will have to be adjusted to ensure it is met.

Obviously the Government is keen to ensure that the economy remains primed with access to credit but does LloydsTSB+HBOS really need to add to its' existing property market exposure. It may be politically expedient, but is it really good for new shareholders i.e. Us.

Labels: HBOS, Lloyds TSB, mortgages, RBS

posted by John Wilson @ 9:38 AM Permanent Link ,

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HM Treasury get Buffett-style terms from the Banks

Extract from LloydsTSB regulatory news announcement this morning

HM Treasury will subscribe for £1.0 billion of Lloyds TSB preference shares. The preference shares will carry an annual coupon of 12% (non tax deductible), and will be callable after a period of five years.

Under the terms of the preference shares, the enlarged Group will be precluded from paying a cash dividend on its ordinary shares whilst any of the preference shares remain outstanding.

Not cheap financing for a Group that only two weeks ago was insisting it was in decent shape.

Labels: credit crunch, HBOS, Lloyds TSB, Market turmoil

posted by John Wilson @ 9:30 AM Permanent Link ,

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HBOS - A day's rollercoaster ride Wednesday, October 08, 2008

The HBOS share price was all over the place today with a day's low of 93.5p and a high of 155p, ending on 116p, with enormous swings throughout the day.

Trading in this market is a lottery.

Labels: HBOS, markets, Stock market

posted by John Wilson @ 10:03 PM Permanent Link ,

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Short Selling - the witch hunt continues Monday, September 22, 2008

I despair!

When even people within the industry jump on the "short selling is evil" bandwagon without offering any supporting facts, you have to have some sympathy with people who question the high salaries paid to City folks.

Today, a former City practitioner writing here on the Finextra website condemned short selling which is "being used by some very unscrupulous individuals and banks to manipulate the share prices that are bring down the great and the good in the market."

Unfortunately, the facts [missing from the Finextra article] don't support his case, as my recent posts have tried to illuminate with thanks to Data Explorer and Charles Stanley & Co. Moreover, HBOS has justifiably been under the spotlight for over 6 months amidst concerns about its' funding and mortgage book and the FSA found no case to answer re short selling.

But worse, the article goes all soppy and sentimental

"No more fine banking institutions should be murdered because of the ability of the few to use the many short selling derivatives instruments to create a false market."

Could it be that some of those institutions were "murdered" [or I suppose, more accurately, commited suicide] by their own use of derivatives in the first place, creating huge dents in their balance sheet and causing credit lines to be withdrawn? Might it be, for others, that their own profligate lending on ridiculous LTV ratios was at fault exacerbated by over exposure to an inflated property market, whilst running a challenging funding profile?

I'd have been delighted to add such comments to the Finextra article, but it apparently restricts those that may contribute to the discussion on the site.

I'm eagerly awaiting the follow-up article on Fixextra covering insider trading ala "Mail on Sunday" which headlined with City sharks made £190m killing in minutes before BBC report on HBOS takeover , a story quickly debunked here and which highlighted the ignorance of the popular press. As one comment on FT alphaville aptly put it in a related piece which I have modified for the purposes of the pubic at large, "STOP ....... forming so called "informed" opinions based upon READING THE DAILY EXPRESS, DAILY MAIL OR ANY OTHER PUBLICATION THAT CONTAINS, OR HAS CONTAINED AT ANY TIME A PICTURE OF A BIG BROTHER CONTESTANT.

Labels: Data Explorer, Financial Services Authority, HBOS

posted by John Wilson @ 8:29 PM Permanent Link ,

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Did John Mack, HBOS and FSA cry wolf? Sunday, September 21, 2008

Never let facts get in the way of a good story.

Paul Kedrosky highlights the extent of shorting on Morgan Stanley as a percentage of the market value of the company, using data from Data Explorer - I cannot attest to the accuracy of the numbers.

July 2008: 7% (peak)

Sept. 1, 2008: 2%

Sept. 16, 2008: 2.8%

Likewise, the FT also reports Data Explorer's data in relation to HBOS and highlights that bank’s market cap on loan this week was actually less than 3 per cent - nowhere the July high.

source Data Explorer

Finally, UK stockbroking firm, Charles Stanley has provided a table of shorting in UK.

Hmmmm. So where is the huge volume of shorting the drove financial stocks down? Might holders of the shares actually have been dumping the stocks in fear and the glut of sell order depressed prices? Evidently we need a new FSA rule to stop people selling for less than they paid for the stock and a market circuit breaker that precludes prices falling.

Better yet, perhaps the FSA could publish the numbers on which they based their rule change, or is it good enough that the market jumped by its' highest percentage gain ever to justify the change?

Labels: Financial Services Authority, FSA, HBOS, Morgan Stanley

posted by John Wilson @ 8:02 PM Permanent Link ,

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HBOS and the Deposit Protection Scheme Thursday, September 18, 2008

Image via WikipediaSadly I am marked out in our family social circles [school parents and friends etc] as someone who allegedly knows about technology matters [translation - "you can fix my computer/printer/network"], and similarly knows about Finance. Consequently, the last few days have invariably involved answering questions about a) what's going on in the City and share prices and b) is my money safe with XXXXX.

Listening to people, common misconceptions and superficial knowledge abounds, much of which has been recycled from the "popular" press e.g. the evils of short sellers, the fault of the banks in giving too much credit [setting aside that many people benefited from loose credit in the economy], derivatives being the cause [ask people what they are referring to or to define them and the conversation stops], speculators / hedge funds being villians.

I confess that I have greatest difficulty answering b), partly because the repercusions of a wrong answer are immense. Hence, I've tended to limit my answer to "Go to a big institution - the bigger the better for now". HSBC, Barclays Bank, RBS and LloydsTSB probably count as too big to fail, but it's getting harder to make that call. I've supplemented this with the guidance that diversifying deposits between institutions is wise, and if you are particularly concerned then have regard for the amount covered under the Deposit Protection Scheme in the UK.

The Scheme covers up to a limit of £35,000 per customer for the total of their deposits with an organisation, regardless of how many accounts they hold or whether they are a single or joint account holder [a joint account for 2 people counts as 2 customers in this regard]. The scheme also nets off deposits against any loan balances i.e. any monies owed on a mortgage or overdraft will be offset against any deposits and the net amount covered under the scheme.

However, the sting in the scheme covers the word "organisation". Different banking groups operate slightly different structures. In the case of RBS, which also owns the NatWest brand, these legally operate as distinct organisations for the purposes of the scheme. However, Halifax, Bank of Scotland and Birmingham Midshires, which are all part of the HBOS Group, only count as one organisation [Bank of Scotland plc] - all the brand names are Divisions of the same organisation.

This subtle distinction is not obvious to the "man in the street" and if you asked customers of these Divisions who their deposits were with placed with, I am confident that a sizeable majority would answer with the brand name. By extension of this, it is likely that by virtue of historical arrangements or ignorance, some customers will indeed have separate relationships with different parts of the HBOS without realising they are dealing with the same entity.

Importantly, you couldn't blame them for such an error. Inspecting several of the websites of the HBOS group that accept deposits, only Birmingham Midshires makes clear on its' home page that it is a Division of Bank of Scotland plc. In contrast, no reference is made to this on the Halifax home page, despite its' significance - you have to check the Contact Us section in one of the footer links to find this.

To their credit, the BBC have been reporting this issue for several months, including today.

Labels: Bank of Scotland, Birmingham Midshires, Deposit Protection Scheme, Halifax, HBOS, Lloyds TSB

posted by John Wilson @ 8:19 PM Permanent Link ,

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Black Horse gallops to Howard's rescue

After months of torture, under continual share price pressure and doubts about its' liquidity, HBOS has finally capitulated and agreed to a friendly take-over by Lloyds TSB. The speed of the deal has shocked many, but it was essential - already the "man on the street" had begun to read worrying stories about HBOS, with the next step being to withdraw their money, thereby kicking off a run on the Bank.

The Govt has already confirmed this morning that it will set aside competition rules to allow the deal to go through - the combined entity will control a third of the retail banking market [deposits and mortgages]. It will also begin with 140,000 staff, but inevitably there will be a large shake-out of staff as duplicate functions are removed. Obvious examples

branch network overlaps
Head office functions e.g. HR, Finance, Treasury
back office functions e.g. mortgage and cheque processing

It looks likely that the HBOS name will disappear and the combined entity will trade as LloydsTSB. Some of the brand names will be preserved but others will fall by the wayside once the "brand consultants" have performed their comparisons e.g. Scottish Widows v Clerical Medical, Halifax v Cheltenham & Gloucester.

There will also be businesses to be merged and already their CEOs will be wondering whether they will have a role going forward. An obvious example is the asset management businesses of the banks, namely Insight Investment [HBOS, £112bn assets under management] and Scottish Widows Investment Partnership [LloydsTSB, £90.2bn assets under management]. Whilst integrating these two firms is likely to take over 12 months, a combined management structure will be announced quickly if standard practice is followed. Following this, organisation charts will be fleshed out, respective counterparts met and plans will be drawn up to integrate including choices made over

systems to be used
building and locations
suppliers

The ramifications will continue long after this banking deal has been done. Anticipated annual savings of £1bn has been announced with the deal - that means people and infrastructure to be culled.

On an optimistic note, one can only hope that the annoying advert featuring the "surfing" staff member will be canned as a result of this merger.

Labels: HBOS, Insight Investment, Lloyds, Lloyds TSB, Scottish Widows

posted by John Wilson @ 8:24 AM Permanent Link ,

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FSA Short Selling rules - a route to making money Wednesday, June 25, 2008

FSA's headquarters, 25 The North Collonade, Canary Wharf, London, E14 5HS

Image via WikipediaUnder new rules introduced by the Financial Services Authority last Friday, all short positions of more than 0.25% taken in a company during a rights issue have to be disclosed to the market by 3:30 p.m. the following day.

Widely believed to have been introduced by the FSA to assist banks during their fund raising exercises via rights issues, it has already failed to prevent the share price of HBOS failing below its right issue price. Indeed the new rules may have contributed to the fall. I make this assertion since one of the investors forced to disclose a material short position in HBOS was Harbinger Capital, who are well regarded. As a consequence, other investors may well have been prompted to follow their lead.

So, as to the title of this post. Assume you are are well-regarded fund or investor. You could benefit from a shorting a position in a company with a rights issue, having that advertised via the disclosure rules, waiting for other investors to follow your lead thus sending the price even further down and then closing your position at a profit - note the new rules only require disclosure once and so subsequent changes up/down need not be made. As a consequence, your investment "prophesy" is both fulfilled and performance achieved, thereby re-enforcing your pre-eminance as a wise investor.

Odder still is that whereas before talking down a bank stock might have gotten you in trouble with the FSA, now you can simply say nothing, short a stock which is a fairly clear signal of your views and use the FSA as your publicist.

Might this count as market abuse - better introduce another knee jerk rule change then!