Lex needs a new calculator

“In the UK interest rate cuts since the start of the crisis have delivered the average £103,000 floating rate mortgage holder an annual saving of £4,635.Against that the government estimates the net cost of bailing out the financial system at £10bn or £400 per household.”  Lex in the Financial Times today.

There are 26m households in the UK.

But only 11.1m of households have a mortgage and of those, only 55%, or 6 million, are on variable rates.

In other words 100% of households paid £400, but only 23% received savings of £4,635.

Plus all households shared (via pension and other indirect and direct holdings), in the loss of £5bn of dividend income from Royal Bank of Scotland (£3bn dividends in 2007, nil in 2009) and Lloyds (£2bn dividends in 2007, nil in 2009) = £192 per household.

All households via pension other indirect and direct holdings, shared in the loss of billions of market value of the UK quoted bank sector. The £30bn loss of market value of Royal Bank of Scotland alone amounted to £1,150 for every household.

So without really trying I am already up to £1,742 for every household.

Is Lex spinning or being economical with the truth?

Who gains from the gross misrepresentation of the facts?

Follow the money?

Lex, care to calculate what the total reduction in the value of UK bank shares was, divided by households? Who do you think bore that cost? Maybe you need new batteries for your calculator?

Bun rating – Zero,  too much smoke and too many mirrors to see if there is a pattie

Lex – who is being stuffed?

Lex writes about the proposed Lloyds capital raising –  the world’s largest – but misses the opportunity for deserved excoriating criticism on behalf of the poor bloody individuals who are the being plucked and stuffed by the fund managers gifting  their savings.

Here is a quote from yesterday’s “HM Treasury – Government Announcement on Banks. Implementation of Financial Stability Measures for Lloyds Banking Group and Royal Bank of Scotland”:

 “The remaining risks are better shared with private sector shareholders – for Lloyds, the private sector will provide £15bn of capital and for RBS, the first loss on the remaining £282bn of contingent liabilities has increased to £60bn. “

But the ‘private sector’ in this instance comprises mainly the same taxpayers who will now take on additional Lloyds liabilities via their pension and savings products which will be stuffed by their managers with unwanted bank shares. You can be certain that the individual pension and savings participants will not be asked if they want to support the capital raising, and if they were,  it isn’t difficult to imagine the answer.

Why would a rational investor buy new Lloyd’s bank shares?  There is no visible or certain investment return. On any criterion the rights issue from Lloyds would normally be considered a high risk investment.

The truth is the rights issue is an indictment of the present financial system, whereby a minority of savings controllers can misrepresent the interests of the majority participant investors , the disenfranchised suppliers of capital, to acheive their own narrowly profitable ends. See also https://fabooks.wordpress.com/2009/09/01/the-disenfranchisement-of-capital-%e2%80%93-how-the-city-stole-your-vote/

Bun rating: 100% the world’s largest stuffed bun

 

Lex – the way to better buttock care?

There have been many rights issues during the past few months. Most of them would have been repulsive to individually franchised rational investors because they are really fee-fertile rescue issues in disguise (BDEV, SHI, NTG, YELL, etc, etc, etc).

Some financial columnists writing in 2009 about rights issues hint at the reality, speculating about the prospects of ‘getting them away’ (i.e. ‘getting away with them’) or focus on the fat underwriting fees and issue expenses .  I can’t recall once having seen an objective piece of analysis of a rights issue from an investment perspective. Probably because no case can be made in most instances.

Issues are subscribed by institutions on behalf of (in theory),  the myriad individual investors they collectively represent. However the  individual constituent investors  are never consulted, reminiscent of the once notorious block vote wielded at labour party conferences by the trades unions, where constituent members were not consulted before their votes were assigned to whatever barmy cause the leaders supported.

Why would real investors, by real I mean individually franchised rational investors with their own money at stake, subscribe to new shares in banks?  World markets are already awash with bank shares. Even in the UK there are billions of them already available.

Lex tries to say something about the possible Lloyds rights issue. As usual the sum of the comment is zero. On the one of Lex’s hands:

“A successful cash call would enable a beefed-up Lloyds to avoid the government’s asset protection scheme, so saving a £15.6bn insurance premium. It would still have to pay a break fee for APS cover over the past six months, rumored to be £2.5bn. On top of that, Lloyds must pay advisory and underwriting fees, perhaps another £300m. The net saving, therefore, may be about £13bn. Not bad.

 Subscribers, meanwhile, would increase their bet on the UK’s largest domestic retail banking franchise. If they share chief executive Eric Daniels’ optimism that bad loans have peaked, the mega-bank may finally start to deliver earnings too. There are cost savings from the HBOS merger, and reduced competition could spell meatier margins. One day, Lloyds’ dividend might reappear.”

And on the other of Lex’s hands:

“But loan losses could still rise, not least in HBOS’s private equity and property lending areas. The European Commission is likely to force disposals. Removing, say, the branch networks of Cheltenham & Gloucester and Lloyds in Scotland would lop some £300m off earnings. Eventually, the government will also sell its 43 per cent stake, a huge overhang. Finally, the UK economy, to which Lloyds is fully exposed, remains flat on its back.”

Lex, would you buy Lloyds shares?  We should be told.  

Bun rating: 200% bun. A bun filled with another bun, placed under Lex’s bottie for cushioning the effects of all that fence-sitting.