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I am not traditionally a supporter of the banks, however, I feel that they didn't get it wrong as you suggest. I believe that the banks had a right to expect the BoE, Treasury, FSA, Government to ensure that the financial markets remained in good shape. This has not happened, the only real step that has been taken to-date is the swap arrangement - some 8 months in to the credit crisis. What I think HBOS has got wrong is their view of what will happen to GDP (although I hope they are correct). I suspect that things will be far worse than this because we are seeing too little too late to fix the problems we are experiencing and I don't see things changing either (although yet again I hope I'm proven wrong). HBOS's decision to strengthen their Balance Sheet is the right move - I just hope that it is enough - as there seems to be little prospect of help from elsewhere (the authorities) at the moment. Oh and the dividend point – paying dividends is the normal course of business for a quoted company and the banks are no different in that respect.

It is all very confusing and gives me a headache, think i will drink some wine and party on.

And when did you first predict the credit crunch? After it happened, if I remember....

I'd be disappointed if any bank had not changed its position in the light of events over the last six months. Describing such a sensible change in the light of changing circumstances as a U turn is typical sloppy journalese....I have given up expecting better of you.....

Dear Robert
"Does Economic warfare still exist because the great depression was engineered by Montagure Norman the then Govenor of the bank of England, in 1929,
Are these monetary scandasls being generated on purpose by the money men"?

.....and what of HBOS's share buy-back programme? Not many months ago HBOS were buying back their own shares by the bucket load, paying £10, £11.00 each. Now they're reissuing them at £2.75 each. Wealth creation or what??

According to HBOS last Balance Sheet at 31 December 2007 its total assets were £667 billion and its liabilities were £645 billion - a surplus of just £22 billion! Only when we know the true state if its toxic assets can we judge whether it is solvent on paper. It is legally solvent as long as it can pay its debts as they fall due.
Northern Rock had a surplus on paper of £3 billion at 31 Decenber 2006 (assets £101 billion - liabilities £98 billion) and was legally solvent until we all know what happened then!

The capital issue is not the problem for HBOS the real problem is what they are going to do when the 200 billion of wholesale funding they have borrowed from the money markets matures.

Turns out my hunch, on who would be next, was correct! (blog - RBS wants £10bn).

Maybe its time for the banks to get back to the fundamentals and stop treating small businesses (many of whom retain significant cash balances) like cash cows. Most are happy to pay for the transactions/services they actually use, but don't expect to have the banks round this up to a minimum monthly charge. Its not as if they are paying top rates of interest on these balances, so these cash balances should be cheap money for them.

You wouldn't tolerate this rounding up from your local newsagent when you buy a newspaper, so why do some banks think its reasonable? Or do they not really want small business accounts that are consistently solvent, but don't look like they are going to grow any bigger.

My current bank seems to understand this, so I've no tips for who will be next with a Rights Issue.

What has me scratching my head is exactly where the banks such as HBOS think that these massive sums are actually going to come from. The credit crunch is affecting shareholders just as much as anyone else. Money is in short supply - as the banks know only too well through the higher interest rates they are having to offer on their savings accounts.

What makes them think that raising the money through a rights issue is going to be any easier?

The shares offered in a rights issue don't look such a good deal - the extra shares put downward pressure on the share price - and also tend to force the dividend payout down too. Why would anyone want to hold these shares?

Yes Robert, it was surprising to see HBOS take out its begging bowl before Barclays. The capital ratio of Barclays is worse so they are, strictly speaking, next in line. But Barclays may want a couple more weeks of sticking their tongues out and waggling their ears at Sir Fred Goodwin of RBS. Sir Fred crowed about stealing ABN from Barclays for several months, so I suppose we must be patient while Barclays has a little more time to crow about RBS getting it wrong.

All the banks were swaggering nine months ago, and at 1st August it was still business as usual for them, so I do not think HBOS was being more arrogant than any of the others.

Come on, Robert, none of them are going to own up, as you put it. No lessons will be learned. Steps taken will be like those of the FSA, lining their own pockets after the horse has bolted, rather than preventing the consumer and shareholding public from being robbed in the first place. Or steps will be taken by the closet socialists who are going to push for draconian regulation that will well and truly drag us into a real depression.

One after the other all of the banks will have to raise capital. They have no choice. It will be through foregoing dividends, making some profits (mainly through slashing expenses especially staff), and rights issues. Institutional shareholders have no choice either: they will have to take up their rights issues. The price of the rights issues will be priced as low as necessary to ensure it.

Then, when there are further write downs, as the securitised mortgages proceed down the revelation path, and revenue continues to fall, they will raise capital again. This will continue for at least three years, which is why Mr King put those guarantees in place for that period.

One hopes that when they do their rights issue announcements none of them bursts into tears like the chairman of RBS barely managed to avoid on his day. It is one thing to cause non-dom shareholders think they are dealing with a whingeing pom. It is quite another to actually behave like a cry-baby.

After the crocodile tears that they have sobbed for the shareholders, fired-staff and ex-customers who have been ruined as a result of their excesses, banks should not expect sympathy for any real tears shed by their management. In the old days people knew how to keep the upper lip stiff. Today they cannot even seem to keep that lower lip under control.

HBOS and all the other banks declared high profits so that they could pay high bonuses to top management and high dividends to shareholders. They did so as long as they could get away with it.

As Chuck Prince, erstwhile head of Citi said before he suddenly left, one must keep dancing until the music stops. He, like the whole bunch of them, did not think it was going to stop. It has not stopped in the past. Many of them have got away with it every time before in the last few decades. They thought the central banks would always be there as long stop.

Many of them have studied economics and knew that the 1929 depression could have been avoided if there had been a central bank big enough to act as lender of last resort.

It looks like they may have misjudged the situation.

I have no sympathy for the banks, no matter how much I depend on them for credit or savings. They should have known there was something up with the CDO's and SIV's etc. and should have analysed their compostion more thoroughly. They take the risks for the rewards and when all the dust has settled the banks should be made accountable. I see no problem with the government and BoE stepping in to stimulate the financial system, as long as the opportunity cost is minimised and there is no risk to the treasury and the taxpayer. Why not lend the banks the necessary capital and when the "credit crunch" is over, fine the companies for negligent risk controls.

I see lots of problems with this Govt in particular getting involved in saving a bunch of banks that have done such huge harm to the UK economy.

When will we wake up and realise that we need new banks.

This comment was removed because the moderators found it broke the house rules. Explain.

All contributors, would you please forecast whether there will be a severe recession in the next few months. Then advise this blog, as I am sure Robert and the rest of us will want to know the results of your observations.

By the way, your forecast will be as accurate as any you read about once you know a couple of key facts. You will also know why these facts have not been publicised before, but any economist or economics student will confirm they are accurate.

Here goes. The severity of the current recession will be proportional to the reduction in consumer spending. If there is no reduction in consumer spending, there may be a mild recession. But if people stop spending money on consumption such as furniture, appliances, and prune their expenditure on groceries, holidays and restaurants, there will be a sharp recession.

Easy, huh?

Imagine if you reduced eating out, say seven times where it used to be ten times. Say you delayed buying new furniture and appliances. Say you reduced the time spend abroad and so spent less on flights. If everyone did that the economy would be in big trouble.

On the other hand, if you keep spending, possibly borrowing more money so you can spend more, you may even save the economy.

But I would not count on it. You may just land up deeper in debt.

What is happening is your neighbourhood? If you see house For Sale boards sprouting like beans it does not mean there is panic selling. No, it means the end of panic buying.

If the government gave 5000 GBP to every household it would do some good only if people spent it on the high street. For the economy to thrive everyone has to spend as much as possible, to keep more people in employment, who would also spend more and the multiplier effect would be working.

But people seem to be so cautious now they may do something impulsive like reduce their debts! That would be very bad for the economy. If people reduced consumption and paid off debt it would contract the money supply and make things worse.

That is what the government fears in America where they are sending cheques to millions of people in the post. It may not boost consumption. But they are trying. I will give them that.

So how good a forecaster will you be? The economists have to wait for the data to be collected and summarised. In three months they will tell you what you could know in the next few days if you used your eyes and ears to find out what is happening around you.

Why rely on so-called experts and other financial shamans to forecast the future when you can do it yourself?

This comment was removed because the moderators found it broke the house rules. Explain.

In response to post 10, if you read the announcement you'l see that the rights issue is fully underwritten, as was that of RBS. Therefore HBOS is guaranteed the money - the risk is now with the underwriters (the question of whether underwriters ever actually take any risk as they generally won't underwrite unless they're sure that the issue will be successful is a different discussion...)

In response to post 10 there is a scarcity of money but that is always true since total debt is larger than total money in circulation. What has changed is the fear that new money will not be created fast enough to cover the interest payments on the debt created in parallel to the existing money. The actual position of insolvency within the economy remains but is now more likely to become apparent.

The BoE and the government are struggling to create new money to fix specific problems such as consumers falling in arrears on debt because they only allow themselves to create money through debt. Now loading more debt on to consumers would be unpopular so they can do nothing but place that debt with the banks and hope the parallel money creating may miraculously trickle into the parts of the economy they wish it too. Of course this appears like a bail out. The other option is to issue money direct to the consumer (as in the US) but the government would then owe the BoE more money and would force itself to take more from the tax payer to cover the interest on that debt.

If the BoE and/or government actually took responsibility for the economy they could achieve far more. Instead we are left with one lever controlling two quantities: money and debt.

re:- knoseykneel

I think under Mr Brown the economy will be just great as 'loads of dosh' are coming out of the Bank of England and the Treasury is surely desiogning some artifice so that after the nominal 'rights issue' banks can go on lending and Brown can be re-elected; RE-ELECTION is Brown's most important target.

Of course the fact that the average British household is even more indebted than in the US and the trade balance etc is worse than theirs per capita should not muddle anyone.

Nor the fact that basic costs: energy, food, housing, transport, water, though taking substantially greater proprtion of the average household income probably won't be quickly recognised in the ONS's CPI calculations as reducing/removing the weights of CHAV TVs etc might shock the BoE/MPC.

In the meantime having 'talked my book' when (if?) the pound rallies on all this 'good news' I'll be looking to buy the odd bit of foreign currency etc.

Is it curious that two Scottish Banks are first in the Rights Issue queue? Is it that they are quick to perceive their needs or like their 'Son o' the Manse' more profilgate with OPM?

In reply to #15:

Yes there will be a recession, and it will be a severe one.

The recession will only end once the few trillion of funny money created in the last 10 years has been wiped out.

Your average tax payer will be a big loser in all of this. Many will lose their homes and become bankrupt.

Banks themselves may go under, but those who run the banks will be fine because they have already salted away millions.

The labour party will be thrown out of office, which will be small consolation for the terrible damage they have done to this country while in power.

I expect property prices to fall by between 5 and 10% this year with maybe another 5% fall next year. I then expect that there will be little movement upwards for the next couple of years after that.

I don't expect property prices to return to the levels at the beginning of this year much before five years from now. We may have millions in negatuive equity stuck with their current mortgage providers or simply out on the street.

On the economy I expect that the economy will slow down over this year with growth in 2008 probably between 0.5% and 1.2% over th year. This will blow apart the government's finances along with a huge drop in PAYE, VAT and especially Corporation tax. What happens in 2009 is anyone's guess.

I expect next spring's budget being the last one to have any effect before the next General Election to be extremeley interesting.

After all he has said in the past will Gordon Brown and his acolytes forget prudence and return to boom and bust by trying to pump the economy just before an election and to hell with inflation? It may be their only chance to save their jobs.

to 20

"labour party will be thrown out of office..."

Hang on - haven't they just been continuing with the previous Tory Governments policies?

So in our two party system, you imply that even though the previous Tory policies and the present Labour policies are essentially indistinguishable - that changing the label makes a difference.

I am saying that - Margaret Thatcher>> Tony Blair >> David Cameron (or whoever) (I know I have omitted the 'little people'!) is no change.

What evidence have we yet seen that "New Tory" is likely to differ from "New Labour"?

So sorry, I think it may be in a fools paradise to expect a future Tory Government to be any better that the present Labour Government.

Oh hell isn't it too near an election - so in the interest of balance and the prevent "moderation". I suppose I have to mention that there are other parties and they may form a future government, but essentially what I am saying is that any of the parties are just as good or bad as any other.

Perhaps one has to look to their advisers the Treasury Mandarins - their selection and education may be the problem. The poor old politicians just have little grasp of anything other than their own field, professional politics, so if you what a target look at the Treasury.

Treasury policy, much of it artificial - and what I mean by that is they gave you the less than wise Private Finance Initiative and it siblings as well as the inability to differentiate between capital and revenue expenditure. They also gave us the nonsense that says that loans from the BoE have to be dated at 9 months and by so doing they escape inclusion in the public sector borrowing requirement. I say we should consider the role of the permanent government of this country, the Treasury not the temporary figureheads that front it!

I suppose they will redefine inflation so that it vanishes again soon!

Shareholders need to vote in restrictions that would place current bonuses and shares awarded, that can be cashed in, into a holding account that pays them out over the next three years, and keep that process going each year from now on.

There's a conflict of interest in that the board may have to ask for a share issue to raise funds for the bank to protect itself against rising bad debts while putting themselves at risk of being deprived of a job and handsome bonuses at the same time.

It would seem that Barclays directors by not asking for help have put themselves under pressure not to reverse such a request as shareholders could react badly seeing as they made a bullish claim they don't need such help.
If they were to shy away from asking in the future at the expense of the health of the bank though it could have big consequences for the bank.

The board could walk away with the bonuses they make, unless shareholders start to sue those who run the banks for not making the right decisions because they put personal income before the interests of the business.

Will Robert Peston be looking into the teams of Spreadbetters who have acted in concert to Sell down or Buy up various Shares in the news for a quick profit ?

I have now read three Property Surveys
First one said year on year price falls of 0.46%.
The Second one said 0.93%
And the third one said price rises of 3.6%

These surveys show a very mixed picture.

Different parts of the Country are going to see very different House prices conditions.

London and the South east is likely to see modest growth in prices perhaps 1%

The rest of the country will probably see modest falls.
Except places like Devon where property is in very high demand. They will probably see stable prices or a modest rise in the best locations.

The Rented sector will continue to grow dramatically has big Landlords buy up property to rent out.

Big landlords includes housing associations sale and rent back companies (lots of those advertising now) as well as the growing Buy to let market (for people who don't trust Pensions anymore)

And who would rely on a Pension Fund, when the companies they invest in (Banks Oil Tobacco Supermarkets) are constantly being run down in the news.

Whats bad for business is bad for Pensions and Jobs.

Unfortunately, that is a fact of life.

A friend of mine said to me he thought we were at risk of Deflation.

Well, my personal inflation rate is running at about 9% (Not income, Bills!)

So I would be wary of Saving any large sums in a Deposit account for any length of time.

I think we can all be sure that our Interest rates will fall over the next three years (on deposits and eventually, mortgages).

Robert,

These Billion Pounds after-thoughts by one International Banker after another is beginning to worry me, it has gone on for eight months now.

Either they have incompetent management and accounting systems or their executive management ignored the systems negative forecasts.

One is simple incompetence, the other is possibly wilful deception, take your pick.

When will the lending taxpayer and the media ever know the real truth ?

Yes Robert, it was surprising to see HBOS take out its begging bowl before Barclays. The capital ratio of Barclays is worse so they are, strictly speaking, next in line. But Barclays may want a couple more weeks of sticking their tongues out and waggling their ears at Sir Fred Goodwin of RBS. Sir Fred crowed about stealing ABN from Barclays for several months, so I suppose we must be patient while Barclays has a little more time to crow about RBS getting it wrong.

Evidently HBOS is offering a 45 percent discount on the closing price last night. The discount with the proposed RBS rights issue was evidently 40 percent. So perhaps the next bank will have to offer a 50 percent discount, and the next one 50 percent less 10 percent. Very much like a furniture store sale. Could Barclays perhaps have let vanity get in the way, when they failed to announce their own rights issue the other day?

All the banks were swaggering nine months ago, and at 1st August it was still business as usual for them, so I do not think HBOS was being more arrogant than any of the others.

Come on, Robert, none of them are going to own up, as you put it. No lessons will be learned. Steps taken will be like those of the FSA, lining their own pockets after the horse has bolted, rather than preventing the consumer and shareholding public from being robbed in the first place. Or steps will be taken by the closet socialists who are going to push for draconian regulation that will well and truly drag us into a real depression.

One after the other all of the banks will have to raise capital. They have no choice. It will be through foregoing dividends, making some profits (mainly through slashing expenses especially staff), selling assets and rights issues. Institutional shareholders have no choice either: they will have to take up their rights issues. The price of the rights issues will be priced as low as necessary to ensure it.

Then, when there are further write downs, as the securitised mortgages proceed down the revelation path, and revenues continue to fall, they will raise capital again. This will continue for at least three years, which is why Mr King put those guarantees in place for that period.

All the banks declared high profits so that they could pay high bonuses to top management and high dividends to shareholders. They did so as long as they could get away with it.

As Chuck Prince, erstwhile head of Citi before he suddenly left said, one must keep dancing until the music stops. He, like the whole bunch of them, did not think it was going to stop. Many of them have got away with it every time before in the last few decades. They thought the central banks would always be there as long stop.

Many of them have studied economics and knew that the 1929 depression could have been avoided if there had been a central bank big enough to act as lender of last resort.

It looks like they may have misjudged the situation.

@15 - so you want a forecast?

I work in the service sector for a large multi-national. Our sales figures so far this year are down 10% for the UK. As a rule, the service industry is a very good indicator of an impending recession. It's not just us, all the companies in the same field are all showing the same down-turn. By creative intepretation and clever massaging we're creating an illusion to the general public that all's well.

To make it worse, we've lowered prices, are running a massive TV, radio, internet and press advertising campaign - in fact we're blowing 760,000 on advertising in the next 30 days. This is damaging what's left of our profit margins severely.

So you want a forecast? We are on a knife-edge. Anything that reduces the amount of money that the consumer has got to spend is going to hit us and hit us hard. All we've got left is redundancies and/or downsizing. That in turn means our workforce have less or no money which in turn means other industries and sectors suffer and the cycle accelerates.

I think we are going to see a significant reduction in economic growth, probably a recession.

Your ability to confidently predict the past with 9 months of hindsight is unbelievably annoying.

If you are such an all-knowing sage then:

a) Why aren't you being headhunted as a top non-exec to institutions?

b) Why don't you put down in stone how you think the economy and the financial landscape will look in 9 months time and then we'll see how great YOUR vision is.

Not tempted?

Maybe then Andy Hornby can present a N@10 bulletin in a grating up'n'down hyperbole style throwing in a sprinkling of "appalling", "disaster", "embarrrassing", "humiliation", "scandalous" and whatever other phrases you learned on your correspondance journalism course.

Cursory, simplistic analysis of the situation Robert, step it up a bit, you are way behind. Comments on ³ÉÈË¿ìÊÖ news this evening earned a shake of the head, unworthy airtime.

re 31. i agree, you used the adjective 'spectacular' to describe how HBOS had said the margins on mortgages would grow in the future. I listened carefully to both the analysts briefing this morning and to the AGM and I am positive that no-one from HBOS used the word spectacular to describe the improvement in mortgage margins. Since you made that up, can you tell us what else you made up in your report at 10pm?

Interestingly the lump sum given to Pensioners to buy their Annuity is based on the Value of their Pension Fund which is mostly invested in Shares.

Some of the Shares are half the value they used to be.

Therefore Pensioners retiring now will receive low Lump Sums to buy their Annuities with, and thusly lower Pensions.

Of course most Pensions are not Annuities anyway !

So the bashing of Uk Companies has still seriously reduced the living standards of Pensioners in the UK.

Nice one Journalists !

Dear Mr. Peston
I had the misfortune to hear you talking to John Humphreys this morning on Radio 4

I suggest that you obtain a tape of the broadcast and listen to yourself

I think that you will be unpleasantly surprised

Or, to phrase it as you did today...

I err, you know, had the, um, ... misfortunetohearyou er, talking to, you know, erm, John Humphreys this ... morningon er, Radio um, 4

Er, I, um, suggest thatyouobtain an, er, um, tape of the ... broadcastand .... you know, em, listen to yourself

I think, er, think that you will be um, unpleasantly, you know, surprised

I know it's not always easy to speak extemporaeneously, especially early in the morning, but in comparison with Mr. Humphrey's easy and unflapping manner, you came across very badly - you always seem much more in control and much less hesitant on television

# 29

I can only wish you were incorrect, alas I know that you are in fact 100% correct.

Its all a bit like the grand opening for T5 ... the belief that all will be fine and that it will all work out OK can be best summed up with two words ... "Delusional Optimism".

The real fact is that the flow of cash that fuels our economic engine has been cut back ... this will ripple out into every courner ... spend less ... companies shrink ... we all panic ... spend even less ... more shrinkage ... etc...

So HBOS needs more capital but did not want emergency funding from the BoE but will take funding from other sources too? So why does it want it from shareholders and a reduced dividend?
Is someone being a little economical with the truth or being a little inarticulate?

This article and the blog about Gordon Brown shows why the public cannot trust senior businessmen and politicians on economic maters. Nuances and even sharp practices are being displayed here.

It's great to see that some people on this site spot the endless flaws, innacuracies and sometimes outright scaremongering in your reports Robet.

As in the case of Northern Rock where your mismanagement of a delicate issue encouraged people to withdraw their savings which would for most people been quite adequately protected, you should think more carefully about the hype you put about.

A little less bias and panic and maybe we can all start getting back to normal?