³ÉÈË¿ìÊÖ

Robert - agree that it makes the regulators happy, but also think this gives Barclays a little bit of extra reddies for some acquisitions - Expobank and Goldfish may well just be the tip of the iceberg, and Barclays will probably be able to get some great deals in the current climate - it now has the money to pay for them.

I think if it was the regulators alone then they may have resisted more - Barclays have always tried to do things slightly differently anyway....

Could you produce a list of banks that have been prudent and didn't get in too deep in the financial mess we are in.

They are the ones i would be most likely to invest in.
My gut feeling from the statements is that things are far worse than they are at present admitting.

I find it incredible that the government /bank of england didn't foresee this coming, just what do they discuss at these meetings does nobody stand up and say what if ????

or do they all just nod agreement.

The old system of banks being banks and building societies being building societies seemed to work ok and had inbuilt safeguards to prevent this sort of thing happening.

Banks can only exist if people trust them. after all, they are lending out almost 20 times the depositors' funds.

Personally I find it rather hard to trust them, knowing that most of these lent funds have found their way into property and shares in other companies such as banks and housebuilders.

It's all a house of cards, which is sitting on another house of cards which is trust in money itself.

As John Law found out to his dismay in the early 18th Century, once you let the supply of paper money get out of hand, you are in deep water. Everyone feels wealthy for a while until the bubble bursts. In France this had a bad effect on the aristocracy.

I will repeat my assertion that by the time this recession is over at least one major high st bank will have gone to the wall. Personally I would not invest my money in any of them, since I have no idea where their future profits are going to come from.

Thats an interesting suggestion #1 that Barclays may want to raise capital for growth rather than as a precaution, but then I guess growth could be a precaution.

g

Hopefully the FSA has a monthly if not weekly or daily input on the shape of each bank which allows simple stress test(s) with the FSA's own assumptions factored in.

Property prices in the USA it's being said have fallen 20% since the peak (2006?) which will be reflected also in the UK and elsewhere and this will be followed by the bankruptcy of numerous firms serving the property sector, large and small, that is a lagging contingency. How good such testing is depnds on the quality of data from previous eras, so probably not that good.

Even the FSA appreciates that raising new capital is easier when it appears you don't need it than after you do. Citibank issued 7% Conv. Preferred which perhaps other banks, in the UK, might have considered a more successful option more recently.

Still Barclays, RBS, etc might be watching Lloyds TSB 'window shopping' in Germany with some discomfort.

3/10. Looks like a misunderstanding.

Barclays are raising capital so that they can lend more money.

Churn has fallen across all loan classes - less money is being paid back early, meaning banks have less money to lend to new borrowers. Partly this is the fall in house sales, partly it's corporate customers having arranged great facilities during the liquidity boom 2006/7 and not wanting to refinance as they'd need to pay more for their borrowing.

[The mortgage collateral swap is a red herring in this context - it had to happen to breach the gap that emerged in the market when conduit funding for mortgages died down. The alternative was a (more) sudden collapse in house prices.]

Barclays capital ratios are fine where they are, but the fall in repayments is limiting their ability to lend off their own balance sheet. If they don't raise more cash, there will be an acceleration in the deleveraging in the economy and that will impact heavily on consumer spending, hitting growth and getting the regulator into trouble. (From the point of view of Barclays' shareholders, they'll also lose market share to HSBC who are sitting on a rock solid capital platform and can afford to grow their UK market share handsomely if they want to - although they're unlikely to want to grow rapidly into the teeth of a UK recession, more likely to undertake a cherry picking exercise).

King wants the banks to raise more capital so that they can keep lending, consumers can keep borrowing, and keep spending what they borrow to prop up the economy.

Calling this a triumph for the regulator is bizarre. When 3 of the 5 main banks in the country need to go to the market to increase their capital bases, it's a pretty good sign that the regulator has been asleep on the job.

Thanks #4! Wasnt it Jack Welsh (GE) or someone like that who said that the strongest companies grow, expand, and invest when the going is bad, not shrink and retreat which is the natural reaction.

#2 - that would be Lloyds you need to invest in then. They have been prudent over the last few years and reeping the rewards now. However, they may be looking good now, but they missed out on years of growth and huge profits over the last few years. Does the short term gain now offset well against the missed opportunities? Not sure what shareholders would prefer?

My concern about the Lloyds approach is that it is safe but very limiting - the UK economy grows at say 2, 3, 4 percent a year. If they are on their best game, profits could grow by 7, 8, 9 percent a year MAX. If you want to get double didgit growth (as shareholders generally do) you need to take risk (Emerging Markets, Sub prime etc etc).

#2, no one foresaw this due to the arrogance that has permeated the economy of late.

It wasn't even 18 months ago that people were proudly - and oh so wrongly - declaring the death of the boom/bust cycle, utterly ignoring history and the fact the bigger and the longer the boom, the correspondingly worse the bust will be.

This idiocy wormed its way through the markets and government, ensuring both believed their own BS and neither were prepared for when the whole house of cards came falling down.

This, along with the smugly proclaimed 'death' of gold some years back, really highlights how little sense or true understanding of the people and the economy over the long term exists out there.

It gets increasingly difficult, for Barclays or anyone else. Underwriters are necessarily becoming more chary: they have had .

And although there is , it must be assumed that they will wise up over time.

Robert: Regulators actually doing some regulating? We have entered a brave new era.

#7

You suggest that Lloyds have "missed out on years of growth and profits over the last few years" as a result of being very prudent with their willingness to take on risk.

I'd like to question just how concrete this growth and profit will turn out to be. I appreciate that much of it is represented in the balance sheets of the banks and institutions that took part in its creation, but isn't there a danger that this is no more than self-certification? How much of it is real value, and how much relies on assumptions about the future that are rose-tinted, if not demonstrably untrue?

Isn't this all just a straw in the wind of the coming crash?

Making banks tighten their capital ratios is yet another restraint on the function of the already shrinking financial system. Wise as it may seem to enhance banks capital will it not have a compounding effect of depressing the economy?

This is like watching a train crash in slow motion. Where the economy is the train! Please explain to me why a further restriction on credit (which this is - in part) will help the world's economy?

Guys, stop dreaming! Maybe, because I am an American, I can see Barclays' situation more clearly. It is obvious that, like so many irresponsible American banks, Barclays is also up what we call sh-ts creek. They are losing a fortune on toxic waste mortgage securities they bought from American banks, and they are one of the biggest securitizers of British mortgages, which are about to become more worthless and toxic as American loans. The reason being that British property values climbed far higher than those in America, and will fall more more, in percentage terms. The British pound is about to take a pounding, the like of which even the American dollar cannot compete with. I'd sell Barclays and all other stocks on the euphoria, take every pound I got, and buy gold and silver. We are about to enter a mild but worldwide depression. Get ready, folks!

What do they plan to use the Four Billion Pounds for ?

Barclays likes (or liked) to say how much money its Investment banking arm has made.

If their results are so healthy why do they need more Cash ?

There seems to be no shortage of Credit available on the High Street (Buy Now pay sometime never).

Does Barclays plan to pick off some of its Competitors ?

Afterall, with the Shortselling thats been going on, quite a number of Financial Firms, including High Street Banks are at Bargain Basement Prices.

If Barclays went shopping for bargains right now, they would make a killing.

Not being an international banker I shal stick to waters I know.

First off, read this article (Hillstone jobs anger as administrators move in)
in tonights Oldham Evening Chronicle (www.oldham-chronicle.co.uk).

This is a regional developer with sites like this all over the greater manchester, cheshire, south yorks areas. Each one of these sites was being worked on in the main by local sub-contractors and the sites themselves by finance.

The lot has vanished. An awful lot of the sub-contractors will go to the wall which in turn will affect other contracts with other developers. There will be lees money being spent because people will have lost their jobs. The sites themselves were financed with loans with the development being the collateral. These are now worthless. There is no demand for urban flats and retail outlets so the banks have got debts where the collateral doesn't cover them.

This isn't unique. This is going on the length and breadth of the country. And it's not just regional developers. We all know how much Barratt for example has slide in value these past few months.

Barclays needs money. Are it's assets worth it's liabilities is the big question or, as in this example has it invested in houses of cards built on pillars of sand.

My opinion? We're nowhere near bottom yet.

Robert,

I am waiting to read a post from one of your regular 'city slicker' critics, something like;-

'If you had not tumbled Northern Rock last September Peston none of this would have happened'.

Looking at a list of all the major EU and USA Banks most have either written down high risk already and/or pulled in more investment to stabilise their stocks, operations and profits.

What do you think Robert, is it finally the beginning of the end at international and corporate level ?

Of course there is a lot of grief to come for
the man on the Clapham omnibus, but that grief will have limitations when the banks
recover normality with speed, I hope.

Red Lenin, it'd be interesting in seeing how Hillstone was run - the Victory flats were all sold prior to being constructed, and I suspect the same could be said for many of their sites, for the buy-to-let market.

As for being worthless, not really as the council will doubtlessly make use of them for social housing - as has been the case around the country already. It's eventually just going to be a repeat - courtesy of John Prescott - of the mistakes of the 60's with high-rise slums.

Either way, the developments aren't worthless and the banks won't lose out on them. Housing is needed, rents are increasing and councils and housing associations are always on the lookout for homes to place people - plenty of scope to generate cash.

Robert,

According to their own investor relations website, Barclays spent £1.96 billion purchasing its own shares for cancellation between August 2007 and January 2008 at an average price of 585p, presumably funded out of capital/reserves?

Only 5 months later they are issuing share capital at around ½ this price.

Doesn’t this imply shareholder value destruction on a fairly grand scale given this activity was executed as the credit crunch phase 1 was in full swing?

No question that capital needs to be raised now – but the ‘cost’ to existing shareholders seems to be compounded. Not only are they facing dilution from the new share issue, but reserves that are now being shared have been depleted by a buyback at a time when preserving share capital would have been a more appropriate strategy?

It doesn't look like Barclays will be going Shopping for smaller banks.

Besides, the RBS's, HSBC's and Lloyds of this world wouldn't let them have all their own way if they did.

And none of the Banks can afford a bidding war, even over bargain priced companies.

Just have to hope Mr Cowdery succeeds with Bradford and Bingley, the RNS say he is being given access to their Books for due diligence.

Be interesting to see what happens !

@17 - as I said at the start, I'll stick to what I know. They haven't been bought, they've just had a deposit paid to secure them - or is that now a lost deposit?

As for whether they'll be bought up, the majoor Housing Assosciations round there AKSA, Northern etc aren't interested in that sort of property - it's houses for family homes they're after.

And round that neck of the woods buy-to-let is not a money maker. Houses in some part are still under 80,000. You can rent a decent 3 bed semi for 350 pcm ( Iknow, I live in one) and there is a massive glut of unbought 'urban apartments' 8 miles away in central Manchester (over 2,000), some of which have been oon the market for 2 years.

Like I said, not at bottom yet.

FYI, Mars is in our own solar system, so talking about "intergalactic" investors is rather over-egging the pudding - "inter planetary" is all that is required. The next level would be "inter-stellar" ie between stars within our own galaxy, and then "inter-galactic".

Sorry to be a pedant!

High Street banks like Barclays have for years been demanding that we prove we don't need money before they will agree to lend it to us.
How ironic if they are suddenly finding the same being said to them!

They really do need to sort out the issue of trust in the Moneymarkets.

Afterall, three High Street Banks have had to raise their rates to new customers by 0.7%

The Base Rate is meaningless until its relationship to Libor is re established.

Of course raising their Interest Rates improves their margins and profitability.

Just what Private Equity would love........

Come on Robert, you cannot take all the credit. Some commenters have been just as cynical about Barclays as you. Granted, you have to speak in code. Whereas commenters like me have no need to stifle derisive laughter.

The more knowledge one has of the banking crisis, the sillier the protestations by the management of companies such as Barclays. Their banking decisions have been very poor, at least in the last ten years. It is hardly a surprise that the posturing associated with their corporate decision making is so ludicrous.

Shareholders who are unconvinced by the antics of management of any particular banking group have the option to sell. It is no good being cry babies about what they have lost already. Real tears may yet flow.

The FSA may or may not be chortling yet. There are signs, however, that they are no longer in denial.

Let us say, for example, that the international banking losses from events of the last few years are likely to be a few trillion dollars. Let us say that the equity of the banks is twenty to forty percent of that.

This would not mean that the industry is bankrupt, because they are still going concerns, only that it is insolvent. Being insolvent is only a technicality unless and until they take their losses. The bankers are therefore legally obliged to remain in denial in the interim. If any admit to insolvency, end of story for them.

Under these conditions, what would be the options for regulators?

The first step is to try to spread the losses over the next few years. Whew. A few hundred billion a year suddenly looks a bit better.

Let us look at some sources, each a few hundred billion. Firstly, they have written off a few hundred billion dollars to date.

Secondly, they would want to privatise some of the banking losses. Let the consumer contribute. This is best done by raising a few hundred billion from existing shareholders via rights issues. A significant percentage of this is pension contributions. The pension fund managers possibly know that most will disappear into the black hole. But they also know that as long as they continue to act as a herd, they are not likely to lose their jobs.

Even so, credibility is gradually being strained in this department. In the UK I do not think they will get away with raising another few hundred billion dollars by this method.

Thirdly, there are sovereign wealth funds, mainly foreign governments. The sweetener for them is the opportunity of having significant stakes in the heart of the western banking system, relatively speaking. The downside is they know that most of their contribution will be absorbed and disappear, absolutely speaking.

Yet this option has more legs than rights issues. There is so much money floating about internationally, looking for a home. The western property market is bad news, the consumer is borrowed out, commodity prices will soon have to implode, emerging markets are dodgy, western equity markets are headed for a crash, and the wealth fund owners are too greedy to stick with cash. So the next best thing is for them to achieve a significant ownership positions in strategic industries such as banking.

But all these will still fail to raise a few trillion dollars for the banking industry as a whole. However, if all the banks act sufficiently confused when it comes to valuing the mortgage securities on their books, they may well be able to delay as long as possible marking to market. In other words, writing off these so-called assets. So, in a few years, after much consolidation (rationalisation they will call it) in the banking industry, some banks will have to be nationalised. That is, privatise the losses. Let the consumer contribute.

One may wonder why is it the banks squeal like pigs when they have to raise more cash? The answer is not simply unbelievable hubris, overweening arrogance and personal vanity. It is also that they do not care. They know the central banks have to bale them out.

So if you were a regulator, what would you do? How could you force them to raise cash? The answer is the tit-for-tat mentioned by Robert. The regulators demand a higher capital ratio from the banks.

It is the old story of when the hungry lion comes to the camp-site, you run, not because you can run faster than a lion, but because you can run faster than your neighbours. No bank wants to be the next one to be taken over, even though this will happen to most of them eventually. So they squeal but they raise the money.

This mechanism, discovered recently by the central banks, is working. That is why they may chortle, and we may chortle with them. Unless, of course, we own banking shares. But that can soon be remedied.

These posts all show how there has been a great break down of Trust in this society.

It is wrong to say that Bankers don't care what happens.

They do.

They lose their jobs when things go wrong.

They lose their Shares and their options become worthless when Short sellers strike.

I think some of the Bankers have been blase, they have relied on so called whizkid financiers (creating dodgy SIV's etc) to provide growth.

They have wrongly trusted ratings agencies to do their job, when clearly the Ratings agencies have had no idea what they were approving.

Remember Banks are owned by Pension Funds, their profitability benefits many people.

But to say they just get bailed out is wrong.

The management of Northern Rock was sacked.

Their Shares became worthless.
The Pension Funds invested in it lost quite significant sums of money.

Consolidation by takeover and merger is probably going to be the future of Banking.

But this will mean less competition and higher Interest Rates for borrowers.

Interest on Deposit accounts will probably decline after the consolidation ( and thus competition has dropped)

Mr Cowdery is probably the future face of British Banking.

Barclays could be a relatively safe investment for one simple reason.

There is no way that Barclays shares will be stolen under any circumstances.

Especially not if a crisis is the result of a bank run caused by mindblowing levels of official incompetence that would humiliate a banana republic.

Why?

Because the Chinese government is a shareholder.

Far more worthy of respect than a bunch of 200,000 little people largely in the North East.

Hi Robert

Where are the plod. The last time I looked misrepresentation for financial gain and others conspiring in that misrepresentation were criminal offenses and the individual's ill gotten gains subject to the Proceeds of Crime Act.

Without the "rule of law" we have no international financial services sector in the UK.

I really get very frightened as to the way the situtation is going within the banking industry for shareholders and the state of the banks themselves.

I regard myself as being quite financially astute but I agree with the comments on the blog as how have the banks been allowed to let their reserves get into this situation and why have the FSA left it until now to take action.

A drop of nearly 50 to 80 % in major bank share prices makes a nonsense of having a diverse portfolio of savings and why are the people at the top still getting pay rises and bonuses ??

With the new wave of extreme Short selling and stock lending, a person would have to be crazy to invest any money in Shares.

Who knows whose Company is going to be short sold into oblivion next ?

Indeed, with the potentially unlimited Share Price falls possible with Short selling, there is no Logical way to value a Company's Shares.

Logic and common sense no longer play any part in the Stock Market.

Quite honestly I never believed I would witness the death of Share Ownership in Britain.

Surely all short selling does is quicken a share price to its true share value. The fact that most of these in recent times have been with companies having rights issues just shows that there are already balance sheet/valuation problems which the short sellers are picking up on. The actual real asset value of the company is unaffected, although it may mean they have problems raising more capital.

Remember, if a Short seller get it wrong they potentially lose a lot of money. The question may be - is there collusion between Short sellers to move the market? I suspect the regulatory authorities will be trying to find evidence for this.

Remember the true value of anything is what someone else is prepared to pay for it. All other valuations mean nothing.

The current value of a share just reflects what the last person was prepared to pay.

Shortselling artificially lowers Share Prices if done on a massive scale.

The sudden drop caused frightens off the genuine Investors, who may sell at the artificially reduced price further reducing the companies Share Price.

A lot of comment in today's Times about Northern Rock and the problems that people are having coming off fixed rate mortgages on to higher priced flexible rates when their valuations aren't sufficient to go elsewhere.

Are you banned from mentioning it Robert?

I see the stockmarket is busy losing everyones pensions again.

#34

It is a bit grim to see ordinary folk being punished for the sins of some of these banks.

I am sure that people will note this and act accordingly.

If millions of people move their savings from these banks to other institutions, then the banks must suffer the consequences.

They have no divine right to exist.

Ah, a modern society cannot exist without a Banking system (of some sort).

However, by the Shortsellers logic, every PLC is over priced by three to four times !

Expect drops of up to 75% amongst some quite ordinary (considered safe companies).

After all, Short selling takes no prisoners and plays no favourites.

Any Company can be it's victim!

Which one is next ?

The article was about Barclays and its determination to raise equity capital without as yet disclosing whether this would be to plug a growing hole in their capital base or to take advantage of lower asset prices for acquisitions.

However to date the focus of concern has been on property, primarily on residential but also commercial, but little has been mentioned recently of Private Equity firms with their highly leveraged companies. With the first indications of a UK manufacturing slowdown which will again raise questions about consumer ability to spend will not analysts re-focus on debt held by banks in Private Equity deals, especially the more recent and highly leveraged?

And did Barclays participate in some of these?

#37

"However, by the Shortseller's logic, every PLC is over priced by three to four times.

Expect drops of up to 75% amongst some quite ordinary (considered safe) companies."

I'm not sure this view is held solely by shortsellers. There is a feeling that many industries are oligopolies and that capital is accordingly able to name its own price. It's the belief that this situation will persist at least into the medium term that has caused market sentiment to maintain upward pressure on share prices.

Of course there are other sentiments that affect share prices, but I would argue that the most critical to maintaining high levels is the feeling that there are very few competitive constraints on big business, and that once they are above a critical size, it doesn't require much in the way of brains or ingenuity to generate whatever level of profit the market demands from a company of their capitalisation. Abuse of power rather than customer satisfaction becomes the most important contributor to profit generation.

If there were to be some doubt introduced about this view of the future, for example if globalisation was seen to present a real threat to the power of the oligopolies, then there could easily be the drops of 75% that you mention.

Companies such as Barclays who can sell large tranches of Shares to Sovereign wealth funds and hedge Funds, will probably have a Short term advantage.

Unfortunately there is such an aura of fear and mistrust amongst the Public towards the Stock market and towards investing in Shares that the London Stock Exchange and thus Investment Banking in general will not have much of a future.

Right now I know no one who is prepared to commit any new money to Share investment, most of the people I know are stoically holding whatever they 've got in case the Madness should end.

Perhaps a futile hope.

Has interest in taking over the LSE waned as companies listed there have fallen?

Perhaps once the new disclosure rules to be imposed by the FSA take effect then the LSE itself will become a buy again. Or not!

Robert I know this is a little late but...

As a Barclays shareholder I was offered the new shares at a reduced price of £2.82 at the end of June. I chose not to take up the offer - today the Barclays shares are trading at £280.75!

Robert, why don't you do a new high profile feature on the loosers and loosers of the current share issue debacle sweeping the city!!

As an aside, I think they might be worth a flutter now - agree?