Britannia Radio

THE DAY OF RECKONING   8.10.08
In this posting I am going to give extracts from the media's reports 
and reaction to the Brown-Darling belated bail-out.  Commentators' 
reasoned opinions will come later.

But after discussions in the City this morning I have some pointers 
to the way the economy is likely to perform.  I will summarise these 
in a later report .

But as of 2.30pm , I first give the latest report that I can find of 
the present situation, then onwards - - -!

xxxxxxxxxxxxxxxxxx cs
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1.07 pm BST -  FINANCIAL TIMES [shortened]
Rate cuts follow bank rescue
By FT Reporters

Britain's largest banks are to be part-nationalised after the 
government took the momentous decision to pump tens of billions of 
pounds of public money into the sector to avert a banking collapse.
The move came as central banks around the world announced a co-
ordinated cut in interest rates in response to mounting fears about 
the impact of the financial crisis on the world economy. The US 
Federal Reserve, the European Central Bank, the Bank of England, and 
the central banks of Canada, Switzerland and Sweden and the United 
Arab Emirates all cut their main lending rates by 0.5 percentage points.

Under the UK bank rescue, the government is to put up to £250bn into 
the banking system in an effort to keep banks lending. It will also 
offer a guarantee to banks issuing medium term debt, which could mean 
backing a further £250bn of bank borrowings. But it is likely to 
demand dividend cuts and the end of big bonuses at the banks in return.

The plan, announced by the Treasury on Wednesday, will initially see 
seven leading banks and the Nationwide Building Society apply for 
£25bn in permanent capital to raise their Tier One capital ratios, 
with a further £25bn available as a stand-by and for other eligible 
institutions. The banks have agreed to conclude their 
recapitalisation by the end of the year.
The banks involved are Abbey, now part of Santander of Spain, 
Barclays, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland and Standard 
Chartered as well as Nationwide. Other UK banks and building 
societies are invited to apply for the scheme as well.

Bank stocks were mixed in volatile London trading. Lloyds TSB rose 
0.9 per cent to 227?p while its merger partner HBOS jumped 48 per 
cent to 138.8p. RBS, which fell almost 50 per cent in the previous 
two sessions, was 24 per cent higher at 112p, turning back from 
losses of over 10 per cent. HSBC fell 4.6 per cent to 859p. Barclays 
was 5.5 per cent lower at 264.3p, off wider losses of 17 per cent, 
and Standard Chartered lost 11 per cent to £11.65.
Referring to "extraordinary market conditions", the Treasury said the 
Bank of England would provide at least £200bn under its special 
liquidity scheme - under which banks can swap illiquid loans for risk-
free government securities - "until markets stabilise".

Summary of Treasury plan
. Abbey, Barclays, HBOS, HSBC, Lloyds TSB, Royal Bank of Scotland, 
Standard Chartered and Nationwide Building Society apply for 
government funding
. Injection of £25bn, probably in preference shares, to improve 
capital ratios
. Further £25bn of capital available as stand-by
. Bank of England to double size of special liquidity scheme to £200bn
. Government to offer a £250bn guarantee to banks issuing medium term 
debt

The Bank added that until markets stabilise, it would continue to 
conduct auctions to lend sterling for three months and also to lend 
US dollars for one-week periods against a wider range of collateral. 
It will review the size and frequency of those auctions as necessary.

The government will also, for a fee, guarantee new short and medium 
term debt issues by the banks to help them refinance wholesale 
funding obligations as they fall due. It said it expected the take up 
of this guarantee to be of the order of £250bn.

In return for the new permanent capital the banks will be required to 
provide "full commitment to support lending to small businesses and 
home buyers", the Treasury said.

In talks with the banks, the government insisted that the terms and 
conditions of the new funding would "appropriately reflect the 
financial commitment being made by the taxpayer." The government will 
also take into account "dividend policies and executive compensation 
schemes".

The extra capital will probably come in the form of preference shares 
or other permanent interest bearing shares. However, the Treasury 
said it would also assist in the raising of ordinary capital if 
requested to do so.

(-----)
The rescue is being presented as part of a wider attempt to reform 
markets and is expected to include a call to the banks to show 
responsibility over remuneration for bosses, now that the taxpayer 
has a direct stake.

Mr Brown told a press conference on Wednesday that there had been a 
"a failure of responsibility on the part of the banking system". He 
described the scheme as a "far more comprehensive programme than 
people had expected", offering "short term, medium term and long term 
security of funding".

Alistair Darling, chancellor of the exchequer, said the rescue 
package was the start of a solution to the logjam in the bank lending 
system, and did not rule out further action.
"(- - - - - - -)

Mr Darling, who will make a Commons statement later on Wednesday, 
wanted more time to form a full package but was forced to act by the 
market chaos and by circulated reports that banks wanted an injection 
of public money.

Officials apparently worked through the night to finalise the scheme 
so that an announcement could be made before the London stock market 
opened on Wednesday morning. Even so, many of the details have yet to 
be thrashed out, and banks will have to engage in negotiations with 
the government to agree how much capital they require.

At £50bn - roughly equal to £2,000 per taxpayer - the 
recapitalisation of the banks would more than double Britain's 
planned public borrowing this year, pushing public sector net 
borrowing close to £100bn and more than 6 per cent of national 
income, worse than any year since 1994-95.

The recapitalisation will deliver a huge boost to the banks' core 
Tier One capital - the preferred measure of balance-sheet strength. 
This is expected to give the market greater confidence about the 
banks' ability to absorb future losses.

However, the government's move has a broader significance because it 
will also send a strong signal to the banks' creditors that they are, 
in effect, protected from future losses.

Concerns about losses among creditors, triggered by the collapse of 
Lehman Brothers, the Wall Street bank, are the main reason why banks 
have recently struggled to access the funding markets.

The government said it had informed the European Commission of the 
plan, and was in talks with the governments of other countries about 
extending the proposals internationally.

Although HSBC is included in the list of eligible institutions, this 
refers to its UK subsidiary, not its holding company. HSBC said its 
UK unit would observe the requirements on Tier 1 capital but would do 
so from its own resources and had "no current plans" to participate 
in the scheme.

HBOS, the UK's largest mortgage lender which is currently being taken 
over by Lloyds, said: "The government's announcement represents a 
very real and serious intention on the part of the authorities, 
following consultation with the banking industry, to bring stability 
and certainty to the UK banking system. HBOS believes that this 
initiative is very much in the interests of its shareholders and 
customers."

Reporting by Chris Giles, George Parker, Peter Thal Larsen, Maggie 
Urry, Norma Cohen and Michael Hunter in London
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
COMMENT in the FT
Bank must cut interest rates by a point
The Bank's failure to act pre-emptively may have increased the 
chances of a deeper and more prolonged recession, writes Sushil Wadhwani
==============================
TELEGRAPH - Leader
Faith in the Government is now shattered - Enough is Enough

The country has lost patience. Since the sub-prime crisis broke 14 
months ago, we have looked on goggle-eyed as a catastrophic chain of 
events left global finance teetering on the brink of collapse.

As the calamity unfolded, public incomprehension turned into 
incredulity, then anger - and now fear. People in this country are 
worried about their savings, their pensions, their homes and their jobs.

Comparisons with the Great Depression of the 1930s no longer seem far-
fetched. At such times, people turn to their political leaders for 
reassurance, for reliable information and for practical measures to 
tackle the crisis. In short, they look for leadership. In Britain 
today, they look in vain.

This has been the week when the frightening inability of our 
political classes to respond to these tumultuous events has been 
cruelly exposed. It reached its nadir on Monday when the Commons 
appeared to be in collective denial. Alistair Darling, the 
Chancellor, seemed transfixed, fuelling suspicion once again that our 
notoriously dilatory Prime Minister is actually taking the key 
decisions - or rather, not taking them.

When the markets are in meltdown, dithering is not an acceptable 
response. Across the floor of the House, the Tories were mute, 
anxious no doubt not to be accused of "talking the economy down" - a 
mindless concern at this stage of financial collapse.

George Osborne, the shadow chancellor, made the mistake of saying: "I 
don't think that the British people would thank us if they saw 
happening here . what everyone saw happening in the American 
Congress." Saw what, exactly? Passionate, sometimes angry, debate? A 
genuine clash of views? The officials who presided over the debacle 
being given the third degree?

In other words, the voice of the people being heard, loud and clear. 
Parliament is supposed to be the cockpit of the nation at such 
perilous moments, not some cosy little clique from which the voters 
are excluded.

The former Tory chancellor Kenneth Clarke observed yesterday that the 
Government is simply incapable of responding to the speed of events. 
He is right. How else to explain Mr Darling's bizarre decision to 
call the big three British banks into the Treasury for talks on 
Monday night - and then having nothing to give them, other than tea 
and sympathy.

There was no plan, no rescue strategy. Such a sanguine approach when 
events are proceeding at breakneck pace is indefensible. Is it any 
wonder that the banks promptly took a hammering when the markets 
opened, with the Royal Bank of Scotland losing more than a third of 
its share value?

That finally seems to have jolted the Treasury out of its torpor and 
prompted last night's emergency meeting in Downing Street to agree a 
bank recapitalisation plan, the details of which [were] revealed this 
morning.

But once again we have an ad hoc measure, forced out of the 
Government by events, rather than as part of a coherent, thought-
through strategy. If it is to be effective, it should be accompanied 
by other measures that could, and should, be taken without delay. The 
aim must be the restoration of confidence in the banking system (in 
contrast with the Government's indecision, which has diminished it).

First, the Bank of England's Monetary Policy Committee, which meets 
today, should slash interest rates. (- - - - - -) [It did that in an 
internationally co-ordinated move -cs]

Second, the Government should make explicit what is already implicit 
- that it will guarantee all bank deposits, business as well as 
private, without limit, for a fixed term, perhaps two years (as the 
Irish government did at the weekend). No other single measure would 
do more to restore public confidence in the banks. Ordinary people 
would know, beyond any doubt, that their money is safe. At the 
moment, they don't.  [NOT DONE! -cs]

Third, changes to accounting rules can lift confidence and alleviate 
anxiety in the financial markets. The system known as "mark to 
market" - which records the value of a security to reflect its 
current market value rather than its book value - can force troubled 
institutions into insolvency and erodes investor confidence. These 
rules do not work when there is no market or when it is in such 
turmoil. The Financial Services Authority should announce that it is 
prepared to suspend them.  NOT DONE! -cs]

Fourth, the Chancellor must have some sensible ideas on how best to 
renew the creaking institutional machinery of global finance to take 
to the table at this weekend's World Bank/IMF meeting in Washington.

Just over half a century ago, at the time of Suez, a Daily Telegraph 
editorial admonished Anthony Eden with the words: "The country is 
waiting to feel the smack of firm government." The phrase entered the 
language - and has never been more apposite than it is today.
The confidence of the British people in this aloof and secretive 
Government, which has stumbled and fumbled from the outset of the 
crisis, is now well and truly shattered. Will faith in our politics, 
or our banking system, take longer to rebuild?
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
COMMENT in the Telegraph
This bail-out helps but it's no turning point
- Damian Reece
We need more than Darling's £50bn gamble to stave off recession
To say the pressure is on Alistair Darling this morning as he unveils 
his latest piece of "decisive action" is, I admit, a bit of an 
understatement..
++++++++++++++++++++++++
- Edmund Conway
Savers may be disappointed by today's move [bank rate cut] , but it 
is worth bearing in mind that the move - taken admittedly in 
desperate circumstances - represents the best chance the UK and its 
international counterparts have to bring the financial markets and 
the wider economy back under control.
=======================
Extracts from various Media
The Times
==Best savings deals are withdrawn
Five of the most competitive savings products have been withdrawn 
within hours of the Bank of England's shock cut to interest rates today.
The AA, Birmingham Midshires and Saga have withdrawn their best fixed-
rate bonds
- - - - - - - - - - - - - - - - -
The taxpayer will have to pay in the end
Gary Duncan, Economics Editor
Where will Alistair Darling find £50 billion in a hurry?
The answer, inevitably, is from taxpayers. Tax bills are likely to 
rise to help to meet the cost of a bank bailout.
The proposed £50 billion bailout is already equivalent to about a 
third of total annual income tax bills, and enough to cover more than 
half the yearly cost of the NHS.
++++++++++++++++++
Evening Standard
Too little, too late and too much faffing, say the traders - - Robert 
Mendick, Chief Reporter
The City traders, none of them older than 40, stared at the grey-
haired man addressing them from the giant television screens hanging 
from the dealing room walls. - - It didn't help that Mr Darling was 
30 minutes late with his statement - - -
"It's too little too late," [one] declared, "The whole problem with 
the banking sector is not just the lack of confidence in the markets 
but a lack of confidence in the Government.
"To come out with his statement half an hour before the market opens 
is ridiculous.
"They have been faffing about for days when they should have been 
planning this over weeks. But to announce it with 30 minutes to go is 
not enough time to digest."
+++++++++++++++++
Guardian
UK 'will suffer full year of recession' [see my City report]
Global economy entering 'major downturn' triggered by most dangerous 
shock since 1930s, IMF warns
- - - - - - - - - - - - -
The next burden: inflation
Chris Payne: We've borrowed too much on the strength of assets whose 
value is falling
+++++++++++++++++++++