Feel Lucky Punk?

SUNDAY, OCTOBER 12, 2008

Feel Lucky Punk?

RBS death spiral - down nearly 90% in 12 months

According to Mr Peston, we taxpayers will be handing over our £40bn to the banks tomorrow. In exchange we'll be getting their bombed-out equity (all-important details still TBC).

£15bn (or more) will go into RBS equity, which Peston describes as a humiliationfor the once proud Royal Bank.

But we taxpayers see it more as a stick-up.

And just like any stick-up, we do have the theoretical option of saying no. But only at the risk of discovering that the man with the shooter isn't bluffing, and he reallywill blow our heads off.

Tyler - along with Hank Paulson and many many others - found that out with Lehman.

There was a bank with no retail depositors to worry about, that was widely understood to be sick and at risk (so its death and dismemberment shouldn't have come as a total shock), and whose top management were seen to be playing silly buggers in negotiating with potential buyers over the price (like... derrr... whatprice?).

So Paulson let it go, as a warning to Wall St: nobody should assume taxpayers would always come galloping to the rescue.

And we all saw what happened in the next month. The financial markets reallydid go into melt-down - just like Bishop John Snow and C4 News said they would. And millions of innocent bystanders are now being mown down as a result.

David Smith reflects the now consensus view:

"Hank Paulson’s decision to let Lehman Brothers fail – the first domino and a move attacked by French finance minister Christine Lagarde last week as “horrendous” – will cost the world about $650 billion (£378 billion) of lost output next year. Britain loses about £15 billion of GDP."

So there we are - our banks are now so critical, that if they demand taxpayers' money, we'd better hand it over.

The one glimmer of light is that - as long as the Treasury does adopt the full Warren Buffet - there's a reasonable chance that over 5-10 years we will emerge with profit.

To take RBS as one example, its stock price has fallen by nearly 90% over the last 12 months. Its market capitalisation is now a mere £11.9bn, compared to the £67bn its shareholders' equity was reportedly worth just 3 months ago. We know these are dangerous times, but that's quite a cushion. And that's before we even start rebuilding capital by suspending dividends and ripping off the customers' faces with higher loan rates and charges...

OMG.

I've just remembered Mrs T and I are the customers.