From THE TELEGRAPH ..........

Only radical thinking can fix the banks

Telegraph view: When it comes to breaking up RBS and Lloyds, the devil will be in the detail

Next week, the Government will take its first tentative steps to extricate itself from the banks that it nationalised during the credit crisis of 2007 and 2008. They were taken into public ownership, and provided with colossal sums of taxpayers' money, in order to prevent them from going bust and causing a collapse in the credit system. The bankers' bad decisions led to the disaster, but the rest of us were handed the cost of bailing them out.

As we report today, the plan is to break up Lloyds TSB, Northern Rock and the Royal Bank of Scotland. Lloyds will have to sell at least two of the companies it took over during the boom years, TSB and Cheltenham & Gloucester. Northern Rock will be split into a "good bank" with viable assets, which will be sold; and a "bad bank" containing the toxic debt, which the Government will continue to hold. RBS will be required to sell hundreds of branches and dispose of the insurance companies that it owns, which include Direct Line, Churchill and Green Flag. It may also be forced to dispose of its investment banking arm although its chief executive, Stephen Hester, has said that this will destroy the bank, as it produces 70 per cent of RBS's profits.

The sell-off has been prompted by Neelie Kroes, the EU competition commissioner, who has set demanding conditions for any European bank to qualify for state aid. Breaking up RBS contradicts what had been the Government's policy up until now: supporting the bank's expansion so it could make as much money as quickly as possible, and thereby repay taxpayers. The Government is doing its best to put a positive spin on the change of direction, insisting that a banking sector made up of smaller, more traditional banks that do not engage in risky bets with their depositors' money is essential to restoring health to Britain's economy and ensuring a steady flow of credit. There is certainly something in that argument and in the point that more competition in high-street banking, whether from these new entities or others, will be of great benefit to consumers. The problem is finding a way to make it work. In a global banking market, bigger banks have an enormous competitive advantage over smaller ones and the normal workings of that market mean that the minnows are quickly swallowed up by the sharks.

There are other critical problems that the Government will have to solve to ensure the new banking sector does not simply repeat the mistakes of the old. It will have to tackle "moral hazard": bankers taking enormous risks because they know the state will bail them out. And, as ever, the devil is in the detail. Whether these proposals work depends largely on how they are executed: Gordon Brown and Alistair Darling will be attempting simultaneously to establish a stable yet vigorous banking system, to claw back the maximum amount for taxpayers, and to prove themselves right to have committed billions to the bailouts (and the Tories wrong). But beyond the petty politicking, fixing the financial system is going to require some very radical thinking. As yet, there is depressingly little sign of it.

TUESDAY is Right Issue day .............

Lloyds Banking Group will on Tuesday unveil twin sweeteners to persuade existing bondholders to exchange their bonds for riskier investments that could convert into equity the most innovative, and closely guarded, element of the part-nationalised banks 25bn recapitalisation programme.

Alongside plans to raise up to 13.5bn in a deeply discounted rights issue to be revealed on Tuesday, Lloyds is aiming to raise 7.5bn of so-called contingent convertibles, or Cocos. These are bond financing that would count towards core tier one capital and convert into equity in a stress scenario.

The measures are part of Lloyds attempt to come up with an alternative refinancing programme that will let it avoid the governments asset protection scheme, drawn up in the spring to take on the risk of 260bn of the banks toxic assets. Lloyds is already 43.5 per cent owned by the government and is keen to minimise its reliance on bail-out money in part to mitigate the penalties demanded by European Commission state-aid authorities.

Until now, it has been unclear how the Cocos would work and whether their structure would be sufficiently attractive for bondholders to sign up. Although shareholders have been consulted informally for weeks about their willingness to back the rights issue, bondholders complain that their views have been neglected. Some say they would refuse to switch holdings, deterred by the fact that Cocos behave like bonds until the bank finds itself in a crisis situation, at which point they convert into equity.

According to people involved in the restructuring, the instruments main attraction will be that they escape the ban on paying coupons that the Commission will impose on existing bonds. But one person said that, in addition, the bank would offer slightly more of the new securities to each bondholder, implying a yield up to 40 basis points, or 2-3 per cent, higher than existing bonds.

The inducement would not be huge but it would be meaningful enough to make the bondholders want to switch, the person said.

A definition of a stress scenario that would trigger the instruments conversion would be Lloyds core tier one ratio falling below about 6 per cent, according to one person briefed on the plan far below the 8-10 per cent level that Lloyds is expected to command following its rights issue.

The instruments adapted to each class and issue of bond are expected to carry the same coupons and market values as the securities they replace.

Lloyds contingent convertible transaction is likely to be closely watched by other banks, particularly Royal Bank of Scotland, the other part-nationalised UK bank, which is also set to announce details on Tuesday of its European Commission state-aid penalties.

What the hell is that woman playing up. this nellie krolls or whatever she is called is starting another banking crisis by carving up a bank on the verge of recovery. And labour is standing idly by. How does the goverment expected to get taxpayers money back if the bank is left with no businesses to make money. Crazy

its uk taxpayer for british banks.......nothing to do with some stupid dutch idiot.......oh, her dutch bank went tits up last monday (no pun with her being a tit and an ugly haggard one at that).

can we not get someone to shoot her........that baldy right wing guy in her country got that several years ago i think

Well, it's obvious if you want to live in UK, you got to live under the order of krolls...SELL LLOYDS.


The Chancellor has agreed to spend about 25 billion buying more shares in Royal Bank of Scotland and 5.5 billion on new shares in Lloyds Banking Group.

The new bailout is the equivalent of 500 for every person in the country and will almost double taxpayers investment in banking shares following last years dramatic rescue package.

Public anger growing at 'irresponsible' banksIt will increase the total direct public outlay on the banking bailout to more than 65 billion. Hundreds of billions of pounds in taxpayer-backed guarantees have also been granted to the banks.

Alongside the new bailout expected to be announced tomorrow, Mr Darling will also set out proposals to create three new high-street banks by breaking up Lloyds, RBS and Northern Rock.

The new banks formed from parts of the existing banks - will be sold off within the next five years to firms such as Virgin, supermarkets or to foreign banks. It is hoped that the money raised from the sales will be used by RBS and Lloyds to buy back the Government stakes in their businesses.

Ministers hope that the new bail-out of the banks will be the last and will pave the way for RBS and Lloyds Banking Group to finally recover from the global credit crisis. RBS announced the biggest corporate loss in British history of 24 billion earlier this year.

The latest rescue deal has been thrashed out between Treasury officials and bankers over the past six months.

The huge sums of money involved will lead to increasing concerns among opposition politicians over the future of banking in this country.

Mark Hoban, the shadow financial secretary, said: The Government are not being straight with people. Alastair Darling failed to mention the extra capital that the taxpayer is apparently going to inject into Lloyds and RBS. He must be more honest with the taxpayer. The Chancellor needs to tell people the full story because the failure to do so undermines confidence and delays recovery.

Ministers have also agreed to underwrite more than 250 billion worth of so-called toxic assets currently held by RBS. The Government provisionally agreed to the deal earlier this year although the scheme will be introduced this week.

RBS was expected to pay the Government about 6.5 billion for the toxic-assets insurance scheme. The bank would then only be liable for up to 40 billion worth of losses from its toxic assets with the taxpayer covering greater losses. Ministers were also intending to buy about 19 billion worth of additional RBS shares.

GOOD for the economy GOOD for LLOY..........

UK PMI rises to 53.7 in OctOBER at highest level since Nov 07

Confidence is starting to return to UK manufacturing sector with the Purchasing Managers' Index ( PMI) moving up to 53.7, its highest level since November 2007.

The 3.8 monthly gain in the PMI from September's revised figure of 49.9 was the third largest gain in the history of the series.

Underlying the improvement were marked rebounds in the rates of expansion for both production and new work received. Output increased to the greatest extent since November 2007 as growth of new orders hit a sixty-nine month peak.

Companies indicated that higher levels of new business encouraged the restart of some production lines. There were also reports of market conditions starting to improve, despite remaining tough overall, and clients moving closer to restocking following a sustained period of inventory depletion.

The level of new export business rose slightly for the third month running in October, partly reflecting the weak sterling exchange rate but also improving overseas markets.

Looking ahead, the new orders-to-stocks of finished goods ratio which tends to move in advance of the trend in production rose to its highest level since data were first collected in January 1992.

Staffing levels fell for the eighteenth successive month in October. Companies linked lower employment to cost control initiatives and redundancies. Although the rate of decline was rapid it was the slowest since June 2008.

unemployment predicted to go to 4 million......maybe more!

MRSI - while accepting it's a fantasy portfolio, unless i am much mistaken your own philosophy is to be a day-trader .... if so, surely that throws into question whether day-trading is such a good idea, though equally, it would have been a brave (or foolish) man who hung on through all the market vicissitudes

Mastermy Palestinian friendwhat is your prediction for lloy sp at xmas now?if you remember I guessed lloy 60p when you was chirping at the sp of 1-10 on the 24th of Septyou might well end up proven correct but I would rather stick a "Seymour" on black and spin the wheel
Master RSI - 24 Sep 2009 11:24 - 726
I have giving prove of my dealing and predictions
What is your predictions from this dramatically reduced sp?NO Mock of the Week!just interested if you have revised your view

The government plans to invest a further 30billion in Lloyds and RSB. They also propose to break these institutions up in what would effectively be an asset stripping exercise. Since this will inevitably effect the share prices, the question I have is:

Isn't this some form of insider dealing?

cynic

re - MRSI - while accepting it's a fantasy portfolio, unless i am much mistaken your own philosophy is to be a day-trader ....

I understand your concerns but it seems you have not followed me properly specialy in this thread.

As I said before I have a PORTFOLIO and had put some money aside for short term trading aswell.

I do mostly short term trading ( not allways day trading ) as it can last 3 to 5 days or more depending on the short term uptrend of the share at the time.

But I have a PORTOFOLIO, for long term aswell, the last one build, much as the same time as the FANTASY PORT, but much extensive on numbers ( most of the Fantasy plus others since. )

I do have plenty of spare time, and I used that for trading, as the same time I am running the "UPS" thread ( now lasting 8 years, week after week ), were other investors used their opinion aswell, about which shares are ready to move UP during the week.

To have only a PORTFOLIO is a bit boring for me nowdays, after being on the stockmarket for ages ( decades ), I need something more of day to day thing.

DJ Virgin To Set Up Bank In 2010, Looking At Assets - Founder

MILAN (Dow Jones)--Virgin Group founder Richard Branson Monday confirmed the group's intention to launch a new bank - Virgin Bank - in the new year, adding that Virgin Money is looking at the assets of three U.K.-based banks.

"We will be setting up the new bank in the new year," Branson said.

"We may also buy some assets of the nationalized banks," he added.

Last week Virgin Money, a unit of the group, said it has submitted its application with the U.K.'s Financial Services Authority to open a bank.

According to press reports, Virgin Money is looking at bidding for Northern Rock assets. Royal Bank of Scotland Group PLC (RBS) and Lloyds Banking Group PLC (LYG) are expected to announce business divestments as early as Tuesday, in a move to fulfill requirements by the European Union after being bailed out by the U.K. government last year.

Branson didn't comment when asked about a direct interest in Northern Rock.

When asked about the possibility of continuing the sponsorship of Formula 1 team Brawn, Branson said an announcement will be done in a month's time.

FSA: creating narrow banks could raise risk
Mon Nov 2, 2009 10:16am GMT

LONDON (Reuters) - Breaking up Britain's banks to legally separate retail from investment banking could increase risks in the system, the country's top financial watchdog said on Monday.

Adair Turner, chairman of the Financial Services Authority, said there was no "silver bullet" to tackling the so-called "too big to fail" issue with systemically important banks.

"The extreme narrow banking proposal is clearly doable in practical terms, a law could be passed which achieved this effect, but I believe would fail to address the most vital problem and could produce a financial system even more vulnerable to instability than today's," Financial Services Authority Chairman, Adair Turner said.

"Such a division would clearly not be a policy response sufficient in itself," Turner told an FSA conference.

Many of Britain's banks have had to be shored up at huge cost to the taxpayer, sparking a debate on whether bank's need clear legal separation of commercial and riskier investment banking activities.

Bank of England Governor, Mervyn King, has called for such break ups but has also been rebuffed by the government.

Turner said such a "Glass Steagall" approach -- named after a now defunct U.S. law -- could be best pursued through heavier capital requirements on riskier banking operations.

Such heavier capital requirements are being worked out by the international Basel Committee on Banking Supervision and will make a "very major contribution to addressing the 'too big to fail' problem," Turner said.

"We need a fundamental review of the trading book capital regime and a bias to conservatism for riskier and purely proprietary activities," Turner added

MasterI thought you were a grumpy young manit now appears you are a grumpy old man?now listen this is some good advice.
Go and see your doctor and asked for a prescription of Viagra The doctor will say How many do you want?" Tell him "Just a few maybe 4.. then cut each one into 4 pieces"
If the doctor says "That won't do you any good"Tell him that you are past the age of sexbut are after something that will make it stick out far enough to avoid pissing on your shoessneaky ahh

Tabasco

re - Go and see your doctor and asked for a prescription of Viagra

I did start early age on the Share business, but maybe I am not as OLD as you think, and on a very good shape aswell, no so long ago, on one of my daily exercises, I was hanging by my foot from a branch tree ( 2.50 meters high )

Still managing pretty OK on that way, but maybe I will needed for what you said "lovely" wife of yours, I am a good "ONE to ONE" lover, not a SEX maniac like you.

re- joke

I posted the joke 5 or 6 years ago on my UPS thread, but a bit better ( it was the counter man saying..... not the doctor)

Masterif I am ever in your areaI will buy you a beer or twoas long as you promise not to talk about the war

re -VIAGRA joke

An elderly gentleman went to the local drug store and asked the pharmacist for Viagra.

The pharmacist said "That's no problem. How many do you want?"

The man answered, "Just a few, maybe 4, but cut each one in 4 pieces,"

The pharmacist said, "that won't do you any good,"

The elderly gentleman said, "That's all right. I don't need them for sex anymore as I am over 80 years old.
I just want it to stick out far enough so I don't pee on my shoes."

Tabasco

the type of jokes you are familiar with ...


An old man is standing at the bus stop staring very hard at the young man next to him
who has spiky orange, green and blue hair.

The young man, realising he's being watched, turns to the old man and says,

"What are you looking at, Old Man, didn't you ever do anything wild when you were young?"

"Well, Yes," replies the old man, "I once had sex with a parrot and I was just wondering if you might be my son."

Masterif you are embarrassed to go to the doctorlet Dil know please dont steal anyI would hate to see you become a hardened criminala man of your age wouldnt last five minutes in the scrubsyou wouldnt know which way to turn?

Masterare the jokes funnier when you write them in colour?if socould you put the Lloyds header up in Pink?

tabasco

RE - could you put the Lloyds header up in Pink?

THE PINK COLOUR MUST BE all over your face after consuming so many bottles or maybe is
RED then it says you are ready for BED.