From citywire ............

Morning Line: Can Darling keep banks competitive?
By Deborah Hyde | 10:42:29 | 06 July 2009

Certainly, credit ratings agency Standard & Poor's recently said the reason its ratings on Lloyds and RBS are so high is almost entirely because the government is backing the banks with taxpayer money.

Since so many of the bad lending decisions of the past are now insured against default through the asset protections scheme, these lenders can afford to re-enter the market, even in the face of rising unemployment and escalating bad loans.

The higher credit ratings also mean that these banks are able to borrow more cheaply and more freely than many of their rivals in what remains a difficult wholesale market.

Given that the other lenders especially building societies have been downgraded, the taxpayer-backed lenders can afford to offer better deals than their smaller peers.

Low interest rates and limited access to wholesale markets, alongside tighter capital adequacy, demands means many lenders are fighting for a share of a tiny savers market to help finance their lending.

Those banks that are supported by the state are able to compete unfairly for retail deposits, and steps need to be taken to ensure that government backing for some institutions does not distort competition for savings, said a spokesman for the Building Societies Association recently............

http://www.citywire.co.uk/personal/-/comment/morning-line/content.aspx?ID=348186&Page=2

Lloyds shake-up to 'sideline' boss Daniels
Daily Mail
10 July 2009, 7:44am

Lloyds boss Eric Daniels will be sidelined under plans to parachute an all-powerful chairman into the state-controlled bank.

Paying the price: Eric Daniels has carried some of the blame for the disastrous takeover of HBOS.

The government is thought to be pushing for a City heavyweight to replace current chairman Sir Victor Blank, who has been ousted following last year's ill-fated takeover of HBOS.

Blank's successor will be an executive chairman in all but name, taking the tough strategic decisions needed to drag Lloyds out of the mire, sources said.

There is no appetite in official circles to remove Daniels, but his role is set to be diminished under the new regime.

Although the American will retain the chief executive's title, his job will be to implement the strategies set out by the new chairman, according to sources.

'Eric is a good operations man, but he has made some strategic mistakes,' a source told the Mail.

Blank has already paid the price for his role as architect of the deal, and will leave by next spring.

The government believes that Daniels proved himself to be a solid and conservative banker, until last year's calamitous rescue of HBOS.

The acquisition has proved a disaster for Lloyds, in which the taxpayer now owns a 43% stake.

HBOS turned in a loss of almost 11bn after a series of reckless loans went sour, and the bank has had to place some 260bn of toxic debt into a taxpayer-funded insurance scheme.

Daniels, who has run Lloyds since 2003, recently admitted that the bank had conducted 'three to five' times less due diligence on the HBOS takeover than would normally be the case.

On top of the gigantic financial losses is the rising human cost of the takeover. Some 7,000 workers have already been sacked as part of Daniels's plan to strip 1.5bn from overheads. A further 18,000 are expected to go between now and 2012.

Blank was recently forced out following behind-the-scenes pressure from UK Financial Investments, the body that controls the taxpayer's stakes in UK banks.

A short-list of potential successors has already been drawn up. Ex-Citigroup boss Sir Win Bischoff is thought to be an early contender, but he would be a controversial choice given the turmoil still engulfing the Wall Street giant.

Mervyn Davies, the Trade Minister and former Standard Chartered chief, is understood to have turned down the job.

A spokesman for Lloyds said: 'Our executive team, led by Eric Daniels, is responsible for setting out the strategic direction of the company and for implementing our business plan.

'There'll be no change to the way we do business.'

13 July 09
Government's Bank shareholdings to be managed "commercially"

UK Financial Investments Limited (UKFI -the company set up to manage the Governments investments in RBS and Lloyds - says that it intends to manage the stakes commercially as an engaged institutional shareholder at arms-length from Government.

UKFI adds that it will not interfere in the day-to-day running of the banks, but will continue to engage strongly on strategic issues which could impact value including board membership, risk
management and remuneration policy.

John Kingman, UKFI Chief Executive, says: Every UK household will have more than 3,000 invested in shares in RBS and Lloyds.

"Today UKFI is setting out our strategy to deliver on the tasks we have been given: maximising the value of these investments for the taxpayer, and returning the banks as strengthened institutions to full private ownership over time.

The UKFI says that it does not set any fixed timetable for disposing of the shares but expects
to undertake a number of capital markets transactions over a sustained period.

So far a good today with a couple pennies on the UP, much better that the market

Up with the market and another couple pennies added

Share price moving again over the 25 MA



red line = 25 days MA

A supper day and moving well ahead +1.35% of the FTSE +0.35%

FROM THE EXPRESS

RBS BACK IN BLACK WITH 1.5BN PROFIT

Sunday July 19,2009 -- By Geoff Ho

ROYAL BANK OF SCOTLAND is set to bounce back into the black by posting estimated first-half profits of more than 1.5 billion, just a year after reporting the first loss in its 41-year history as a listed company.

The state-owned bank is expected to announce it has returned to profitability when it reports its interim results on August 7. It is the latest bank to report bumper profits raising the prospect of hefty bonus payouts although two Government reviews have recently backed curbs on bankers remuneration.

Last week, Goldman Sachs announced it had made 2 billion in the second quarter while JP Morgan made 1.6 billion. According to analysts at Morgan Stanley and UBS, RBS should post first-half pre-tax profits of more than 1.5 billion, due to the recovery in global markets and the disposal of its stakes in Bank of China and Spanish insurer Linea Directa.

The first half saw RBS raise approximately 2 billion from selling those stakes. It also made a 4.5 billion accounting gain from buying back some of its debt in April. Analysts believe that the disposals will more than offset recent losses by RBS.

Last year RBS made a first-half loss of 691 million because of its portfolio of toxic credit investments and bad loans to consumers and companies.

But while RBS is expected to return to profit, fellow nationalised lender Lloyds Banking Group is on course to post more losses. According to UBS, Lloyds, which had to be bailed out by the taxpayer due to its disastrous acquisition of HBOS, is going to report bad debts and toxic credit losses of approximately 13 billion that will push the lender into a first-half loss of 6.3 billion.

Both Lloyds and RBS are still negotiating with the Treasury about the terms of using the Asset Protection Scheme (APS), a Government insurance fund designed to protect banks from toxic credit and bad-loan losses.

Neither bank is expected to have a deal in place with the Government until later this year.

The Government is lining up investment banks to help it dispose of its stakes in RBS and Lloyds. The process is expected to take years to complete.

From The Sunday Times -- July 19, 2009

Lloyds: too big to fail or even to succeed
Uncertainty rules as the bank restructures and Brussels presses for sell-offs.
Iain Dey

Lloyds TSBs chief executive clearly thought he had just done the deal of the century. I rarely use superlatives, Eric Daniels told a packed room of investors as he announced his rescue takeover of struggling rival HBOS. But this really is a wonderful combination.

He had been up all night hammering the deal together, but his enthusiasm shone through his usually stony features. The same could not be said of Andy Hornby, his counterpart at HBOS, who looked like a broken man.

The new Lloyds Banking Group would be huge, Daniels said, dwarfing its competitors. Combining the two businesses would lead to huge cost savings. Its balance sheet would be enormous.

Ten months on, things are much less rosy. In a fortnight Daniels will reveal the first fully integrated set of results from the new group, and the figures are expected to make uncomfortable reading.

The bank will give the market a pleasant surprise by revealing that accounting rules have helped it to scrape a profit for the first six months of the year. Nonetheless, bad debts on its huge exposures to commercial property, mortgages and corporate debt are estimated to have climbed as high as 13 billion. That comes on top of the 10 billion loss HBOS recorded for 2008.

While Daniels was given licence by the government to create a new megabank, with a near-monopoly on Britains personal finances, it seems increasingly unlikely he will get the opportunity to reap the benefits. George Osborne, the shadow chancellor, has warned that an incoming Tory government would give serious consideration to breaking up Lloyds. In Brussels, similar thoughts prevail.

Sir Victor Blank, Lloyds chairman, has already said he will stand down and his replacement is expected to be appointed within a month. Daniels is considered by many to be living on borrowed time, with calls for a new broom growing louder in the City.

With the benefit of hindsight, this looks like a very bad deal, said one of the banks biggest shareholders. Im sure they regret it now, in spite of what they say.

At the Treasury, Lloyds and Royal Bank of Scotland (RBS) remain key causes of concern. Having kept the banks afloat with taxpayers money, Alistair Darling, the chancellor, and Tom Scholar, his top civil servant, have to justify the aid to Brussels.

The European Commission is starting to take a hard line on financial aid packages, now that the frenzy of the credit crisis has been replaced with the dull grind of global recession. In Germany, Commerz-bank has been forced to sell Euro-hypo, its property lending arm, as a condition of receiving aid. In Ireland, the nationalised lender Anglo-Irish has been ordered to stop paying the interest on some of its bonds as a condition of aid.

Neelie Kroes, the European competition commissioner, has already made it clear she has similar plans for both Lloyds and RBS. Divestments could be forced on both banks simply as a penalty for accepting state aid.

Darling and Scholar are fighting the demands, but they appear to be on a loser. This is just about Europe extracting its pound of flesh, said one French financier. There will definitely be some form of remedy imposed on them.

Selling Scottish Widows, its life-assurance business, is one remedy that could make sense for Lloyds - it has already considered a sale of the business for strategic reasons. Other proposals could involve selling off networks of branches, or even one of its brands, such as Bank of Scotland.

Even without pressure from Brussels, Lloyds is at risk of interference from the authorities. The new group controls about 30% of all the current accounts in Britain, almost 30% of the mortgage market and close to 20% of the savings market. Roughly half of the population are customers of some kind or other, whether through the bank itself or through one of its insurance companies such as Scottish Widows, Esure or Clerical Medical.

Although Gordon Brown struck a pact with Blank, agreeing to waive the competition rules in exchange for Lloyds taking over HBOS, there is no certainty that those rules wont be reimposed in the future.

If left unfettered, Lloyds is expected to start making enormous profits by 2011. Had it not been for the bad-debt charges accrued last year, the combined bank would have made profits of more than 20 billion.

Although Lloyds is sitting on hundreds of billions of pounds of potentially toxic loans, most of these will fall into the governments Asset Protection Scheme, leaving taxpayers to pick up the tab. The terms of the scheme, which protects banks against the worst of their losses, are still being hammered out, months after it was first announced.

Yet it seems possible to imagine that the scheme will be abandoned. The whole thing feels unsustainable, said one analyst. Its difficult to imagine a situation where Lloyds is allowed to start making huge profits, thanks to its large market shares and the fact its bad debts are being protected by the government.

Even if Lloyds is allowed to keep its franchise intact, it is likely to be subjected to intense regulation. If this happens, Lloyds shares are likely to fall and trade at a discount to those of rival banks that will be picking off its customers.

It will become like Tesco, constantly threatened with this review and that inquiry, said one banker. Its market shares are only going to go one way - down.

Lloyds announced another 1,200 job cuts last week, bringing its total for the year to 8,200. Trade-union leaders believe the final figure for job losses could hit 30,000 as the bank races to beat its target of 1.5 billion a year of cost savings.

The job losses emphasise the scale of the integration job that lies ahead for Lloyds management. Squeezing two of Britains biggest banks together would have been hard work at the best of times. Doing it while bad debts soar in both loan books is an even bigger task.

Inside the bank, the internal restructuring seems to be occupying as much time as the balance sheet. A memo sent out last week to key contacts of the banks restructuring team illustrated the point. Although it laid out the new chain of command inside the division, it gave no indication as to who would be filling each role. The spaces where the names should have been were just blank, said an insolvency expert who received the memo.

According to City sources, the same state of confusion is found across other divisions of Lloyds, with key decisions not being taken.

You can see this in the data they have provided, said one analyst. We have had a lot less detail from Lloyds on what the balance sheet looks like than we have had from RBS or Barclays. I think thats because they dont know themselves.

When questioned by the Treasury committee earlier this year, Daniels admitted that, in an ideal world, he would have done a lot more due diligence before pressing ahead with the HBOS deal.

He tried to tell us he was misquoted on what he told the committee, said a Lloyds shareholder. But the proof of the pudding will be in the eating, and it doesnt taste too good right now.

Supper move UP over 6% or 4p with figures

The high of end of May was 73.5
.May be a good sign if it is topped.
The volume is heavy

chessplayer

re - The high of end of May was 73.5, May be a good sign if it is topped.

Is now over that with 73.98p

Todays' Telegraph suggests that changes in accounting rules could allow the likes of Llloyds to write back billions of pounds,and hence report a profit for the first 6 months.

July 21 (Bloomberg) -- Lloyds Banking Group Plc, Britains biggest mortgage lender, will post writedowns of 50 billion pounds ($82.2 billion) by the end of 2010 as rising unemployment causes bad debts to soar, said Sandy Chen, Panmure Gordon & Co. banking analyst.

Lloydss impairments will rise to 23.5 billion pounds this year from 15 billion pounds in 2008, Chen said at a meeting with reporters in London today. Bad debts will reach a similar level next year before declining in 2011, he added.

We wont be post-crisis until 2012, said Chen, who has a sell rating on Lloyds. Theres no sector in the economy providing an outlet for the newly unemployed.

Lloyds, 43 percent owned by the government, has cut almost 9,000 jobs this year and is considering asset sales after a 7.7 billion-pound takeover of HBOS Plc, previously the countrys biggest mortgage lender, caused the quality of the banks loan book to deteriorate.

Lloydss first-half profit will be very strong because of accounting gains from the HBOS takeover and a 6 billion-pound gain as a result of a debt-swap, Chen said. ..........

http://www.bloomberg.com/apps/news?pid=20601102&sid=axzbWTNPhfB0

No wonder is moving lower

On today's news .... from the GUARDIAN

Banks which have been bailed out by European governments will be forced to shrink their businesses and sell off certain assets under new guidance to be issued by the EU on Thursday.

Amid warnings by EU Competition Commissioner, Neelie Kroes, that Royal Bank of Scotland and Lloyds Banking Group may need to be broken up, analysts are forecasting that they may also need shrink their branch networks to comply with European rules on fair competition.

Analysts are also looking forward to the interim reporting season next month when rising unemployment is expected to cause a further increase in arrears and bad debt charges.

Sandy Chen, banks analyst at Panmure Gordon, is estimating that Lloyds Banking Group could write off almost 50bn in the next two years because of loans which have turned sour, largely as a result of the takeover of HBOS.

Chen, who is regarded as the most pessimistic of the banking analysts, is forecasting that Lloyds will make provisions of 24bn this year and 23.5bn in 2010. He also expects Lloyds and RBS to sell off core and non-core assets to appease EU rules. He suggested Lloyds might close 20% of its 3,000 or so branches, following the decision to axe all 164 Cheltenham & Gloucester branches.

The bank's stake in St James' Place and insurers Clerical Medical as well as fund manager, Insight, might also be on the block. RBS has started to scale back in Asia and there are expectations that it might need to pull back from operations in continental Europe.

The EU is not expected to give specific guidance on each of the 70 banks in Europe which have received taxpayer handouts, but will set out broad guidelines about how they should be treated.

The EU is expected to acknowledge the extent of the financial crisis by giving banks up to five years to complete any restructuring that allows them to survive without state support, rather than the usual two to three years.

Lloyds has already warned the City that the EU might demand disposals in return for the injection of government funds and its participation in the asset protection scheme, which is insuring 585bn of troublesome loans at both Lloyds and RBS. Lloyds figures in the first half will be flattered by accounting gains from the HBOS takeover and gains from a reshuffling of its debt. But accounting quirks could force HSBC to record a loss in the first half because of a $4.7bn (2.8bn) hit from its record-breaking 13.5bn rights issue.

Panmure Gordon, which is an advisor to the government on Northern Rock, thinks UK Financial Investments, which looks after the taxpayer's stakes in the bailed out banks, might have a short window to sell some of their stakes next month before being locked in for many years. UKFI has refused to be specific about when it might sell its stakes in the banks but admitted it could take place in tranches over several years.

Chen's analysis includes a gloomy outlook for the UK economy and particularly unemployment where he notes all sectors are suffering layoffs making it difficult for redundant workers to find other jobs. He also notes that people on the lowest household incomes are suffering most during the recession while those on higher incomes are benefiting more from the low interest rate environment. Chen thinks GDP growth will be muted until household income starts to rise again.

.............a few months ago Chen predicted Barclays would fall to 40p.........and then it shot up steadilly to 3. Enough said about this idiot. Of course Branches will be closed at LBG - most Lloyds TSB UK Branches have a Halifax in the same High Street! Nothing new here then. As for UKFI, there is no way they will sell stakes in RBS/LBG at a LOSS - can't see 'em selling next month but would just love to see Gordon & Alistair explain that one away to the electorate. LOL. Oh, and by the way, demerges can, and frequently do, offer shareholders enhanced value ie. the value of the individual parts are often worth more than the total sum. Sit tight for now IMHO.

chen is a serial shorter of banks he is trying to frighten the market ahead of the banks reporting season.

A much better day today as is trying to reach new highs ( intraday )

I followed Sandy Chen in 2007/8 and his predictions were spot on, I couldn't fault him. He seems to be now struggling to arrive at a consistant opinion with Lloyds, I remember he put out a postive statement at the time of the Hbos takeover, and now he has reverted to a bearish stance.

I think the problem chen and others like Peter Schiff have, is because they called it right and were ultra bearish, they find it hard to shift opinion now.