大象传媒 NEWS | The Reporters

Collapse of confidence in banks

Robert Peston
19 Jan 09, 01:46 PM

As I said this morning, this is not a bank rescue plan. But if it had been, it would have failed miserably.

Barclays' share price has fallen again today. At the current price of 90p, this bank's entire market value is 拢7.5bn. And remember, this is a bank that said on Friday night that its profits for 2008 were considerably more than 拢5.3bn.

In other words, investors currently value this giant international bank at a little over one year's profits. Which is little short of extraordinary.

And let's not even mention that Royal Bank of Scotland's shares are down by more than 50%, on the supposedly reassuring news that taxpayers will be sharing in its future pain.

Confidence has drained from the banking system. And to state the obvious, today's myriad announcements from the Treasury have not succeeded in rebuilding that confidence, which is so vital to a functioning economy.

UPDATE, 04:20 PM: What's going on? Why have shares in RBS, Lloyds TSB and Barclays all been knocked?

Well investors have been well and truly spooked by the sheer size of losses at Royal Bank - especially since these have been incurred before the recession really starts to bite on the ability of households and companies in the UK to pay their debts.

But the other concern is that the banks are - in a way - in the process of being nationalised, without the bother of the government taking control of the shares.

The fear of investors is that with taxpayers providing so much support to the banks, any spoils would go to the state in the form of fees, and to UK households and companies in the form of lending mandated by the Treasury at uncommercial interest rates

As for shareholders they would receive the slimmest possible returns for years to come.

Rescuing the economy, not banks

Robert Peston
19 Jan 09, 09:33 AM

Our big banks aren't bust. They were recapitalised in the autumn - with 拢50bn of cash from taxpayers and external investors - and they remain solvent.

And if you wish to ring up the , the City watchdog, for assurance on this point, I'm sure you'll be told that the big banks have a sufficient cushion of capital to weather all but the most cataclysmic storms that may lie ahead.

However the impression has somehow been created over the past few days that they are being rescued again.

I'm not sure whether that's the result of media hysteria, bankers' neurosis or government spin.

RBS logo And Royal Bank of Scotland hasn't exactly soothed nerves this morning with its historic announcement that it will of between 拢7bn and 拢8bn.

But even Royal Bank has very substantial capital resources - the more so after it converts the government's holding of preference shares into ordinary shares (when taxpayers' stake in the bank rises to 70%).

What's been by the and this morning is not a survival plan for the banking system: we've already had that.

If it's anything, it's a survival plan for the British economy.

Now, as it happens, the giant insurance scheme announced today - which would see taxpayers becoming liable for all sorts of ill-judged lending by the banks - would reduce the likelihood that the banks will need rescuing again in a few months time.

It's what it says on the tin: "insurance".

But as of now, the government's primary motive for providing this protection is to stimulate lending.

The logic is that if banks can evaluate how much they'll lose in this painful recession, which is what they'll be able to do when taxpayers have the dubious privilege of insuring away the uncertainties for them, they will be less reluctant to provide new credit.

In fact, in return for providing the insurance, the Treasury will mandate banks to make new loans to households and businesses.

Why all this stress on credit? Well as I've pointed out so often as to send most of you to sleep, the withdrawal of credit from the UK and global economies is what's precipitated these dreadful economic conditions.

That's why the Treasury will guarantee bonds created out of mortgages, car loans, and other assets - to provide funding for the housing market and elsewhere.

That's why the Bank of England will swap corporate loans and other forms of credit for Treasury bills, which can easily be turned into cash (by the way, this new facility is a part of the preparations for quantitative easing, for printing money when Bank Rate is nearer to zero).

That's why Northern Rock, the nationalised bank, is starting to lend again.

All of this represents the last chance saloon for Treasury initiatives to revive lending that fall short of direct government control of lending by banks.

If credit doesn't become more readily available, the recession will deepen - and one consequence will be that bank losses will escalate even beyond the current alarming forecasts.

At that point, a new rescue plan for the banks would have to be launched. And there would be full-scale nationalisation of our biggest banks.