John Ward February 13, 2012 Banks are antimatter

THE BANKS: Breaking in a brand new scam, breaking all the same old promises.

There comes a point with bankers at which one prays for less consistency

There were two further blows to the Daily Telegraph’s campaign to outlaw banker bashing today.

The first is the Coco.

These instruments have a full name – “contingent convertibles”. They’re starting to be sold by banks as interest-bearing debt….but they convert to equity in the event that a bank’s capital ratios fall below certain levels. Very handy for passing the odd stress test here and there, what?

And they enjoy a further accounting advantage. You see, unlike other kinds of convertible bonds, they do not have to be included in a company’s diluted earnings per share until the bonds are eligible for conversion. Particularly useful for understating liabilities, and, er – oh, keeping the share price nice and high….in the event of taxpayers having to buy the bank.

This is our new terrier puppy, who by pure chance is also called Coco. I’ve been teaching her the rudiments of high finance for a couple of months now, and this is the reaction she gave when I explained contingent convertibles to her a few minutes ago.

She was dogsmacked. As no doubt all of you are too.

But Coco didn’t start to growl menacingly until I explained the second blow to all those ~~mates of the Barclay Brothers~~ business muppets who think banks are really quite nice when you get to know them.

For example, Project Merlin. Bob Diamond proudly trumpeted Barclays success in hitting the Government’s Merlin lending targets at the weekend. Bob is clearly a man not keen on going down the Hester snake when it comes to trousering his three million quid.

To lay it on a bit, Mr Diamond said that hitting the target was a great achievement “because I sense very little SME demand for loans out there”.

Well Bob, you arsehole, that’s because you charge twice as much to lend £1m as you do to lend £20m to your big fat multinational mates.

And clearly you are not exceptional in being an arsehole Bob, because the new Merlin data show that the five biggest UK banks – Lloyds, Royal Bank of Scotland, Santander, Barclays and HSBC all missed gross lending targets for small businesses in 2011 by more than £1 billion…..but beat the target for all businesses by £24.9 billion.

Lending by these five banks shrank every quarter last year, and the worst culprit for the shortfall was RBS – run by Stephen Hester, who voluntarily had his £1m bonus wrenched from his grasp by a pneumatic drill the week before last.

Now then, o Daily Barclaygaff, what was that you were saying?

For purposes of editorial balance, The Slog also commends unto you The Guardian’s Open Door policy

23Comments

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1

Altergoman on February 15, 2012 at 11:26 am

As an aside there are beginning to be faint whispers that the Fed is considering negative interest rates as a policy move!

RIP savers.

A Fed/BOE/ECB rate of 2.5-3.0 % would focus the mind of bankers more into lending rather than gambling/carry trades and other non-productive games (to focus rather on their nations rehabilitation needs)

Finally how can the UK gov. support the payday loans scams (interest rates advertised at over 5000%!) as ‘socially useful’ even illegal Mafia loan sharks’ vigorish was c. 500%?

Payday loans as currently operated are evil and should be stopped.

(To my cost I have been debt free for the past 40 years or so therefore I do not rant about this in self interest in payday loans although interest rates to savers nearer the severely downward massaged inflation rate would be good. US current Inflation rate is equivalent to 8% 1986 I/rate!))

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2

Sebastian Weetabix on February 14, 2012 at 12:30 pm

Perhaps I can help your understanding. Lending will always cost more to small insecure SMEs than large corporations purely on the basis of risk; complaining that lending costs to SMEs are unfairly higher, as JW asserts, in my opinion is just plain daft. If Barclays really is screwing all and sundry, then everyone is free to take their business to the Co-op. No one forces anyone to bank with the big 5 and there are other possibilities out there. But since most people are either too lazy or stupid to do to move their business, they get ripped off. To then complain about it is pretty witless.

That Banks have over-lent in general is beyond dispute; what everyone seems to forget is that in every case of over lending there are 2 morons in the transaction – the lender and the borrower. It’s a bit odd to blame just the one. Banks that fail should go under. Politicians that bail them out with taxpayers money are even worse – apart from destroying capitalism they are thieving from the poor to help the rich. It is a matter of extreme wonder to me that not one political party in this country is prepared to say “no” to bank bailouts. As far as I can tell the only 2 who oppose them are John Redwood & Douglas Carswell, neither of whom seem to appear on the mainstream media too much.

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3

Sebastian Weetabix on February 14, 2012 at 12:17 pm

Indeed. Which is why bailing banks out is folly. They should just be put into administration with deposits protected, no more, no less.

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4

ADB on February 14, 2012 at 10:06 am

Your post reminds me of grafitti I saw in one of those toilet cubicles with a saloon-style door that don’t go all the way to the floor – “Beware of limbo dancers”.

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5

MaxC on February 13, 2012 at 11:09 pm

Tack så mycket, JW. I’ll look into it.

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6

billyhippo on February 13, 2012 at 10:41 pm

The Guardian’s ‘Open Door’ policy reminds me of the BBC naming their feedback website ‘Have Your Say’, and then managing that site on the basis that all comments are equal, but some comments are more equal than others.

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7

j24601 on February 13, 2012 at 8:47 pm

SW

What you propose is not a thought experiment, little or otherwise; it’s a ‘no brainer.’ It doesn’t make any meaningful contribution to this humble slogger’s understanding of the conduct of banks; state owned, or otherwise.

Also, good that BD is looking after your interests as a Barclays shareholder, but he seems more than willing to screw all and sundry in order to do so; not so good for the rest of us.

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8

John Ward on February 13, 2012 at 8:33 pm

Shredded Wheat
I do agree with you on this last point.
BUT
If they had lent reasonably to targeted/judged smaller businesses (as opposed to flash tartan paint salesmen and Russian conmen) in the first place; and not invented toxic derivatives; and not allowed target setting to take the place of debt viability….
then we wouldn’t all be wallowing around in this cess pit now, would we?
Lots of people connived at all this sh*t, but only one bunch of people came out of it filthy rich.

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9

John Ward on February 13, 2012 at 8:25 pm

MaxC
Landesbanken (Swedish)

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10

Tony Ball on February 13, 2012 at 7:53 pm

Dogsmacked!

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11

Geo on February 13, 2012 at 6:29 pm

There were times when people lived in cities which due to lack of sewage systems, garbage disposal and numerous other factors made them into unlivable perilous health hazards .

I’m wondering how many centuries it might take the human race to get to where they can look back on the way we do ‘business’ these days with an understanding of how very un-quaintly medieval and preposterous it was.

Hope springs eternal.

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12

Geo on February 13, 2012 at 6:15 pm

Some assert, not entirely without reason, that the dominant patterns for human societies, presently and historically, are of a kind where corruption, violence and authoritarianism feature rather more prominently than people find it congenial to acknowledge.

Wish I had something more cheerful to say, but I confess to succumbing more and more to the age-old Biblical myths of the downfall of the human race. Perhaps I’ll go find some Leopardi. He was so downright pessimistic (and brilliant) that it nearly always cheers me up to read him.

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13

Bankrupt Taxpayer on February 13, 2012 at 3:45 pm

Good points. Too many people blame the banksters for what’s happened and still happening without realising that to a large extent, banks are the conduit for misguided & dogma-driven govt policy.
If I were a banker listening to the govt say day-in and day-out that it had abolished boom & bust and saw the central bank set interest rates at v/low levels, what would I do? Well, I’d lend, lend and lend.

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14

Jon on February 13, 2012 at 3:36 pm

I’ve done work for two banks (both good sized national banks) who, at board level, were genuinely a little confused about whether they were a commercial operation or an instrument for social change. Both have since failed and I imagine that there are other examples. We may not like them but if we give them too much social baggage they don’t work.

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15

Sebastian Weetabix on February 13, 2012 at 3:29 pm

While we’re on the subject, government is asking banks to do two mutually contradictory things at the same time.
1. increase lending
2. improve capital ratios
You can’t do both. The prudent thing is to do the latter.

The basic problem is an uncontrolled credit expansion over the past 20 years. Government, central banks and regulators all connived in and indeed in some cases compelled this behaviour – now in some cases they compound their folly by tightening the money supply and demanding re-capitalisation of banks in the teeth of a depression. It’s mad.

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16

MaxC on February 13, 2012 at 3:24 pm

Good point Kit. However, you seem to be advocating that money be invested in something more solid and tangible. If, for example, you buy gold, you pay commissions and taxes all over the place, and the financiers still get a slice of your action as the money sticks to their grubby fingers en passant.
The only other thing I can think of right now is to buy up tins of protein like fish and corned beef, and hoard them against the times of hardship to come.

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17

Sebastian Weetabix on February 13, 2012 at 3:22 pm

Let’s do a little thought experiment. On the one hand you have, say, Bosch (just a example), an organisation with 150,000+ employees, more patents filed every year than any other company on the planet, massive cash balances, a huge brand name, deeply fiscally conservative, doesn’t take stupid risks and with a massive presence in just about every brand of technology you care to name. They come to the bank and want to borrow £20m since it is tax efficient. The risk is virtually zero, better than most governments, so money lenders all over the world are falling over themselves to lend since it is just about the safest place you could possibly park cash – so the interest rate will be driven down by the competition.

On the other hand you have Joe Bloggs replacement window company. Small. No cash balances, running hand to mouth. No intellectual property. At the mercy of its suppliers. Dependent on the vagaries of the housing market. Just not a good risk, is it? Particularly during a depression. That’s why the interest rate goes up. You could apply this argument to virtually every SME business. I myself run a small-ish business; I don’t want to borrow since the environment is uncertain, and if I need to borrow to survive then I’ve got a business that won’t survive.

OTOH I’m also a Barclays shareholder. I don’t want Mr Diamond to piss my money away on bad lending risks to small companies that may very well default. So far the bank hasn’t collapsed or needed a bail-out from HMG. From my point of view he isn’t doing a bad job.

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18

Ryck Stout on February 13, 2012 at 2:45 pm

The banks have a lousy business model and are subject to the actions of central banks and governments.

The US government, via the CRA [Community Reinvestment Act], forced banks to make bad loans as part of their phony redistribution of wealth mantra. The Spanish Cajas seem to be of the same sort. When markets went down banks were insolvent as in 1929 with people pulling money out to cover investment margin calls on the stock market, among other things. No bank can stand a run. Printing money and stuffing that into digital accounts to keep banks from failing does not save the system from crashing in debt.

I seem to never read of criticism of the government when they conjure up social programs that work in reverse and waste money and prop up mountains of debt. Apparently the political propaganda machines have done good work as this process will continue until some nation goes bust and then money will fly out of those banks in the US and EU and they will crash.

And, when the system crashes we will hear that ‘capitalism has failed’ and we need to nationalize remaining wealth and start all over again probably with the guillotine

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19

Kit Green on February 13, 2012 at 2:39 pm

Why a bank at all? Why keep money as money?

All the advertising smallprint is keen to make sure you know that investments can increase or decrease in value. We know that commodities can increase or decrease in value.

What we are not constantly reminded of is that money itself can increase or decrease in value, as defined by purchasing power.

Therefore as a store of “worth” money should be viewed with extreme caution.

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20

MaxC on February 13, 2012 at 2:29 pm

I hear about ethical banks out there and wonder if there’s any such thing. Anyone had any experience of them? I’d willingly change banks if they really were ethical and my money was as safe as it could be in these crazy times.

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21

Caratacus on February 13, 2012 at 2:06 pm

Had the extreme misfortune to visit the services at J17 M4 yesterday … you know the sort of place – one sandwich for the price of two and so forth. Anyway, after first covering myself head to foot in anti-bacterial gel I forayed into the lavatorial dept. and was very glad that I did because some wag had carefully placed a picture of a gaping mouthed Ed Miliband immediately above the hand-dryer vent. The legend below read, “For Labour policy on any subject, place hands here…”.

Now, if we ignore the fact that the same may accurately be said of any politician, I have it in mind to run up a couple of these to feature certain well-known financial chaps of recent notoriety. Perhaps I could ink in a bladder on a stick for them too.

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22

Paul Tredgett on February 13, 2012 at 2:01 pm

Starting with your last point first….Since when have you been interested in editorial balance? I like highly opinionated viewpoints. I’ll pick my own balance by getting a few of them and sifting them through the sieve of my own prejudices thank you very much. It’s the bland pap in the middle that gives me nothing.
Pleased to hear your dog has a keen nose for financial bullshit. I don’t understand the finer details of the new Coco offerings, but then again I don’t think I’m meant to. Another financial vehicle of dubious worth, of untestable security, chopped and diced into packages that turn a debt into an asset, leveraged out by fractional reserve, is not what the world needs right now.
Is your dog available for consultations?

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23

bubble on February 13, 2012 at 1:55 pm

The funny thing about all this is the bankstas are such ****s and the political class such whores that even if looting the plebs of almost everything works out (in their terms) it won’t actually work, work because they’re not going to stop or be stopped from doing exactly the same thing again – they’re already starting on the new one before the old crisis is fully over.

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