A good day for Gordon but the reckoning is coming

oldtimer

The Lloyds-TSB situation merits a close watch because its share price dropped sharply yesterday when the rest of the market (exc RBS, HBOS) went up.

The reason is the assumption that Lloyds-TSB will require £17bn of new capital once it takes over HBOS. This, it is estimated, will be required to achieve a new and higher tier 1 ratio of 9%. It is not obvious that Lloyds-TSB would require government money on its own - only as a consequence of an HBOS acquisition. If it did require extra share capital, it would probably travel the Barclays route of raising it from the private sector. This would boost its share price and enable to company to continue to pay dividends to its shareholders (eg pension funds and private savers).

The consequence of the proposed HBOS acquisition would be the arrival of a 40% government shareholding with all the predicted consequences - a depressed share price, no dividends, dilution of existing shareholders for years to come as the government extracted the value of any upside as it sold its own stake either for what it paid or for profit.

At this point it is important to remember that, originally, this deal was waived through by Brown/Darling even though it breached competition rules. We now see that the new tier 1 rules ensure that the takeover is only possible with a 40% government stake.

What this means is that Lloyds-TSB shareholders are being asked to swallow a double dose of toxicity. The first is the poor quality of the HBOS loan book (lots of buy to let and self certified income based loans); the second is the toxic weight of the government`s 40% shareholding.

Why should Lloyds-TSB shareholders vote for this? It looks like a rip-off to me. A swindle if you prefer. The Sir Victor Blank-Brown-Darling axis has some explaining to do.

Ian Walker

I hope Cameron drops the consensus charade. Brown took him for a complete mug at last week's PMQs; shame on him. If it happens again, shame on Cameron.

My suspicion is that the markets don't give a monkey's what the various governments are meddling with. They're probably far more relieved at the relatively pain-free unwinding of the Lehman's swaps.

RobertD

Oldtimer

I agree completely. Lloyds TSB shareholder would be crazy to vote for the merger in these circumstances. The question that arises in my mind is what deal / threat has Brown and Darling made with Llyods TSB management to keep them at the negotiating table that is more powerful than representing their shareholders best interests.

mac

"Brown will have to do some combination of raising taxes and cutting spending".

Strenuous efforts will be made to avoid raising income tax, given the eye-watering sums of taxpayers money committed to rescuing the banks. We can therefore expect a monstrous regime of new stealth taxes and increases in council tax to divert voter opprobrium away from Whitehall. Health and Education spending won't be touched, central as they are to the warped New Labour mantra of 'fairness' and 'equality' through heavy-handed social engineering, and the sacred cows of 'social protection', 'personal social services', which soak up a third of government spending won't be touched either, as they buy so many client votes for Labour. The cuts must therefore be more narrowly targeted, and defence and transport will be hit hardest. It's always 'deja-vu all over again' when we have a Labour Government, innit?

Mike, Brighton

Praising Brown is like praising a policeman who encourages bank robbers as it keeps him employed, and then arranges getaway cars for these same bank robbers after a heist in case "things turn a bit nasty".

Tiberius

Oldtimer: I agree - Lloyds TSB should walk away from this deal.

euro

Not to mention the fact that the Lloyds TSB share price drop came on the heels of a report from Peston which, whether well founded and in the public interest was DEFINITELY contrary to the FSMA rules on dissemination.

It doesn't matter to the FSMA whether the report was true, or merited, or where the leak comes from. It matters only that the behaviour of Peston fell below the standard that market users had a right to expect.

Austin Barry

Sic transit gloria: I suspect that with the leaks about his eyesight problems, Brown is establishing respectable cover for any non-volitional change of leadership once the moment of glory for the Great Helmsman has passed and the Great White Shark of Foy and Hartlepool makes his moves.

Chuck Unsworth

@ Ian Walker

"My suspicion....Lehman's swaps"

I'd agree, but it's not over yet for the Lehman saga - not by a long chalk.

In any event, Brown may be able to make political capital out of a crisis but, long term, people will suffer. So when they come to vote it's going to be a decision which is based on where they actually are economically and where they think they ought to be after ten or more years of Brown 'management'. They've had the good times, now they are going to struggle.

Brown will not be able to continue the charade of saying that every nation is in the same position - because it's patent that is not so. People's living standards will fall and will not rise significantly for some years.

All the Conservatives have to do is just point that out every so often, and ask the simple question "Is this really how you want to live?". 'Change' is a powerful word.

Ian C

Good analysis 'old timer'. This is not yet over, far from it. I cannot see why Lloyds or HBOS would want to now merge. Noone can short their stock and the government can't let HBOS fail.

So why circle the waggons with Lloyd's help? Lloyds do not have a bad sub-prime book in the first place so why do they need restrictive capital injection? Makes no sense at all and will be seen as a panic measure if it goes ahead and will spook confidence in the entire UK banking sector.

Nicholas

Me too. When Cameron plays Mr Reasonable he looks weak and Brown gets to slap him down. Whatever he does he needs to push Brown into defensive posturing where he loses his cool and looks like the idiot he is.

Cameron's questions should thinly veil calculated attacks on New Labour outrageous enough to capture headlines and provoke Brown. Team Cameron need to be digging dirt for everything they are worth.

Travis Bickle

No point whatsoever in Cameron going on the attack in current climate. The MSM are portaying Brown as the man who saved the world and Cameron's stock would have plummeted in choosing to go on offence too early.

Let Brown have his moment, and walk around looking as pleased as a dog with two dicks, there will be plenty of time up to next election when it will all go pear shaped again for Labour, and they will not be able to blame everyone else and his cat again.

Some people need to learn patience and not playing your cards too early..

JONNY

'When Cameron plays Mr Reasonable he looks weak and Brown gets to slap him down.'

Yes indeed Nicholas.
But an even greater problem is Osborne, after some pathetic media performances.
I think deep down Cameron understands what more and more of us see so clearly. That Ken Clarke would make a far far better go of it. After all he was Chancellor when Brown was still a 'novice'.

The difficulty is one fears that Cameron can't separate himself from his Siamese Twin.
And he must. He really must.
Maybe a more practical move would be to switch Osborne with Hague.
Not as good as the Ken Clarke option. But still an injection of much needed earthy Yorksire weight where it is needed. And George's face is saved.

David Parker

I don't think Hague's heart is still in politics. His recent performance has been lacklustre and there is no real challenge left for him in the Tory party.

Ken Clarke has performed well in media interviews recently, but if he persists in his blinkered enthusiasm for the EU he will be deeply unacceptable to the majority of Tory grassroot supporters, as well as some influential MPs.

On the other hand, if Clarke suddenly had a Damascene conversion and became staunchly eurosceptic he might even become a threat to Cameron's leadership.

Frank P

George Osborne's Sixth-Form prefectural appearance and falsetto voice will never sound convincing to me. Ken Clarke has the appearance of being over-wined and dined (his eyes are more bloodshot than the dying spaniel of my neighbour) and anyway he's a Europhile. I agree that Haig carries more gravitas around with him than most, laced with a very witty delivery at times and he should be made better use of.

Not sure he would want the poisoned chalice of the Treasury, though. What fool would? This bevy of thieving bastards has bankrupted the country and the debts are now mountainous.

Unless the Tories get their act together soon, they will lose the next election by default. Brown was up to his knees in bullshit already, yesterday he added another layer and is now up to his waist. Somebody should get a shovel and pile some of his own crap over his head until he chokes on it. The punters out there don't believe a word that any of the faces that appear on their screens every day utter: the suits from the City; the politicians of all shades; the 'experts', the media circus. All lying bastards looking for the edge as they juggle their stock portfolios in the insider trading game and look for other ways to steal more of the extortionate tax already garnered; think of new excuses for imposing more and more on the hard working electorate. Never mind bailing out the bankers, we need to throw out the w****rs, even though we know they will be probably replaced by another army of well-fed onanists. It's the sheer complacency of the arrogant shits that is so galling.

We need a General Election now! Rather than letting Brown have a General Erection as he stares at himself in the through the smoke into the mirrors they have all erected to gull the credulous. Brown has had a good day ....! Jesus H Christ help me! What will he have to do to have a 'bad day' in your eyes James?

seb

4:20 PM – 14th October - Will Hutton has just been speaking on the BBC news channel about the financial crisis. Yup, soon we’ll be seeing this carved into a rock face like the Behistun inscriptions, so start memorising this as though it’s your favourite Psalm:

Brown has led the way. He and Wendy have, says the latest addition to holy writ, saved the world with the Brown Plan [the 'Brown Plan' is news to me, but I suspect it will appear in Brown’s Nobel Prize citation sometime in the future], which the Dear Leader has got other world leaders to adopt. Needless to say, Hutton mentioned Paul Krugman’s praise for G. ‘Winston’ Brown. So, sainthood and a Nobel Prize are probably in the offing. Hutton did forget to mention that Krugman was, in 1999, paid a juicy wodge to be on the advisory board of Enron. Omitted, too, was Krugman’s volte-face in 2001, when he decided that Enron had been wicked. Dear, dear. Must be more careful in future, eh?

Also of interest, on the day that Krugman has hit the new with his latest juicy wodge from Stockholm, is this: he has been both an Old Labour sort of socialist and an advocate of globalisation and free trade as mankind’s salvation. Are Krugman and Winston twins separated at birth? Or are they both just schizos?

Whatever dire straits the financial sector, manufacturing or the service industries are in, the spin industry is certainly on a roll.