Monday, 29 September 2008

Bradford & Bingley have bitten the dust

B&B went down the drain over the weekend. This was widely predicted, not least by me. The deal is a bit strange though. Santander, the Spanish bank which owns Abbey and Alliance & Leicester has acquired the viable part of the business for an unknown sum and the taxpayer gets to keep the so-called toxic waste, ie, all the bundled buy-to-let mortgages that are going to be defaulted on when the amateur landlords throw back the keys to their new-build flats.

Nice! We get the dross and the Spanish get the cream. And what do the B&B shareholders get? Who knows? B&B wasn't bust (unlike Northern Rock say) but they seem to have been deprived of their property by government fiat. This smells a bit fishy. I wouldn't be surprised if the small shareholders aren't rather annoyed.

However there was good news over the weekend as well. Hannah Bradbeer got through two X-factor bootcamps and is off to be mentored by Cheryl Cole in Cannes, France.

Friday, 26 September 2008

Bradford & Bingley - teetering on the brink

Good old B&B, the gentlemen with the bowler hats, although these days they prefer a cute chick in the bowler, they teeter on the brink. This time last year their share price was over £3 and today you could buy one for less than 20p. Will they go bust or will they not?

Amazingly, despite clinging to the cliff by their fingernails, they are still all over the TV screens offering 6.5% for your savings; while HSBC would begrudge you more than 5.5%. This is called the "risk premium", ie, it's a special bonus because you might not see your money again. Avoid!

Meanwhile, as widely predicted, not least by me in previous posts, Washington Mutual, the "big one", has just folded gracefully into the arms of JP Morgan where they will nestle with Bear Sterns. Truly in these times Cash Is King and if you're holding the folding there are bargains to be had.

Tuesday, 23 September 2008

Large Hadron Collider Rap

Here's an educational video by "Alpinekat".

Although so far they've only made the protons go at 27mph and most people wouldn't spend $1bn to do that! But it's early days...

TARP - Troubled Assets Relief Program

If you're a normal American; sensible, prudent, don't borrow more than you can afford to repay, work hard and save up for your treats, then you should be spitting tacks at TARP. Henry "Hank" Paulson, the US Treasury Secretary, has a plan to spend seven hundred billion of your tax dollars (yes, $700bn!) to bail out the feckless spendthrifts who aren't like you at all.

There are only two glimmers of hope in the whole situation...

Firstly, the Troubled Assets Relief Program "TARP" might never happen. And secondly because it will be buying in a reverse auction, lowest bidder wins, it might actually make money in the long term; although I wouldn't hold my breath on that.

How much is $0.7tr anyway? Well it's twenty times what Bill Gates is worth, or perhaps you prefer to think of it as one twentieth of the entire GDP of the USA. It's about the same as the military budget, including everything: army, navy, air force and marines. Basically, it's a lot of money; a huge heap of the stuff.

And where will Hank get this cash from? Well, he'll borrow it. It's not like borrowing got us into this mess in the first place, is it?

Tuesday, 16 September 2008

Hannah Bradbeer, the next big thing?

Too many of my posts are financial in nature and bad news. So to rectify that here's some good news. The X-factor reality TV show has discovered a new star. She's 22, she works for a Hedge Fund (couldn't resists that!) and after she sung for the X-factor judges Simon Cowell's tongue had to be rolled up and tucked back in his mouth. (Although, you never know, he may just have been thinking of his fees.)

Hannah Bradbeer

But don't take my word for it, check out the video...

Inflation up and down, but mainly up

Today the Bank of England has announced....

CPI is 4.7%, up from 4.4% last month,
RPI is 4.8%, down from 5.0% last month.

The CPI target is 2.0% and a very generous government allows a 1.0% margin on that. Still Mervyn King and his fellows on the MPC seem unable to hit anyway near the target - probably because they are not even bothering to try.

Monday, 15 September 2008

Yet Another Black Monday

Well this morning on Wall Street has been interesting, hasn't it?

Lehman Bros, an investment bank with $600bn of assets has declared itself bankrupt and is about to be dismembered by its fellow investment banks. Merrill Lynch, another large securities company, has sold itself to Bank of America - basically because it was bust. And American International Group Inc (AIG), the world's largest insurance company, has asked the Federal Reserve Bank for an emergency $40bn loan. That does not indicate sound financial health.

So what are the implications of all this?

Let's start with Lehman Bros. The feeding frenzy starts now. Lehman's has some valuable bits, eg, its asset management, and some toxic waste to the tune of $60bn in the form of collateralized debt obligations (CDOs) - basically mortgages which have been bulked and turned into a negotiable bond. Other banks will be trying to get the good stuff cheap, and the bad stuff even cheaper, if at all. Lehman's CDOs have a face value of $60bn but how much they actually go for in the open market will be very interesting indeed, perhaps as little as 20 cents in the dollar. The knock on effect here is that lots of banks are holding CDOs, often presented on their balance sheets with very optimistic valuations. (Provided you don't actually try to sell something you can claim it's worth anything you want.) This forced exposure to the market is going to crystallise valuations and could embarrass a fair few household names.

The other interesting factoid with the demise of Lehman Bros is that it has not been deemed by the powers-that-be as "too big to fail." Two "white knight" rescuers were on the stage last week: Barclays plc, and Bank of America. BoA rescued Merrill Lynch instead, and Barclays dropped out when the Fed refused to underwrite the CDOs. So if Lehman's is not too big to fail at $600bn then rather a lot of other institutions are not as well.

Note also that Barclays may not have been motivated in their rescue bid by sheer altruism, sorry, I mean profit. They were looking for Fed guarantees and an unkind take on their position would be: if Lehman's is too big to fail and we buy them with taxpayer guarantees then we'll be too big to fail as well. Perhaps Barclays have some bad news for us coming up.

Merrill Lynch: BoA has "merged" with them for £50bn. I guess that secures their future since Bank of America really is too big to fail.

AIG is still very much in play; so far they just want a short term loan from the Federal Reserve, just $40bn please guv'nor. Of course once the taxpayer is in the hole for $40bn it might be quite difficult to say no to further demands; prepare to see good tax dollars follow bad ones.

And for the future; who's next?

Well, in the US Washington Mutual has been teetering on the brink for quite a while now; and over here in the UK Alliance and Leicester and Bradford and Bingly are generally favourites for doing the next "Rock", but of course Her Majesty's government wouldn't let them actually go under.

On the markets generally today: the US$ is down; gold is up; oil is unchanged. Pretty much what you'd expect.