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Picking the Bank\'s Bottom


Twobees

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Sentiment wise, this sort of debacle doesnt help one bit. Quite how much more is to unfold from world banking is potentially very scary.

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Jan. 19 (Bloomberg) -- Royal Bank of Scotland Group Plc slumped by the most in two decades in London trading on concern the government may have to take full control of the bank after forecasting the biggest loss ever reported by a U.K. company.

 

The stock dropped 67 percent, the most since September 1988, to 11.6 pence, paring the Edinburgh-based lenderÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s market value to 4.6 billion pounds ($6.7 billion).

 

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Nationalization at zero value is implicit in the price,ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ said Derek Chambers, an analyst at Standard & PoorÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Equity Research Ltd. who has a ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“holdÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ rating on the stock. The stock price ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“is an option on the vague chance that it doesnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t get nationalized.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

 

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In reply to: flower on Tuesday 20/01/09 07:13am

definitely a quote for the archive

 

"The stock price ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“is an option on the vague chance that it doesnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t get nationalized.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ "

 

what must a shareholder in RBS been thinking 12 months ago at 300p now 12p

 

 

 

 

 

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In reply to: cwjohn on Tuesday 20/01/09 06:16am

the western banks went to the same financial university

 

the only difference may be in the opportunity the UK and US banks had to expose themselves to risk as opposed to our small players

 

as you imply they are all robbers

 

I am sure that our banks have stress testing processes as does the RBA but they are for events which can be foreseen

 

They all forecast no problems at all, 6 months ago !

 

the property market will dive irrespective of Kevin's first home owner grants and other manipulations --- as unemployment goes up where will the extra credit worthy borrowers come from ?

 

look at what he UK are doing - making banks loan and then insuring the banks against losses ! a gimme for banks ! but not bank shareholders

 

 

property will dive as unemployment goes up - the lauded purchases like SGB and BankWest loaded with mortgages may become millstones

 

as for your suggestion that bank stocks are a better place to put your cash you omitted the capital risk you are exposed to by holding bank shares

 

 

yes I know - we havn't heard from the OZL yet on what SG is going to do if it doesn't get the security it demands ! http://www.sharescene.com/html/emoticons/wink.gif

 

 

 

 

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In reply to: db76 on Tuesday 20/01/09 12:00pm

DB: Given the UK situation overnight, which was not really expected--ie whilst the informed natives knew things were very difficult they didnt see a catastrophic banking event ending in Nationalisation---what is now of concern is this:

 

In Oz we keep getting dire warnings from Krudd, and now Access Economics that basically say the real facts of life wont hit us until 2011.

 

It never ceases to amaze me, having been in England for a few weeks before Christmas when you could see vacant shops increasing daily, how slowly bad news actually affects the individual Australian, I put it down to the Sun--ie you feel a hell of a lot better in the sun than horrible wet and cold!

 

I had great hope that we were going to see at least a two month Obama rally, that becomes more doubtfull by the day as things like the Bank of Scotland unravel.

 

One of the even bigger mysteries is how in the face of all this news, the USD keeps on rising!!!

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In reply to: db76 on Tuesday 20/01/09 12:00pm

db

 

Capital risk is in the eyes of the beholder. I am far more concerned about the risk of real capital loss by investing in cash over the next five years than I am of capital risk of the banks.

 

By this I mean that if you invest in cash over the next five years you are GUARANTEED to lose around 20% of your net wealth in real terms assuming inflation of 5%. On the other hand I have not seen anyone postulating that big 4 banks will go down. Nor have I seen anyone suggesting they do not have a strong market position. Thus assuming in five years their SP is same as now and in the next year they drop divis by 25% you have real capital gain in next 5 years of around 15%. Further there is a GOOD chance that the SP will increase in the next 5 years.

 

To me the doom and gloomers are completely illogical. If they really thought the global economy was stuffed then the obvious conclusion is that cash will produce nothing for a long time so inflation will erode capital in short order. On the other hand the top 20 global banks will have massive market power and will present an excellent inflation hedge.

 

On the other hand a market bull would not touch the banks because it is clear that as you have oft stated they will fall back to a service model and will not be growth stocks.

 

Our banks wont fail. Their share price may fall further because of further writedowns, but once we are past the writedown stage the lemmings will all flock to the banks for the aforementioned reasons.

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In reply to: cwjohn on Tuesday 20/01/09 03:18pm

Nobody is suggesting our banks can fail, the big ones are protected by the RB anyway (I presume)

 

What I meant was/is that we may have many more YEARS of bad news, that totally stuffs up CONFIDENCE, and without Confidence in banking nothing else good is likely to occur.

 

I mean how many TRILLIONS have to get thrown at anything before confidnce returns and the banks start normal PRUDENT lending again, How deep is that pit of trouble--in reality????

 

Not so sure about long term cash either being the wrong approach, the TRILLIONS being thrown into those gaping holes of stupidity HAVE TO create Hyperinflation---so how long when Hyperinflation takes hold before rates soar upwards again to choke off something that currently is taken as DEFLATION, when in fact its HYPERINFLATION simply gestating.

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QUOTE (cwjohn @ Tuesday 20/01/09 06:46am)

'Most derivative exposure now highlighted and in a relative sense this was minimal'

 

this is simply not true. the banks have massive exposure to the credit default swap market and their exposure is hidden off balance sheet. there is no transparancy and no way any rational holder of bank shares could calculate capital risk. hence i think people should use a higher required rate of return than is usual when assessing bank shares.

 

there needs to be regulation to force banks to mark-to-market any off balance sheet assets and liabilities and move them onto their balance sheets.

 

if the CDS market blows up, what are the odds of australia going the way of iceland? (isn't the nominal value of aussie bank exposure to the CDS market in excess of 100 trio AUD?)

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In reply to: flower on Tuesday 20/01/09 03:45pm

I think you've got a point here, Flower. In Iceland whose banks took on liabilities 10 times the national GDP both inflation and interest rates are 18 per cent and rising. Our Surplus is now a huge Deficit and getting larger every day. Do you remember the "recession we had to have" interest rates on personal savings accounts were 18%+. At that time my family came to Oz and couldn't believe the returns they were getting for their cash!

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QUOTE (spot @ Tuesday 20/01/09 04:11pm)

Spot--and thats the trouble. Currently everybody thinks by spin doctoring all will be well, but in reality the time has come for some banking HONESTY and TRANSPARENCY, and to hell with the short term consequences, after all in the end all this is going to come out anyway.

 

In fact how about some all round FACE THE MUSIC time????

 

In other words, most have had a gutful of MANIPULATION, which is where all this started from at least ten years ago.

 

Ruddy financial professionals/experts--I'd like to give them EXPERTS!!!!!!!!!

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