The Lemon Fool

Javid says on Sky News today 8 May 2020.

Might be an idea to keep some cash ready in case one wishes to contribute.

Context? Is that because they're now being leaned on by government to lend taxpayer-underwritten money that'll never be repaid, or does it go further than that?

My cash is at the bank. Or building society. Or broker account. Hmmm, and I think I may have a fiver in the wallet.

I guess it means rights issues.

If so, I will be happy to take the proceeds from selling my rights, assuming that is that they do not raise any cash by means of a placing.

I will not be putting any more money into bank shares

Dod

Quite agree Dod.

Also bank shares are so low that it is hard to see how any rights issue could raise a sum that would make much difference.

All it would do is highlight what a poor state they are in and damage confidence even more.

ps just received my second compensation cheque for the last time I was foolish enough to participate in a bank rights issue (RBS)!

scrumpyjack wrote:Quite agree Dod.

Also bank shares are so low that it is hard to see how any rights issue could raise a sum that would make much difference.

All it would do is highlight what a poor state they are in and damage confidence even more.

Would you mind expanding on this? Which banks, and in what sense are they in a poor state?

Thx.

GS
EDIT: This entire thread gives me the feeling no-one has bothered to read what Javid actually said. https://www.ft.com/content/f20e4d18-34e ... e0185b195b

and https://dnyuz.com/2020/05/07/force-bank ... jid-javid/

To the extent that the Gubmt decided to shut the economy, the Gubmt must sort out the consequences (using our money of course) and not try to shuffle responsibility onto the banks.
Don't welcome the notion that the Gubmt might interfere further with banking.

V8

This sort of thing bothers me a lot because it is similar to the situation with insurers and business interruption claims. Government should not be interfering with publicly owned joint stock companies and how they do business. They are not a branch of government. If they want them to be so then nationalise them but in the meantime they are owned by private shareholders and it should be up to the shareholders how these companies react to given situations. The regulators are supposed to be there to stop those companies going bust not to tell them how to run their businesses.

MPs really seem to have no idea how an economy ought to work. I have a 21 year old granddaughter studying for an economics degree and if she is not corrupted by her tutors she will have more idea how business ought to work than most MPs seem to have. I will certainly check on how her ideas develop!

Dod

I don't want to try to find the source at the moment, but I remember some changes by the regulators relating to covid loans where the government is really paying the banks to administer loans rather than assess risk. (particularly the bounce back ones)

I agree with a lot of what you have said Dod, but any company can only succeed if it takes into account the needs of its customers and of all its ‘stakeholders’ (horrible misused term but anyway).

So whilst banks should pay far more attention to their shareholders interests, and not syphon off most of the business’s return in bonuses and excess pay to management, or squander it in crazy misjudgements such as selling PPI or buying ABN Amro, they do have to respond to the needs of their customers. But if they are going to survive and be able to respond to the needs of their customers in the longer term, they also need to have a viable business model. That is the bit I think the regulators have lost sight of. When the bank’s management have misbehaved, it is shareholders who suffer the regulators fine. When management extract unreasonable amounts in bonuses, it is shareholders who pay the extra bank levy tax. In our current legal framework it is very difficult to make those responsible for wrongful acts suffer the penalties. If individuals are fined they probably have indemnities in their contracts so the company has to reimburse them. If it all goes wrong, the individuals simply move on to another highly paid job elsewhere.

Barclays current share price is less than half its net asset value, so if it were possible sensible management would wind the business up and let shareholders use their funds more wisely. Of course it isn’t possible as that net asset value would evaporate in a liquidation. But certainly as a shareholder I won’t put any more money in, if they were to ask for it. Maybe if shareholders go on strike in that way, the regulators might wake up.

scrumpyjack wrote:I agree with a lot of what you have said Dod, but any company can only succeed if it takes into account the needs of its customers and of all its ‘stakeholders’ (horrible misused term but anyway).

So whilst banks should pay far more attention to their shareholders interests, and not syphon off most of the business’s return in bonuses and excess pay to management, or squander it in crazy misjudgements such as selling PPI or buying ABN Amro, they do have to respond to the needs of their customers. But if they are going to survive and be able to respond to the needs of their customers in the longer term, they also need to have a viable business model. That is the bit I think the regulators have lost sight of. When the bank’s management have misbehaved, it is shareholders who suffer the regulators fine. When management extract unreasonable amounts in bonuses, it is shareholders who pay the extra bank levy tax. In our current legal framework it is very difficult to make those responsible for wrongful acts suffer the penalties. If individuals are fined they probably have indemnities in their contracts so the company has to reimburse them. If it all goes wrong, the individuals simply move on to another highly paid job elsewhere.

Barclays current share price is less than half its net asset value, so if it were possible sensible management would wind the business up and let shareholders use their funds more wisely. Of course it isn’t possible as that net asset value would evaporate in a liquidation. But certainly as a shareholder I won’t put any more money in, if they were to ask for it. Maybe if shareholders go on strike in that way, the regulators might wake up.

Well as scrumpyjack hasn't been able to either name a bank which is in a poor state, nor explain what its difficulty is (beyond events which happened more than a decade ago!!!) I still believe that banks are doing fine -- it's the shareholders who are in a poor state trying to evaluate their investment.

Meanwhile LBG returned almost £4bn to shareholders last year so the notion that most of banks' returns are going to management ("being siphoned off") is quite ludicrous and was claimed without offering a shred of evidence.

Would it be possible to stick to the facts on this board please, not made-up nonsense? Thank you.

GS

Sounds like Javid is doing what a lot of ex-Cabinet ministers do when they have left not completely by their own decision, he is stirring things up. Also, the title of this thread is incorrect, he says they need more capital, not more cash. Cash is funding and there are a lot of sources of funding, not just equity capital.