Monday, January 19, 2009

European Banks Having Difficult Time…

Banks in Europe are having a very difficult time. The European indices are down substantially today as a result. Huge losses are mounting at European banks which is behind the moves… at the Royal Bank of Scottland (-40%), Barclay’s losses are astronomic (-30+%), HSBC (-25%), Lloyds (-20%), and bailouts for all are being tossed about.

There are calls to bail out RBS now or else Ireland may exit the Euro. Stocks do not like talk of nationalization as that generally means that those who hold the bank shares will wind up with nada – as in nothing. Slashing dividends further pressures shares as banks have been forced to conserve cash.

The overseas action has put a damper on futures here in the United States.

Bloomberg article

RBS Plummets in London Amid Concern Bank May Be Nationalized

By Jon Menon

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 it posted the biggest loss ever reported by a U.K. company.
The stock dropped as much 71 percent, the most since September 1988, to 10 pence. It traded down 23 pence at 11.7 pence at 4:10 p.m., valuing the Edinburgh-based bank at 4.6 billion pounds ($6.7 billion).

“Nationalization at zero value is implicit in the price,” said Derek Chambers, an analyst at Standard & Poor’s Equity Research Ltd. who has a “hold” rating on the stock. The stock price “is an option on the vague chance that it doesn’t get nationalized.”

RBS said today it may post a loss of as much as 28 billion pounds this year, surpassing Vodafone Group Plc’s 22 billion- pound net loss in 2006. The government offered to exchange its preference shares in the bank for ordinary stock, a move that could increase its stake to 70 percent from 58 percent. Analysts speculated today the government may eventually take full control of the 282-year-old Scottish lender.

“The market is pricing in the risk of full nationalization for RBS,” said Sandy Chen, an analyst at Panmure Gordon & Co. who has a “sell” rating on the stock. “It’s not an RBS-specific issue. The mixture of deflation and de-leveraging is toxic for bank shares.”

Barclays Plc tumbled 18 percent to 80.2 pence and Lloyds Banking Group Plc slid 34 percent to 65.4 pence.

Brown ‘Angry’ at RBS
RBS has been crippled by former Chief Executive Officer Fred Goodwin’s 14.3 billion-euro ($19 billion) acquisition of ABN Amro Holding NV’s investment banking assets three months before the credit crisis began. Goodwin was ousted in October after the government agreed to take control of RBS. Chancellor of the Exchequer Alistair Darling today called the ABN Amro takeover “disastrous” on BBC Radio 4.

“I am angry at the Royal Bank of Scotland and what has happened,” Prime Minister Gordon Brown told reporters in London today. The bank took “irresponsible risks,” in investing in U.S. subprime mortgages and ABN Amro, he said.

The bank may post a full-year loss before exceptional goodwill impairments of as much as 8 billion pounds, Edinburgh- based RBS said in a statement today. In addition, the bank may write down the value of past acquisitions by as much as 20 billion pounds.

‘Truly Horrible’
“The numbers are truly horrible,” said Robert Talbut, who helps manage about $31 billion at Royal London Asset Management. “The government is very clearly in the driving seat, and I would expect RBS to shrink back to being a more U.K.-focused bank.”

RBS said it expects to post 8 billion pounds of credit market writedowns for the full year, boosted by losses on U.S. collateralized debt obligations. Credit impairment losses may total as much as a further 7 billion pounds, including a 1 billion-pound loss on its loan to bankrupt chemical maker Lyondell Chemical Co.

“We can all be sure there will be further significant credit losses, but we can’t be sure of what amount and what timing,” Stephen Hester, who replaced Goodwin as CEO, told reporters on a conference call today. “Significant uncertainties and risks inevitably remain.”

RBS issued its statement on the same day that the Bank of England announced measures worth an additional 100 billion pounds to help banks access liquidity and boost lending. The package is in addition to the 250 billion pounds Gordon Brown committed in October.

‘Restructure and Retrench’

“…They are resisting for as long as they can, but I suspect in due course they will be majority government-owned due to rising bad debts on the back of a deterioration in the U.K. economy,” Willis said.

RBS said today it would use the money saved by eliminating the dividends on the preference stock to boost U.K. lending by 6 billion pounds. Increased lending to U.K. customers will only be on “commercial terms and to creditworthy people,” Hester said.