That was certainly the vibe Gordon Brown and Alistair Darling were trying to give off in their big press conference this morning. And, to be fair, I reckon they pulled it off. Well, sort of.
I watched it via the BBC website. The two gave a confident, co-ordinated performance. The bottom right corner of the screen kept showing the FTSE in positive territory, adding a welcome feel good factor.
The thing is, though... is it just me, or was it all a bit too self-assured? Maybe... even a bit smug?
I’m not saying that to have a pop. All things considered, the British bailout plan makes a lot of sense. It’s just that I’m sceptical of all this "Britain leads the way" talk I’m now hearing. After all, it’s less than a week since this plan was announced... we hope it’ll work, but we don’t know yet.
A couple of the pieces began to fall into place this morning. Royal Bank of Scotland (RBS) will raise £20 billion of new capital. It plans to get £15 billion from the market and the remaining £5 billion from the government. That will give the government a stake of around 60%.
Barclays, meanwhile, has said it will raise £6.6 billion, but will try to do it without government help.
Over the next few weeks we’re going to see a new look banking system in the UK. What that new look is will be determined by the answers to these questions:
- How much capital will banks raise from the market, and how much will they need to get from government?
- If the banks do raise capital from the market, who will they get it from?
The big question I have, though, is what if there are investors out there who like the look of banks at these prices? I’m thinking specifically of Asian banks, sovereign wealth funds and the like.
I reckon the banking system could become one mechanism by which, in future, western wealth is funnelled east. Shareholders in banks — like shareholders in any company — are, by dint of being shareholders, entitled to a slice of future profits.
Let’s say foreign buyers take a bigger stake in the UK banking system. Let’s also suppose that the current talk of financial meltdown is overblown, and banks eventually get back on their feet.
Banks make their profits from the interest paid on the loans they make. Borrowers pay that interest by generating wealth in the real economy. British businesses and homeowners will, as they have before, create wealth and use a portion of that wealth to pay off what they owe the banks.
Increased foreign ownership of banks will mean increased foreign participation in banks’ profits. In other words, we’ll be generating wealth that goes into the pockets of whoever funds the banks’ rescue.
The Germans have just unveiled a €470 billion rescue for their banks. And in the US, Hank Paulson has made noises that the $700 billion TARP may shift focus and follow the British example of direct recapitalisation (which goes some way to explaining the slightly self-satisfied tone of the aforementioned press conference).
The wheels are turning. We’re entering a new phase of the crisis in which it will become clearer how much Banking Sector nation states acquire. A bigger question, though, is who will take the rest?
Until tomorrow
Ben Traynor
Editor
Fleet Street Daily
Selected article:
Tom Bulford on the plan to end high dealing spreads on AIM.
The Daily Reckoning — A big punch in the face for shareholders
"Something funny is happening down at the bank..."
Jimmy Stewart in
It’s a Wonderful Life
It’s a Wonderful Life
There’s something funny going on. But it’s not just at the banks.
Friday was a good day on Wall Street. The Dow fell only 127 points. And gold fell $36.
The feds closed a couple banks in Illinois and Michigan. The big banks are not going to close; they’re going to be "recapitalized" -- and partially taken over by the government. This process is already underway in Britain. Europe’s leaders got together and said they’d do the same thing.
"Europe agrees to banking rescue," is today’s front page headline at the International Herald Tribune.
You can read the Daily Reckoning in full here.
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