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Public Finances BENEFIT from Bank bailout... on paper
MSE_Martin
Posts: 8,268 Money Saving Expert
Just got this press release from www.moneymovesmarkets.com ... not really to do with MoneySaving, but I thought it interesting and I suspect economy watchers on this board may agree...
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PRESS RELEASE
“The reclassification by the Office for National Statistics (ONS) of the Royal Bank of Scotland and Lloyds Banking Group as public corporations will be a big help to the efforts of the chancellor, Alistair Darling, to limit fiscal red ink. The banks’ underlying profits will be booked as public sector income, significantly reducing net borrowing.
“At first sight this looks odd since the banks suffered a combined operating loss before tax of £49.0 billion in 2008 and may remain in the red in 2009. ONS guidance, however, indicates that the profits definition to be used will exclude dealing/investment losses, credit impairments and goodwill write-downs. Profits before these deductions were a combined £27.7 billion in 2008. (The ONS figure could be lower because of other adjustments, e.g. excluding undistributed income of foreign subsidiaries.) RBS and Lloyds are to be included in the public sector from 13 October 2008.
“The chancellor is widely expected to announce a large upward revision to his public sector net borrowing forecast of £118 billion in 2009-10 in next month’s Budget, reflecting a much deeper recession than projected by the Treasury last November. The average independent projection is £128 billion, according to the Treasury’s monthly survey of forecasters. The inclusion of the banks’ profits, however, implies that Darling could announce little or no increase.
“The effect, of course, is entirely artificial: although not included in public borrowing, the losses suffered by the banks are real and have been reflected in the value of the government’s shareholdings. With no improvement in the public sector’s true financial position, the classification change does not create additional fiscal “room for manoeuvre”.
“The ONS previously announced that the reclassification of the banks would boost public net debt by between 70 and 100 percentage points of gross domestic product from 47.8% currently.”
______________________
PRESS RELEASE
RBS/Lloyds reclassification to give ‘artificial’ boost to public finances
says New Star’s Simon Ward
“The reclassification by the Office for National Statistics (ONS) of the Royal Bank of Scotland and Lloyds Banking Group as public corporations will be a big help to the efforts of the chancellor, Alistair Darling, to limit fiscal red ink. The banks’ underlying profits will be booked as public sector income, significantly reducing net borrowing.
“At first sight this looks odd since the banks suffered a combined operating loss before tax of £49.0 billion in 2008 and may remain in the red in 2009. ONS guidance, however, indicates that the profits definition to be used will exclude dealing/investment losses, credit impairments and goodwill write-downs. Profits before these deductions were a combined £27.7 billion in 2008. (The ONS figure could be lower because of other adjustments, e.g. excluding undistributed income of foreign subsidiaries.) RBS and Lloyds are to be included in the public sector from 13 October 2008.
“The chancellor is widely expected to announce a large upward revision to his public sector net borrowing forecast of £118 billion in 2009-10 in next month’s Budget, reflecting a much deeper recession than projected by the Treasury last November. The average independent projection is £128 billion, according to the Treasury’s monthly survey of forecasters. The inclusion of the banks’ profits, however, implies that Darling could announce little or no increase.
“The effect, of course, is entirely artificial: although not included in public borrowing, the losses suffered by the banks are real and have been reflected in the value of the government’s shareholdings. With no improvement in the public sector’s true financial position, the classification change does not create additional fiscal “room for manoeuvre”.
“The ONS previously announced that the reclassification of the banks would boost public net debt by between 70 and 100 percentage points of gross domestic product from 47.8% currently.”
Martin Lewis, Money Saving Expert.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Please note, answers don't constitute financial advice, it is based on generalised journalistic research. Always ensure any decision is made with regards to your own individual circumstance.
Don't miss out on urgent MoneySaving, get my weekly e-mail at www.moneysavingexpert.com/tips.
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Comments
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The write downs represent a wiping out of prior period profits recognised when assets were acquired. However there will be no subsequent cash outflow, the government will not need to fund this loss in any meaningful way.0
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How much did they pay for RBS/Lloyds? Doesn't the writedown reduce the company's value on the market (market capitalisation)?matched betting: £879.63
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How much did they pay for RBS/Lloyds? Doesn't the writedown reduce the company's value on the market (market capitalisation)?
They reduce a companies book value. Market capitalisation is market price*number of shares, so is likely to be reduced if share prices fall as a result of goodwill being written off.0 -
Creative Accounting, who'da thought it???
Does this help anyone but the government though? It looks suspiciously like 'mega spin' to me.....0 -
Its fair enough. ONS wanted to dump the bank's loan book onto national debt at a default rate of 100% and entirely excluse all the bank's assets - creating a huge artificial "increase" in debt not connected with reality. If they want to include notional profits that also don't exist then that balances things out....0
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Radiantsoul wrote: »They reduce a companies book value. Market capitalisation is market price*number of shares, so is likely to be reduced if share prices fall as a result of goodwill being written off.
So in effect, when/if they go to sell the companies back to the market, they will be doing so at a loss, unless in the meanwhile the banks have recovered in value (which will be shown as it happens I guess)?matched betting: £879.63
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Five words: Lies, dam lies and statistics0
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It stinks. Double counting on possibly the biggest scale yet. Nationalised or not nationalised? Well no one would expect a straight answer from the government. Unfortunately the people we need to keep investing in Britain, ie. overseas investors, will have yet another reason to go elsewhere. After all if they can't trust our banking system, or economy, or government - there's not much else left.
That's my take on it.0 -
Five words: Lies, dam lies and statistics
They are cooking the books, not the first time a mp will have been caught doing that
I thought RBS had 1 trillion of liabilities so how is that a good thing for government credit rating
If Rochdale says its cocha then thats good enough for me
I just hope s&p agrees 0
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