Lloyds to writeoff £13bn!

michaels

Generali wrote: »

Just a final thought for everyone to ponder as they slumber. What do you think will happen to the value of banks' reserves once interest rates start to rise given that a large proportion of those reserves are held as Gilts and other Government debt? What will that do to bank solvency? What do you think will thus have to happen to Government spending as the next phase of the bank bailout? (I'll give you all a clue - the price of Gilts falls as interest rates rise)

Obviously the relationship between the yield and price of guilts decrease as the maturity falls becoming negligible on short paper. Are the banks holding lots of long guilts? I would have assumed they would have the short stuff?

michaels

Lloyds can not raise its svr as it promised old borrowers that it would not exceed the base rate by more than 2%. New customers can not get on to the svr and I suspect existing customers coming to the end of deals that should revert to svr are probably being told that because of a lack of equity they will not be allowed to go on to svr but some alternative risk adjusted (ie much higher) rate.

Thrugelmir wrote: »

Lloyds may not be raising its SVR at the moment as its plan is to control around 30% of the UK mortgage market. So is in a position to attract quality mortgage business. Once this objective is achieved it can afford to raise rates whilst remaing highly competitive.

Thrugelmir

julieq wrote: »

That's what competition is about. They won't raise SVR above what the competitive landscape allows and if they did it wouldn't raise money anyway. It's about elasticity of demand, not being able to move a slider up indefinitely to make more money, if that slider existed it'd already be set to maximum.

As regards the assets, you're missing the point, which was that the writedown is a small percentage of even the Lloyds assets on their 2008 balance sheet, i.e. it's bad news but not cataclysmic news, it's a marginal devaluation of the overal assets - if the whole £200billion odd of toxic debt had gone bad it would have been cataclysmic but that isn't what is being declared. You have also to add in the assets of HBOS which I think were something around £600billion with a nominally positive equity situation at the point of merger, the "insolvency" coming from the expectation of bad debt.

Given that the percentage of so called "toxic" debt was 80/20 in favour of HBOS, this is a writedown of the HBOS asset position principally, which is not unexpected given the HBOS situation. As I said yesterday, this is a process of crystallising expected losses against the known "toxic" assets, of which a percentange will be good and a percentage bad.

What I'm complaining about mostly is the use of unreferenced big numbers to imply disaster, where there is no disaster. It's like interest rates "soaring", repossessions "surging" and so on, it's about over hyping stories for sensation.

And of course we're not seeing carnage in the ftse this morning, or anything like it. The Lloyds writedown isn't even close to being big news anywhere.

There are big bad news stories in this recession, and there certainly are nasty surprises to come. Overegging the stories that aren't big is essentially crying wolf, it's not helpful to anyone.

As Generali pointed out Lloyds had around £9 billion of capital reserves to fund the operation. The remaining assets had corresponding liabilities.

The reason the figures don't get discussed as no one knows where this is going to end up.

Lloyds Banking Group as a a bank has to take take a worst scenario on its lending book to comply with FSA regulations etc. So its unlikely that £20 billion will actually be written off. However the numbers are so large it wouldnt take much to cause major problems. As there is a lot of bad news still to come.

Controlling around 30% of the mortgage market will allow them to set the market rates. In fact at the moment no doubt for political reasons they are holdinfg rates down compared to other lenders, who are over 2% higher with their SVR's.

julieq

Not a great deal of carnage in the city today, maybe the Sunday papers weren't delivered to Lloyds shareholders or something.

Or maybe it was indeed a complete non-story?

Controlling 30% of the market may or may not allow them to increase rates, but it would be difficult for a government owned bank to pull this off as a trick given there would be intense media pressure on them not to, and there is also the 70% of the market to worry about.

As regards equity, HBOS had more than Lloyds, the obvious problem being they had more bad quality debt than Lloyds too. The bad debt is now being quantified and it's not really causing much of a stir.

Thrugelmir

julieq wrote: »

Not a great deal of carnage in the city today, maybe the Sunday papers weren't delivered to Lloyds shareholders or something.

Or maybe it was indeed a complete non-story?

Controlling 30% of the market may or may not allow them to increase rates, but it would be difficult for a government owned bank to pull this off as a trick given there would be intense media pressure on them not to, and there is also the 70% of the market to worry about.

As regards equity, HBOS had more than Lloyds, the obvious problem being they had more bad quality debt than Lloyds too. The bad debt is now being quantified and it's not really causing much of a stir.

Why do you expect carnage? Lloyds and RBS are more or less nationalised banks. Speculators will be trading the shares not pension funds and insurance companies.

The European commission may well break the banks up as they have monopolistic market shares.

Robert Peston was worth a read today.

The only thing that can be safely concluded is that taxpayers have invested a colossal and unprecedented sum in keeping these banks alive.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

julieq

Because the premise behind discussion was the following statement:

mbga9pgf wrote: »

http://forums.moneysavingexpert.com/showthread.html?t=1692639

I predict the FTSE is about to have another spanking, especially as I expect widespread banking losses. What is true for Lloyds will also be more or less true for RBS, barclays and the like.

Expectation Dislocation in the markets = falls IMHO.

Whereas nothing at all of the sort has happened (in fact if anything quite the reverse).

i.e. as I've said throughout, the writedown is not good news, but it is not cataclysmic news. It was a non-story being overegged by the usual suspects, who were shouting down and insulting anyone disagreeing with their assessment.

No-one in their right mind would suggest there isn't a very long way indeed to go in this recession, and probably a fair few nasty surprises on the way. But you're not going to get to the truth of things by painting every single piece of mildly negative news as the absolute and utter end of civilisation as we know it, and it's not overoptimism to argue that projections based on an aggregation of worst cases are unlikely to crystallise.

System

julieq wrote: »

No-one in their right mind would suggest there isn't a very long way indeed to go in this recession, and probably a fair few nasty surprises on the way. But you're not going to get to the truth of things by painting every single piece of mildly negative news as the absolute and utter end of civilisation as we know it, and it's not overoptimism to argue that projections based on an aggregation of worst cases are unlikely to crystallise.

I agree with you 100%, out of interest, do you have any idea/guesses as to why people do this?

FoxtonsRIP

Perhaps some people like to live in the real world and not some sort of fantasy existence. Maybe you should move to Disneyworld, you might be shielded from the harsh economic facts over there.

chucky

mbga9pgf wrote: »

http://forums.moneysavingexpert.com/showthread.html?t=1692639

I predict the FTSE is about to have another spanking, especially as I expect widespread banking losses. What is true for Lloyds will also be more or less true for RBS, barclays and the like.

Expectation Dislocation in the markets = falls IMHO.

FoxtonsRIP wrote: »

Perhaps some people like to live in the real world and not some sort of fantasy existence. Maybe you should move to Disneyworld, you might be shielded from the harsh economic facts over there.

FTSE is up today - this is the real world
http://uk.finance.yahoo.com/q?s=^FTAS
obviously you're one of the fantasists that don't live in the real world

Generali

chucky wrote: »

FTSE is up today - this is the real world
http://uk.finance.yahoo.com/q?s=^FTAS
obviously you're one of the fantasists that don't live in the real world

Does anyone really believe that the day-to-day movement in the level of the FTSE100 is a predictor of how the UK's economy is likely to perform over the next few years? For a start, the vast majority of the economy isn't represented by the FTSE100 - almost half the economy is Government spending and a goodly part of the rest is 'SMEs' (Small and Medium-sized Enterprises).