Government disccusing full nationalisation of RBS

Graham_Devon

The government is apparently discussing nationalising RBS, and taking over the 18% of the bank we don't own.

If that's not scary enough....

The plan is to nationlise the bank, in order too boost lending. The idea would be to nationalise and then split RBS, giving one side of RBS a completely blank balance sheet to start lending on.

So....not only are we then liable for ALL debts of RBS, we also start lending MORE debt!!

What happened to the funding for lending scheme? Why do we now need this desperate measure discussed?

Surely (and I may be missing something....so please do let me know) this is simply making a mockery of capitalism, the free market, and the taxpayer?

Is it really approprioate for the government to nationalise a bank and split it, creating a blank balance sheet from nowhere, simply to create a vehicle to lend more?

http://www.thisismoney.co.uk/money/news/article-2182499/Government-discussing-nationalisation-RBS.html

CLAPTON

What has Vince Cable got to do with rational policies, capitalism or free markets?

Thrugelmir

Highly likely that RBS will be split into separate retail and investment banks anyway.

Hester has some way to go yet to clean up the balance sheet to make this possible.

Generali

Nationalisation probably isn't unreasonable in the circumstances.

If the Government push the board to 'kitchen sink' the remaining PPI losses, losses from the IT debacle plus anything else on the lending, hedging or prop trading books that they can get past the auditors then the share price can be pushed down.

AIUI takeover rules, once you have more than 80% of the voting rights in a company you can force the remaining shareholders to sell to you at the prevailing market price.

There are 2 problems:
1. It's almost certainly a breach of EU competition law for a bank to be nationalized and then be heavily subsidized
2. There are property rights implications for the remaining shareholders

I have 2 solutions:
1. Screw them. The German Landesbanken have had a huge state subsidy for decades and anyway if Spanish, French and Greek banks are allowed to trade insolvent then why not British ones?
2. If it wasn't for the bailout the shares would be worthless. Those that bought prior to the bailout have had value preserved that never really existed and those that bought afterwards should have recognized political risk was built in to the share price. So again screw them.

HAMISH_MCTAVISH

Graham_Devon wrote: »

What happened to the funding for lending scheme?

Too little, too late.

I think they've already realised that this initiative, like all the previous ones, is being subverted by the bankers to line their own pockets and is not being used to get lending moving again.

Why do we now need this desperate measure discussed?

Because they're running out of time to get a significant recovery going before the next election, and they know they haven't a chance of getting re-elected without one.

ruggedtoast

This is surely the apogee of nationalising losses and privatising profits. RBS should be bankrupt, but no, here it is lurching along like a Japanese zombie bank from the 1990s, energised on bottomless taxpayer guarantees.

Well that'll be another round of Bollingers in the executive suites then, and another good year for the local Maserati dealership.

the_flying_pig

i'd be very surprised indeed if this were to happen.

paddyrg

TSB used to be a state company, National Savings still are, it's not as if it's impossible to operate that way. Let's see what happens first...

Wookster

Personally I think this is a great idea.

Nationalise RBS, split into seperate income generating units (insurance / retail / investment banking) and then review options.

antrobus

paddyrg wrote: »

TSB used to be a state company,

The TSB was never a "state company". It was (effectively) a mutual.

northerner77

Via the WSJ this morning:

Of all the daft ideas flying around the markets, the idea the U.K. government should buy the remaining 18% of Royal Bank of Scotland it doesn't own is surely the daftest.

There was a good case for London to fully nationalize RBS in 2009 as the scale of its problems became apparent; indeed, some of those advising the Treasury urged it to do so. A swift restructuring in which bondholders were forced to take losses might have paved the way for a cleaned up "good bank" to return quickly to the markets.

But the U.K. government rejected this advice, partly because it didn't want political responsibility for RBS's lending decisions but, more importantly, to avoid inflicting losses on the insurance sector that warned of dire consequences to the U.K. pensions system. Instead, RBS was allowed to carry out its necessary restructuring under the leadership of new Chief Executive Stephen Hester in the full glare of the public markets.

Restoring RBS to health may be taking longer than the government or markets had hoped, giving rise to reasonable concerns that the demands of RBS's restructuring have impeded the flow of lending to the domestic economy. But Mr. Hester has still made impressive progress: RBS said Friday its core Tier 1 ratio is currently 11.1% and it is on track to achieve a 9.5% core Tier 1 ratio on a fully-applied Basel III basis by the end of 2013; the loan to deposit ratio has been cut to just 104% from 154% three years ago; and noncore assets are now just £72 billion ($111.69 billion) out of a total balance sheet of £929 billion.

True, RBS's earnings remain weak—although the headline loss of £2 billion is distorted by a £3 billion change in the value of its own debt. But given the weakness of the U.K. economy and the lack of activity in global markets, the underlying 10.2% return on equity in the core business, which includes an 8% return on equity in the restructured investment-banking unit that compares well with many peers, is encouraging. Only in troubled Irish unit Ulster Bank are bad debt charges still rising.

What both government and investors now want to see is top-line growth. Increased demand for credit would help. But RBS's lending has also been likely held back by U.K. regulatory demands that forced banks to hoard capital and liquidity and pushed up funding costs. Fortunately, this too is changing: The Bank of England's new Funding for Lending Scheme and the likely relaxation of liquidity rules should boost margins.

Barring a Barclays -style Libor-induced meltdown, the RBS "good bank" is taking shape. And with the shares trading at 0.4 times tangible book value, that's not yet in the price.