Basle 3 - 4 Risky Borrowers

grizzly1911

Thrugelmir wrote: »

Banks are still far from out of the woods. Currently having to contend with:-

(a) increased regulatory capital requirements
(b) penalties and fines for libor fixing, violation of currency sanctions, energy price fixing ,
(c) additional tax levied on banks
(d) poor quality lending on books
(e) low profit margins on historic lending
(f) PPI provisions
(g) increased FSA levies.


Difficult enviroment to be a bank.

Hardly surprising that Merv is suggesting banks require anything between £5 and £35 billion of new capital. Also that banks will not generate this capital from profit on trading activities.

I agree difficult times but why will they not generate it from profit? Is it that it would take to long to build up from profit and the timescales can't be met? A bit like the governments time scales for dealing with deficit why not just push them out?

Thrugelmir

grizzly1911 wrote: »

I agree difficult times but why will they not generate it from profit?

As an example LloydsHBOS generates less than 1% return on mortgage lending. So a mortgage book of £325 billion. Gives an operating income of less than £3.25 billion.

Lloyds total PPI provision to date is £5.275 billion and still rising.

Plenty of other legacy issues on the balance sheet to resolve as well. Including HBOS's commercial property portfolio.

Generali

grizzly1911 wrote: »

I agree difficult times but why will they not generate it from profit? Is it that it would take to long to build up from profit and the timescales can't be met? A bit like the governments time scales for dealing with deficit why not just push them out?

They are generating it from profit. British banks are, for the most part, hugely profitable in international terms. Not as profitable as Aussie banks but the Aussie market is small and uncompetitive. They are more profitable than in most European countries where banks are run for political reasons as much as business ones or than in the US where competition is freer.

Basle III, which British banks are basically ready for, will be delayed or watered down internationally. That will free up reserves for British banks IMHO.

Kennyboy66

Thrugelmir wrote: »

Banks and need to deleverage their balance sheets. Net mortgage debt is up since 2008. So we've yet to see any impact from the change in policy. There's a large legacy issue from the hey days of interest only lending that's untouched.

RBS alone has reduced its balance sheet from £2.2 trillion to £1.6 trillion (still bigger than the whole of the UK economy).

I seriously doubt there will be much of a nominal fall in net mortgage debt, although it will continue to fall in real terms.

Thrugelmir

Kennyboy66 wrote: »

I seriously doubt there will be much of a nominal fall in net mortgage debt, although it will continue to fall in real terms.

The problem for the banks is funding the exposure. Something that the BOE is acutely aware of. There's limited appetite in the wholesale money markets. Only JP Morgan has been a buyer of securitised bank mortgage debt since 2008. (JPM has bought 90% of all issues)

Thrugelmir

Generali wrote: »

They are generating it from profit. British banks are, for the most part, hugely profitable in international terms.

HSBC isn't really a British Bank.

grizzly1911

Thrugelmir wrote: »

HSBC isn't really a British Bank.

What about Barclays, that seems to be holding it's own if not exactly accelerating away from oblivion?

BertieUK

grizzly1911 wrote: »

I agree difficult times but why will they not generate it from profit? Is it that it would take to long to build up from profit and the timescales can't be met? A bit like the governments time scales for dealing with deficit why not just push them out?

What has happened to good old 'banking days' when they only had a 'pencil and telephone' to work with, and the rubber of course, technology seems to have let them down along the way.

Generali

Thrugelmir wrote: »

HSBC isn't really a British Bank.

It's a multinational but it is pretty British: HQ is in London for a start off and if you Google 'HSBC British' you will likely see that Wikipedia and The Economist both think HSBC is British for a start. From memory, the UK is the single biggest contributor to HSBC's profits.

Thrugelmir

Generali wrote: »

It's a multinational but it is pretty British: HQ is in London for a start off and if you Google 'HSBC British' you will likely see that Wikipedia and The Economist both think HSBC is British for a start. From memory, the UK is the single biggest contributor to HSBC's profits.

H(Hongkong)S(Shanghai)B(Banking)C(Corporation) moved to the UK to appease the regulators after the purchase of the Midland Bank. The Hong Kong Government still retain around a 10% shareholding in the bank.

In 9 months to 30th September 2012 HSBC derived 37.3% of its operating income from Europe. The UK isn't split away in the geographical analysis.