© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: January 21, 2009 3:54 pm
Alistair Darling, the UK chancellor, has “a clear view that British banks are best managed and owned commercially and not by the government”. Since the start of the year, however, the market value of Lloyds Banking Group and Barclays has fallen by about 60 per cent, while that of Royal Bank of Scotland has plunged by nearly three-quarters. The number of investors who believe the banks are long for the private sector is dropping by the day.
Investors are concerned that bad debts will soon overwhelm the banks’ shareholders’ equity at a time when it is next to impossible to raise capital. Put together, the three banks are worth no more than £17bn, meaning existing shareholders will be diluted by even trivial cash calls. Given that the only buyer in town will be the state, the risk of nationalisation has for many risen to an unbearable level.
Shell-shocked by the fall in RBS’s operating performance, investors have paid little heed either to the Financial Services Authority’s clarification that it sees a core tier one ratio of 4 per cent as an acceptable minimum or to its steps to reduce the pro-cyclicality of Basel II. Both changes could, at the margins, be helpful in limiting the need for fresh capital. Investors have also ignored positive trading updates from the newly formed Lloyds Banking Group and Barclays.
Few are waiting around for the fine print of the latest government moves. Further details on an asset protection scheme, which could help ease concerns by allowing investors to estimate the maximum losses to which banks are exposed, are not due until the last week in February.
Given that this insurance scheme represents the UK banks’ best hope for a life in the private sector, that is too slow. Unless the government stops dilly-dallying, there is a grave danger that the entire package of measures will be overtaken by events.
Please don't cut articles from FT.com and redistribute by email or post to the web.