Alan Kohler on the British situation

[MrBurns]

This is just part of his article in Business Spectator - doesnt look too good, is a huge understatment.

http://www.businessspectator.com.au/bs.nsf/Article/A-crisis-immune-to-rhetoric-$pd20090121-NGRV5?OpenDocument&src=ea&ir=4

The crisis began in America and it continues to worsen there, with yet another banking shock last night as State Street shares halved after the banking and investment firm reported a 71 per cent decline in 4th quarter profit and a $US10 billion write-down.

But right now the world’s money wants to be nowhere but US dollars. Specifically, there is now a run on the pound that is threatening to get out of control and sink us all.

The UK is a bigger, more dangerous version of Iceland. The $US4.4 trillion in foreign debts built up by British banks is twice the size of the economy, and 73 times UK’s foreign reserves.

Commentators in Britain are calling for Royal Bank of Scotland, Lloyds and perhaps Barclays to be fully nationalised to overcome the fact that the taxpayers are effectively wearing all the downside, but the banks are still being managed by the same idiots who caused the problem in the first place.

Those idiots have swung 180 degrees, from profligate lending to no lending at all; from frittering capital to hoarding it.

Similar calls for full nationalisation are being made in the US, with the example of Sweden in 1992 most often cited.

 

[noirua]

This is just part of his article in Business Spectator - doesn't look too good, is a huge understatement.

Barratts (Includes PriceLess stores) the UK shoe retailer called in the administrators yesterday. They have over 400 stores and other outfits with 5,450 jobs at risk.
Barratts and PriceLess are owned by Stylo. Stylo shares have been suspended.

So many companies announced job cuts yesterday it is not possible to list them. This recession is proving very sharp indeed as the UK follows Germany, Irish Republic and Spain down the cliff side.

 

[Aussiejeff]

Barclays Bank up 73%, Lloyds Bank up 32% & Royal Bank of Scotland up 20% in overnight trade. Darlings of the finance sector once more?

Brit nightmare suddenly over?

Bring out yer dead?

 

[MrBurns]

Barratts (Includes PriceLess stores) the UK shoe retailer called in the administrators yesterday. They have over 400 stores and other outfits with 5,450 jobs at risk.
Barratts and PriceLess are owned by Stylo. Stylo shares have been suspended.

So many companies announced job cuts yesterday it is not possible to list them. This recession is proving very sharp indeed as the UK follows Germany and Spain into sharp decline.

Is this because sales are down or because they cant get finance to operate ?

ADDED -

Just had a look around, it seems it's because of discounting and clothing retailers moving into the shoe market.
This tells me one thing, this and probably many other businesses were and are still trading on the edge even before the financial trouble started, the financial crises just tipped them over the edge, so how many other businesses trade the same way ?

 

[noirua]

Is this because sales are down or because they cant get finance to operate ?

I'm in the UK and there is a don't buy attitude everywhere now, unless the price is low. Supermarkets sell shoes as well and appear to have dropped prices deliberately to gain greater share. ( a supermarket near me knocked 70% off the prices in a sale).

Other stores with big ticket items are crashing as people go more for repairing than buying new. Some spares retailers are booming now.
Stores selling items that people can do without seem to be closing - boom to bust in six months.

Problems that will hit Australia, is that companies are not paying such high dividends or any at all now, and that combined with complete loss of asset value, has just made less money available.

 

[MrBurns]

I'm in the UK and there is a don't buy attitude everywhere now, unless the price is low. Supermarkets sell shoes as well and appear to have dropped prices deliberately to gain greater share. ( a supermarket near me knocked 70% off the prices in a sale).

Other stores with big ticket items are crashing as people go more for repairing than buying new. Some spares retailers are booming now.
Stores selling items that people can do without seem to be closing - boom to bust in six months.

Problems that will hit Australia, is that companies are not paying such high dividends or any at all now, and that combined with complete loss of asset value, has just made less money available.

Thanks for that info, yes it's like a boom in reverse really.

 

[doctorj]

Barclays Bank up 73%, Lloyds Bank up 32% & Royal Bank of Scotland up 20% in overnight trade. Darlings of the finance sector once more?

Brit nightmare suddenly over?

Bring out yer dead?

They’ve gone up so much because they’re basically trading as options. They’ll either be nationalised (and hence worth nothing) or they’ll survive and be worth a quid or two. You’ll see this come through in the way the GBK (Great British Krona for those unfamiliar) trades on the cable and against the euro. Banks up, GBK up and vice versa.

Alan Kohler really isn’t worth the column inches he’s given. His sensationalist articles read like cobbled together headlines and punchy one liners that don’t stand up to even the lightest of examinations.

For starters, foreign debts of banks, assuming they have been reasonably managed, are approximately matched in currency and maturity to foreign assets. In fact, last I looked foreign assets of UK banks amounted to something in the region of A$8-9 trillion. Sure, many of these assets may be impaired, but we’re talking FURTHER writedowns of in excess of 50% before the line starts to look tight. Then factor in that these writedowns are being driven largely by distressed sellers forced to sell to defend their stat capital ratios and that they are probably worth considerably more on a held to maturity basis.

Furthermore, I don’t understand how tax payers are wearing ‘all the downside’. Much of the positions have been taken as pref share or normal shares, giving the tax payer a share in the upside. Even in the case some, or all the banks are nationalised, there is precedent for that going well too. In Spain not all that long ago, a number of banks were nationalised and then sold at a profit 3 years later.

As for his comment about ‘those idiots swinging 180 degrees’ is hypocritical to say the least. On the one hand, he’s claiming that the banks were irresponsible with their lending and that caused the crisis and therefore they deserve the boot. Now he says they are being more responsible with their lending and they deserve the boot.

Time for Alan Kohler to decide what side of the fence he’s on rather than rehashing populist, dimwitted rhetoric. Perhaps he could support the cause of environmentalists and save some trees by not wasting paper with that dribble.

 

[MrBurns]

Why dont you challenge him directly. be interested to see if you get a response.


http://www.eurekareport.com.au/iis/iis.nsf/email?OpenForm&type=contactus

 

[doctorj]

Why dont you challenge him directly. be interested to see if you get a response.

Got a bit fired up there, didn't I?

 

[drsmith]

Perhaps big Al might put in an appearance here.

 

[MrBurns]

Got a bit fired up there, didn't I?

No I'm serious , you seem to know what you're talking about so take it to him, if he doesnt respond you've won.

I like his commentary perhaps because it's sensational , dont know but I've always thought he must know what he's talking about but perhaps I dont know enough to know if he does or doesn't.
Just always in search of the truth.

Go for it

 

[MR.]

Alan Kohler really isn’t worth the column inches he’s given. His sensationalist articles read like cobbled together headlines and punchy one liners that don’t stand up to even the lightest of examinations.

He’s completely full of crap isn’t he! Keeps the viewers tuned in though.
Dramatises everything to keep his followers on the edges of their seats. Typical media.
Here’s one of his one liners from some time ago I recall on inside business, what a laugh:

“This time we are going for personal worst”

What garbage is this. Now, the stock market will continue to only go up! There was a little fault at the start of 08 but that was nothing. People and companies aren’t leveraging themselves too much! Debt levels are all dandy. Hasn’t he been in contact with Storm Finiancial ? We will all make a fortune!

With all his one liners I wonder just how many people he has saved from terrible loses!
Sorry, Alan Kohler for PM.

 

[refined silver]

Sorry doctorj, I have to agree with Al on most of his points.

For starters, foreign debts of banks, assuming they have been reasonably managed, are approximately matched in currency and maturity to foreign assets. In fact, last I looked foreign assets of UK banks amounted to something in the region of A$8-9 trillion. Sure, many of these assets may be impaired, but we’re talking FURTHER writedowns of in excess of 50% before the line starts to look tight. Then factor in that these writedowns are being driven largely by distressed sellers forced to sell to defend their stat capital ratios and that they are probably worth considerably more on a held to maturity basis. .

$8-9trillion of assets? - most of which are OTC derivs. Lehmans are the only CDSs that have gone to settlement and at the auction they fetched between 8c and 20c in the dollar. That puts US and UK banks as all insolvent, as NYU economist Noriel Roubini recently stated. (He predicted the crisis in 07)

Furthermore, I don’t understand how tax payers are wearing ‘all the downside’. Much of the positions have been taken as pref share or normal shares, giving the tax payer a share in the upside. Even in the case some, or all the banks are nationalised, there is precedent for that going well too. In Spain not all that long ago, a number of banks were nationalised and then sold at a profit 3 years later.

That was then, this is now. Those banks that have lost 95% of share price are not going back, neither are their leveraged assets.

As for his comment about ‘those idiots swinging 180 degrees’ is hypocritical to say the least. On the one hand, he’s claiming that the banks were irresponsible with their lending and that caused the crisis and therefore they deserve the boot. Now he says they are being more responsible with their lending and they deserve the boot. Time for Alan Kohler to decide what side of the fence he’s on rather than rehashing populist, dimwitted rhetoric.

All he is saying they should have lent more moderately before and still be lending moderately now to safe borrowers, rather swinging between two stupid extremes.

 

[doctorj]

Sorry doctorj, I have to agree with Al on most of his points.

$8-9trillion of assets? - most of which are OTC derivs. Lehmans are the only CDSs that have gone to settlement and at the auction they fetched between 8c and 20c in the dollar. That puts US and UK banks as all insolvent, as NYU economist Noriel Roubini recently stated. (He predicted the crisis in 07)

Roubini is an interesting chap. Many point out he's been calling for this for a long time now. I don't really want to criticise him though, but I do disagree with your representation of his thoughts on the UK banking system.

If you look at http://news.bbc.co.uk/today/hi/today/newsid_7846000/7846412.stm he says many banks in the UK are insolvent, but not the entire system. Coming from Dr Doom himself, that's almost bullish.

But in terms of hard numbers, Goldman's economist put out a note on Jan 21 putting total 'troubled assets' in the 3 largest UK banks (ex HSBC) at £350bn (book).

But we're not talking about Roubini (who is in a different league to Kohler), we're talking about Kohler's article.

Per the BOE November data (the latest available, I can send the data if you'd like), UK banks had £4.02 trillion in foreign debts and £4.07 trillion in foreign assets at current market prices.

Yes, £4trillion is many multiples of the UK's foreign currency reserves, but so what?

The UK is a bigger, more dangerous version of Iceland

According to the IMF, sterling is still the third most popular global currency reserve. The UK is the world's 5th largest exporter of manufactured goods. The majority of its foreign debts are in GBP.

So in the sense the UK is an island in the similar part of the world to Iceland and it has a much larger economy, it is a bigger more dangerous version of Iceland. It does however have more weapons at its disposal and isn't on the cusp as Kohler might have you believe.

And on the matter of the UK looking to be a more dangerous version of Iceland, I'll leave the last word to Nouriel "Dr Doom" Roubini.

In many ways the UK looks more like the US than Iceland: a housing and mortgage boom that got out of control; excessive borrowing (mortgage debt, credit cards, auto loans, etc.) and low savings by households; a large and rising current account deficit driven by the consumption boom (and private savings fall) and the real estate investment boom; an overvalued exchange rate; an over-bloated financial system that took excessive risks; a light-touch regulation and supervision system that failed to control the financial excesses; and now an ugly financial and economic crisis as the housing and credit boom turns into a bust.

 

[refined silver]

If you look at http://news.bbc.co.uk/today/hi/today/newsid_7846000/7846412.stm he says many banks in the UK are insolvent, but not the entire system. Coming from Dr Doom himself, that's almost bullish.

Maybe! Others though, are not so optimistic about the UK system!

But in terms of hard numbers, Goldman's economist put out a note on Jan 21 putting total 'troubled assets' in the 3 largest UK banks (ex HSBC) at £350bn (book).

Since when did Goldman's predictions on the number and value of troubled financial assets bear any resemblance to reality?

Per the BOE November data (the latest available, I can send the data if you'd like), UK banks had £4.02 trillion in foreign debts and £4.07 trillion in foreign assets at current market prices.

That means if the UK banks assets are only worth 90c in the $ (or pence in the Pound), they are insolvent. If their CDSs and other such assets which have no market, no clearinghouse, etc fetch similar Lehmans - 8-20c in the dollar, you can see they are very broke.

According to the IMF, sterling is still the third most popular global currency reserve. The UK is the world's 5th largest exporter of manufactured goods. The majority of its foreign debts are in GBP.

So in the sense the UK is an island in the similar part of the world to Iceland and it has a much larger economy, it is a bigger more dangerous version of Iceland. It does however have more weapons at its disposal and isn't on the cusp as Kohler might have you believe.

The UKs bailouts as a proportion of both GDP and GDP/capita are at present larger than the USs bailouts. If the UK cannot fund them, I can't see other countries lining up to buy their govt bonds. The GBP will be dumped, their interest rates will rise (inverse to bond prices) and they will be further up the creek.

I don't disagree that the UK is more like the US than Iceland, but all are up the creek without a paddle.