The Irish Republic

[manshimajin]

Forget Lloyds, they were never in trouble.

Is that correct? I thought that the decision by Lloyds to takeover HBOS (no doubt assisted by Darling Brown) ended with them in major trouble and that they are now majority owned by UK taxpayers.

 

IF they had stood aside and not got involved with HBOS then they probably wouldn't have been in trouble - but I suspect they saw an opportunity to be even BIGGER and got into trouble in consequence.

 

Dropping value by 87.05% doesn't sound exactly like a sparkling perfomance IMO.

[pongo]

Dropping value by 87.05% doesn't sound exactly like a sparkling perfomance IMO.

 

Isn't that partly to do with the way in which listed companies are very often valued only in terms of growth rather than long term steady profitability. Because stock markets are fickle. So often a stock price falls on poor expectations of infinitesimal growth rather than because anything is especially wrong.

 

And partly because the sector is very much down in general.

 

Counterintuitively the share price very often does not reflect the health of a company.

 

ETA: disgruntled share holders looking for someone to blame for their investments dropping in price might look at the numbers and draw a calendar correlation with the period following the HBOS takeover.

[manshimajin]

Dropping value by 87.05% doesn't sound exactly like a sparkling perfomance IMO.

 

Isn't that partly to do with the way in which listed companies are very often valued only in terms of growth rather than long term steady profitability. Because stock markets are fickle. So often a stock price falls on poor expectations of infinitesimal growth rather than because anything is especially wrong.

Pongo IMO sentiment, growth versus dividends etc etc are part of the picture.

 

However in times like these a company with a strong profit and dividend record should be well valued - provided there is no risk associated with its business - for example the pharma sector has fluctuated a little but not lost 87%.

 

If you look around the world not all bank sectors are down significantly viz Canada and Australia (given that a smaller bank in Australia Macquarie is about 50% off its peak value just now) - because the banks there did not get into riskier lending and riskier derivatives and were better regulated. To lose 87.05% of shareholder value is quite an achievement I suspect - particularly when the business is supposed to be as 'safe as a bank'....

 

Lloyds, I understand, is now about 75% owned by the UK taxpayer - which also means that the other shareholders have had to accept a major dilution of their shares to keep the bank afloat post the HBOS 'deal'. If that size of capital injection had not been made by the State Lloyd/HBOS would have been dead.

 

I suspect that the market has looked at Lloyds and identified that it is currently not a top performing bank and didn't like the risk profile post acquiring HBOS (which was the Lloyds Chairman, Board and CEO's decision). Of course it should come back after all the taxpayer support it has received - but that depends on the UK economic recovery which will take some time IMO.

[Cambon]

Lloyds, I understand, is now about 75% owned by the UK taxpayer - which also means that the other shareholders have had to accept a major dilution of their shares to keep the bank afloat post the HBOS 'deal'. If that size of capital injection had not been made by the State Lloyd/HBOS would have been dead.

 

I suspect that the market has looked at Lloyds and identified that it is currently not a top performing bank and didn't like the risk profile post acquiring HBOS (which was the Lloyds Chairman, Board and CEO's decision). Of course it should come back after all the taxpayer support it has received - but that depends on the UK economic recovery which will take some time IMO.

 

Lloyds is 41% owned by UKFI, and actually have enough reserves to be able to buy back and liquidize most of the UKFI holding. Basically, when the government engineered the Lloyds take over HBOS, they wanted to own 4 banks - one retail, one commercial, one investment and one lending. They already had Northern Rock and Bradford and Bingley. They bailed out RBS, but could not afford to bail HBOS as well. So, they basically conned Lloyds into doing it by not disclosing the extent of the HBOS debt. Lloyds has been fighting to free itself from UKFI ever since, and has actually managed to reduce the UKFI holding from 43% to 41%.

 

It is a pretty horrendous situation and the government need to get out of these banks ASAP before they really screw things up. .

[manshimajin]

Lloyds is 41% owned by UKFI, and actually have enough reserves to be able to buy back and liquidize most of the UKFI holding. Basically, when the government engineered the Lloyds take over HBOS, they wanted to own 4 banks - one retail, one commercial, one investment and one lending. They already had Northern Rock and Bradford and Bingley. They bailed out RBS, but could not afford to bail HBOS as well. So, they basically conned Lloyds into doing it by not disclosing the extent of the HBOS debt. Lloyds has been fighting to free itself from UKFI ever since, and has actually managed to reduce the UKFI holding from 43% to 41%.

Cambon thanks for the update.

 

My point is that (due to what you have outlined above no doubt) Lloyds got into SERIOUS trouble - it wasn' a case of never being in trouble - though it was a 'shooting themselves in the foot' situation.

 

It would have been far better IMO for Lloyds to have stood aside as they seemed to be a more conservatively (i.e. better risk management?) managed business than some of their competitors and let the UKG deal with HBOS - but I recall the Lloyds Chairman in interviews being VERY keen at the time to grow the bank through this acquisition. He talked the deal up a lot. The plumetting value of the Lloyds shares does show that the investment market were not impressed by the situation (possibly the dilution of shares).

 

t least there has been some very modest good news for Ireland this week with corporate tax ahead of expectations due to improved exports, excise duties up a bit with slightly better retail sales and a reduction in the live register - possibly due to emigration and fewer Central Europeans staying on (which is a mixed blessing). Still not all news is black!

 

P.S. I wonder which will get priority at Lloyds? Using reserves to liquidize the UKFI holding; or to pay bonuses? IMO the first hould be done ahead of the second - particularly if 'future Lloyds' is not planning to be a big international and derivatives funded business.

[Cambon]

I think this

 

 

http://uk.reuters.com/article/idUKTRE6B153Z20101202

 

Is Irelands best news in a long time!

[P.K.]

Peston.

[Cambon]

Peston.

 

Another indirect tax! Brilliant.

[Snaipyr]

The world of finance is a sweet mystery to me, but this hardly seems fair:

 

http://newswhip.ie/national-2/aib-staff-in-e40m-christmas-bonus-bonanza

[manshimajin]

The world of finance is a sweet mystery to me, but this hardly seems fair:

Future bonuses in state supported banks in Ireland will be taxed at 90%. This does not apply to past bonuses as they have to be taxed at the tax rates applying in the year the bonus relates to. Given in 2008, the year for which the bonus applied, AIB managed to lose 89% of its value it's strange that they need to hand over €40 million. What is worse is that this is coming out of the taxpayer and EU funded rescue monies. I understand that the only reason they are doing this is that a trader took them to court and the judge ruled that it had to be paid.

 

In the old days the group I worked for always had in its contracts that bonuses were subject to the capacity to pay. If the group did not make a profit no bonuses were paid. The bankers are smart though - they have 'guaranteed bonuses' which I would have thought would be a contradiction in words. How can you guarantee something that is supposed to be performance related before you know what the performance has been?

[Cambon]

 

In the old days the group I worked for always had in its contracts that bonuses were subject to the capacity to pay. If the group did not make a profit no bonuses were paid. The bankers are smart though - they have 'guaranteed bonuses' which I would have thought would be a contradiction in words. How can you guarantee something that is supposed to be performance related before you know what the performance has been?

 

It is called Golden Handcuffs. It is to tie the person to the company rather than a bonus which is performance related.

 

For example, I have a friend whose the son of a man who is massive in the insurance world. He is "tied" into a certain insurance company simply because of his name. Yes he is very good at his job, but basically, the insurance company he is "tied" to is not the company his father is associated with. However, having my friend's name associated with the insurance company he works for is worth far more to the insurance company than the amount my friend is paid. He knows this, and negotiates each year.

[Cambon]

One man's view....

 

 

 

The last 3 seconds are the best bit!!! LOL

[manshimajin]

It is called Golden Handcuffs. It is to tie the person to the company rather than a bonus which is performance related.

Far better then to call them 'golden handcuffs' rather than 'guaranteed bonus' which is an oxymoron. IMO golden handcuffs are themselves a very risky business practice if used repeatedly year after year as it places the business in the 'gun at head' situation - sooner or later it must rely on its own competence as a business - nobody is indispensable.

[Lonan3]

One man's view....

 

I'd vote for him!

[manshimajin]

The last 3 seconds are the best bit!!! LOL

...and you could substitute the name of a country of your choice for 'Ireland' and it would be pretty much the same story (maybe Australia and Canada excepted). He summarises the GFC pretty well!