The Peston wrote a blog note this morning in which he suggested that the banks had “asked” the chancellor for capital injections. He did so without being able to be clear on the names, terms or size of such a transaction.
Since it is known that he speaks with the authority of Downing Street, UK banks crashed approximately 20 – 30% on the news taking a (tentatively recovering) market with them. The volatility, of course, is much worse than normal because there are no longer any short sales of banking stocks to absorb the risk.
Had the banking stocks been allowed to follow the market and trade naturally, they might well have been able to continue to go to the market for new capital (Lloyds did this on the day of the HBOS announcement with great success). Of course, this government’s need to be constantly seen to be doing something has triumphed and Peston’s attempt to make the chancellor look important has resulted in the largest one hour crash in banking stocks in living memory on the London market.
We have a regulatory announcement system PRECISELY to stop this kind of activity If material talks take place, a company must announce with absolute clarity what is contemplated so that shareholders are able to judge simultaneously and equally the likely impact on the stock.
Once again, the political imperative to make Gordon Brown look involved and competent has put in jeopardy the already fragile UK banking system and the markets upon which it relies.
Had a hedge fund published this kind of speculation while trading in the stocks, they would now find themselves the subject of an FSA investigation.
Quite. See also Who Told Peston?
It seems to Guido that not even a disaster in Glenrothes will divert the Labour Party from its lemming instinct.
Guido watched Randall Live on Sky earlier this evening interviewing Martin Sorrell. An adult conversation about business and the markets with some interesting insights. Sorrell explained what he was up to re-domiciling WPP in Ireland. It wasn’t at all the hectoring quasi-Marxist business bashing that so often characterises the BBC’s reporting – which might be fine for Guardian readers but is pretty tiresome for people interested in business news. Randall is recommended.
No doubt this will be attributed to LibDem propaganda and dirty tricks. Everyone else is clearly lying except Mandy…
So it isn’t hard to see that kind of market capitulation happening. In the tech bust of 1999-2000 many stocks fell 90%. Some bank stocks have already dropped 90%. There is nothing government can do to alter the reality and this has to play out. Tokyo had near zero interest rates for the best part of a decade (sorry Vince that was no panacea). The liquidity problem is/was a precursor to the solvency problem. Governments can flood markets with liquidity but that can’t fix insolvency. This is going to be painful.
Politicians who claim to have solutions to the credit crunch are infantalising the electorate. The best they can do is ameliorate the problems. They can’t alter the underlying reality. Over-priced assets are crashing and bringing down the banks – not all – some like HSBC are relatively unscathed. There are pluses as well, if you are in your twenties you will have a better chance of getting on the property ladder now…