My first job as a financial journalist was covering British building societies, so the nationalisation of Bradford & Bingley £42bn mortgage book, with Banco Santander favourite to take on its £22bn of retail deposits and its 200-branch network is a striking event.
I used to write about building societies under the guidance of Robert Peston, who was then (in the early 1990s) banking editor of the FT and is now business editor of the BBC. So his assessment interests me:
The nationalisation will be seen as proof that the demutualisation of building societies – which began when Abbey National became a bank in 1989 – has been a colossal failure for both the former building societies and the British economy.
These specialist mortgage lenders were under such pressure to grow their profits, as public companies, that they became reckless adventurers in wholesale funding markets.
I think that is correct. Many of the building societies struck me at the time as being self-satisfied and complacent, largely because they had an very well-tested and safe way to make money. They simply maintained a spread between what they paid on retail deposits and what they charged for mortgages.
The business, in fact, approximated to the old saying about the banker: that he paid interest at three per cent, gave out loans at five per cent and was on the golf course by four o’clock. Read more
You might think that $2 – the sum that Nomura reportedly paid for the equities and investment banking franchises of Lehman Brothers in Europe – is cheap for a London-based investment bank.
However, since the dollar is trading at about $1.84 per pound at the moment, it is a slight premium (in nominal terms at least) to the ₤1 that ING paid for the remains of Barings in 1995. Read more
I see (via Felix Salmon) that the credit default swap marked, distrusted by Chris Cox of the Securities and Exchange Commission and beloved by Alan Greenspan, now believes that the US government is more likely to default on its debts than McDonald’s.
FT Alphaville reports that: Read more
Further to my post below, here is Luis Zingales on the liquidity versus solvency flaws in the Paulson plan, and “a smart friend” of Greg Mankiw retorting. According to the latter, it is “academic” economists who oppose the plan. Meow.
As John McCain makes his way to Washington to save the nation, a deal seems to be about to be struck on the $700bn bail-out package proposed by Hank Paulson, the Treasury secretary.
Meanwhile, a consensus is forming elsewhere that Mr Paulson and Ben Bernanke, chairman of the Federal Reserve, are taking aim at the wrong side of the balance sheet of the US banking system.
George Soros argues in the FT this morning, as Martin Wolf did the previous day, that the $700bn would be more efficiently spent on recapitalising US banks and then letting them get on with their business, rather than attempting to set a new price for the mortgage securities at the heart of the crisis.
That would be more in tune with, for example, the approach taken by Scandinavian countries during their own banking crisis in the 1990s. Read more
My FT column this week this week is on Goldman Sachs, recipient of $5bn from Warren Buffett, and whether it can keep combining private profit and public service: Read more
Listening to Chris Cox, the chairman of the Securities and Exchange Commission, giving evidence to Congress a few minutes ago, I was particularly struck by his assault on the lack of regulation of the over-the-counter derivatives market.
Mr Cox described the unregulated $58,000bn credit default swaps market as “ripe for fraud and manipulation”, saying that it was a forum for the shorting of corporate debt without the oversight imposed on cash markets. Read more
It is extremely rare for my prophecies to come true within a week, so I am gratified that Goldman Sachs and Morgan Stanley have come round to my point of view and thrown in the towel as independent investment banks.
Instead, they are turning into bank holding companies, regulated by the Federal Reserve, which puts them on a par with commercial banks and provides an even bigger backstop from the Fed. Read more