Archive for March, 2008

Guido is One Sharp Cookie

March 14, 2008

Blogging is a heck of a meritocracy. My oft-forgotten, hardly-up-to-date little blog got a mention at Guido Fawkes thanks to the post about Newsnight. Thanks Guido!

The Irrelevance of Northern Rock

March 14, 2008

The UK has added circa £111bn of assets and £110bn of debt to its balance sheet. A back of the envelope calculation would suggest that, even with a major housing recession, the British taxpayer will only have to cough up a small fraction of the amount the press suggest.

A 40% real-term drop in house prices and an exceptional default rate on mortgages of 10% would mean a loss of only £4.5bn, £75 per person.

The British taxpayer spends £4bn per annum on the World Bank, £10bn is given in net subsidy to the European Union, the proposed ID card scheme will cost £6bn just to set up and £20bn has been wasted on the NHS computer operations in the last few years. There is so much fat on the lumbering beast that is the British government that at this point a few more pounds is just a little more blubber.

By far the greatest economic worry for Britain is the public sector pension obligation. Amounting to £1,000bn these future payments have quadrupled over the past 10 years. While future social security and pension funding is at the forefront of all facets of the US government economic policy there is no talk in the UK of the, proportionally, far larger debt. It makes the targeting of Northern Rock for political wrath so puzzling.

How Safe is your Bank (pre-Bear Stearns implosion)

March 14, 2008

The ever brilliant FT Alphaville Markets Live posted a Credit Suisse note earlier with credit default swap numbers for the UK banks:

UK bank CDS are fairly flat with A&L at 375bps, Barclays 163bps, B&B 425bps, HBOS 245bps, HSBC 145bps, Lloyds TSB 133bps, RBS 205bps, and Standard Chartered 143bps. It is interesting to note that HBOS CDS is now similar to levels where A&L and B&B were trading just a few weeks ago. Credit market commentators continues to cite confusion around the decision to issue non-equity tier 1 (particularly given they are already close to maximum headroom on the innovative).

For those who think the above is gobbledegook: A “CDS” Is a Credit Default Swap – a complex mechanism that insurances against a company defaulting. The “bps” is simply basis points (1/100th of 1%) – the cost of insuring the debt of that institution. The higher the bps the more risk the financial markets think there is in holding that banks’ paper.

Here’s my own chart of the above data (click for full size picture):

CDS for major UK banks

Note: many foreign banks operating in the UK are considered a far higher risk than Bradford & Bingley, including the Icelandic and Indian options.