I wrote the last piece about nationalisation, because I was reflecting upon the challenges involved in the banking sector right now.
The bottom-line is that shareholder confidence has disappeared in the sector, especially in the UK.
For example, on 12th December I put a chart together for one article as follows:
Share Price Market Market Shareholder
52 week 12/12 Loss of cap * cap
High Low 2008 value (£bn’s) (£bn’s) (£
56.50 70.0 91.6% £3.83 £45.74 £41.91
40.20 55.5 88.8% £21.94 £195.78 £173.84
Barclays 576.00 117.20 143.7 75.1% £12.03
Lloyds TSB 510.00 115.00 131.5 74.2% £7.96 £30.87 £22.91
HSBC 938.00 605.25 700.5 25.3% £84.86 £113.63 £28.77
* as at 14:00 on 12 December
Today, these shares have bounced up a little, but they are still trading low.
At 9:20 this morning, Royal Bank of Scotland Group (RBS) had risen 20% to 15 pence; Barclays (BCS) was up 6.9% at 69 pence; Lloyds Banking Group (LYG) had risen 19% to 54
pence; and HSBC (HBC) was up 5.4% at 544 pence.
But the UK government will find it nigh on impossible to nationalise these banks anyway.
First, because no-one wants them to, unless they really have to.
Second, because some of these banks are so globalised, that it would not be in the UK taxpayers' interest to do so.
Take Royal Bank of Scotland (RBS).
Now, I hate to kick a man when he's down, but I did have a pop at Sir Fred in a US article yesterday. Why? Because, in retrospect, the sheer arrogance of buying ABN AMRO to p**s off John Varley was just idiotic, and the price paid was stupid.
But if the government were forced to nationalise Royal Bank of Scotland, what would they do with Citizens, Charter One, ABN AMRO and all the other overseas operations and businesses?
It is surely not in the UK's interest to fund overseas markets and operations, particularly if the UK taxpayers would lose billions by doing so.
Nope. If the UK government did nationlise RBS, they would just have to sell off all those overseas businesses, losing us billions more in the process.
That's one reason why RBS has to stay private.
Another blockage however is that, in this globalised world, some banks just cannot be invested in because they are owned by overseas organisations.
For example, Barclays Bank turns out to have a clause from their last investors, the Abu Dhabi Royal Family, that makes it impossible for the government to get a stake in the bank*.
These global movements make national governments powerless.
So what is the solution?
Well, I've mentioned it many times, but a shareholder guarantee scheme has to be the way as we need shareholder confidence to get the banks back on track and Tier 1 Capital to raise.
Howsabout a guarantee for retail investors only, not hedge funds or others, that if they buy bank shares today and hold them for five years, the government guarantees they will make up the difference for any losses on those shares should there be any.
At least that would mean that the money to prop up our banks was coming from commercial market forces rather than taxpayers' pockets.
* maybe this is why Barclays is down 8%, after that early bounce, to just over 60p by 11:30.