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Britain to break up the taxpayer owned banks: Citigroup Beware

inoculatedinvestor's picture




 

The Telegraph is reporting that Britain will follow through on its promises to break up the banks that are taxpayer owned in order to dampen the banking monopoly that dominates that market. The two semi-private banks slated for gutting are Royal Bank of Scotland and Lloyds Banking Group, both of which were saved by taxpayer bailouts in the last year or so. In addition, Northern Rock, which is completely owned by the state, looks like it will be split into a good bank and a bad bank, with the good portion to be sold off as soon as possible:

Many of their assets will be sold off in deals which ministers will present as fulfilling Gordon Brown's promise that the taxpayer would get "pay back" for the multi-billion pound Government bail out of the sector last year.

Assets to be sold could include Cheltenham & Gloucester, currently owned by Lloyds, and RBS-owned NatWest branches in Scotland.

 

The three new-look banks, all of which have their roots in smaller-scale high-street operations of the past, will be:

* The TSB, the old Trustee Savings Bank whose branches were bought up by Lloyds. These will now be resurrected across the UK.

* Williams & Glyn's, which had a brief period of operation in the 1970s and 1980s. Owned by RBS, it will be formed of hundreds of the Scottish group's English branches.

* BankCo, the "good bank" portion of the entirely state-owned Northern Rock, which will include retail deposits, mortgages, and branches. Ministers are keen to sell the operation off as soon as possible.

So, while the US banking system continues to consolidate and the too big to fail problem increases exponentially with each additional derivative contract, our colleagues across the pond are enacting the type of reforms that are desperately needed in the US. Both Paul Volcker and Mervyn King have in the last 2 weeks called for a separation between commercial banking and proprietary trading. In one of his emails this past week, fund manager Whitney Tilson of T2 Partners advocated the same split. James Kwak of The Baseline Scenario has directly addressed the topic of whether bigger banks are better and has come to the conclusion that “[t]his whole argument, that global companies need massive banks, is one of those things that sound plausible until you actually start thinking about them.” Additionally, I have also read a compelling counterpoint to the idea that if the US breaks up the banks or regulates them too severely (with capital requirements or leverage caps) the banks will leave the US for less restrictive locals and as a result we will all be worse off. I am paraphrasing but the gist of the argument was that we should be willing to let the banks leave if that means that they take their unabashed risk taking with them and we are left with a more stable banking system and economy.

Accordingly, there is a chorus of very distinct voices rising up on the side of breaking up the banks and separating the risk-taking functions from the plain vanilla lending operations. But where do the US Treasury and Fed stand on this topic? Maybe the better question to ask is where the bank lobbyists stand. Clearly, the banks have no interest in the perceived logistical nightmare of splitting up or the potential loss of monopoly power. So, my guess is that if the lobbyists have their way there is little hope of the US following in the shoes of its British counterparties. What is probably the most amazing aspect of the plan coming from Alistair Darling is that the government is putting in provisions to protect against further consolidation. The Brits seem to believe in “never again” while Geithner and Co. believe in “let’s go back to 2007.”

Officials said the move would increase competition on the high street and would mean a better deal for customers looking for mortgages or current accounts which did not charge fees.

 

They added that the announcement would mean the break-up of the established "monopoly" over retail banking of the high street giants – whose numbers also include Barclays, Santander (owners of Abbey) and HSBC…

 

Under the deal, the new institutions will not be allowed to be taken over by any purchaser which currently owns a British retail bank. Ministers will stop this happening using their powers as controlling shareholders in Lloyds, RBS and Northern Rock, rather than by new regulations.

Channeling my inner Nassim Taleb: less opacity and reduced concentration within the financial system leads to robustness and minimized fragility. (You can tell I have listened to way too many Taleb presentations.) As an added benefit, the more competitive nature of the mortgage and credit markets could lead to lower fees for consumers and businesses. Obviously, these actions in the UK provide minimal solace for those lucky Citibank customers who now have to pay 30% or more on their credit card balances despite their solid credit ratings. But I do think this is positive step and there is a ray of hope. Remember how quickly the SEC moved to ban short selling in US financial stocks after the FSA did so? It was like once someone had bitten the bullet the US regulators were willing to jump on board. Now, banning legitimate short selling was a terrible idea and all it did was temporarily halt the decline in the shares of the financial companies on the very dubious list. However, if all the Treasury, Congress and Fed need is some precedent, then maybe this announcement by the Brits will lead to a concerted effort to reduce the dangerous concentration of our financial system that continues to generate exorbitant profits at the expense of the taxpayer.

 

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Mon, 11/02/2009 - 16:05 | 117484 Anonymous
Anonymous's picture

And now, strangely, the SEC Requests copy of financial film spotlighting naked short selling and stock market manipulation--especially focused on SIRI shares.?http://www.prlog.org/10282455-sec-requests-copy-of-financial-film-stock-... saw "Stock Shock" and it was eye-opening. DVD isat Amazon.com and www.stockshockmovie.com

Mon, 11/02/2009 - 01:55 | 117047 Anonymous
Sun, 11/01/2009 - 22:18 | 116949 Careless Whisper
Careless Whisper's picture

What about Barclays?

Mon, 11/02/2009 - 06:05 | 117083 ict558
ict558's picture

Barclays was not bailed out by the Government.

The break up has been ordered by the European Union, which considers companies backed by the state to have a competitive advantage over others.

Mon, 11/02/2009 - 18:08 | 117608 Miles Kendig
Miles Kendig's picture

hahahaha  Yu are so funny  Barclays not bailed out..   hahahahahahaha

Mon, 11/02/2009 - 01:22 | 117036 Miles Kendig
Miles Kendig's picture

Barclays like JPM, GS, SocGen, Deutschebank are they national treasures to be left unfettered or will they face the same treatment?  Highlights at 11.

Sun, 11/01/2009 - 16:58 | 116743 Anonymous
Anonymous's picture

I'll wait to see the details since there is the "taxpayer owned banks" clause that gives me pause.

It matters whether 'taxpayer-owned' means that they are PARTIALLY bailed out or fully bailed out. If partially bailed by the taxpayer and still to be broken up then fine, but if the requirement is that the taxpayer owns them 100% there aren't too many that would be broken up.

And here in the good ol disUnited States, the institutions that have gambled the entire global economy to finance their lust for power, Hampton estates, G sevens, Manhattan Piles, along with artworks that cost hundreds of millions, would not be subject to dismemberment. And therein lies the rub.

Sun, 11/01/2009 - 16:54 | 116740 Anonymous
Mon, 11/02/2009 - 00:35 | 117019 Bear
Bear's picture

Thank you for this link ... a picture of our future ... it won't take long if we get a run going

Sun, 11/01/2009 - 15:50 | 116713 Anonymous
Anonymous's picture

Well here it is....

The average citizenry cannot do anything about the "current
failed lobbyist win by advertising false democracy" that it sits in the middle of....

Thus the outcome becomes rather easy to predict....

What will/is happening will be a blend of Japan's failure to eliminate worthless debts.....and a lot like Argentina's peso debacle of 2002....

Both will commingle and create an American hybrid whereby the direction of America will be such that tax structure will have the largest impact....

The current other proposals such as "cap and trade" will be a big negative for the people....and a big plus for the proprietary desks of GS , JPM etc....

In short ....as long as there is some milk left in the cow....you can believe that GS and Co. will get it all....and move on to Asia or wherever they smell more blood...

So all one needs to do with regards to knowing what is going to happen next....all one has to do is think of what is best for GS and ilk....

That's all you have to do....

GS and their Ilk simply views the US poly process as one where they can spend millions and reap billions....

And as long as they can spend $millions and reap $billions.....THEY WILL....

And THEY know that there is nothing that the average American citizen can do about it.....nothing....

Sun, 11/01/2009 - 19:12 | 116835 Anonymous
Anonymous's picture

You are dead on the money correct.

The only thing I disagree on is that the Asians will let Goldman Sachs walk all over them the way Obama/Geithner are letting them walk all over the US Taxpayer. The Asians are remotely so stupid.

Sun, 11/01/2009 - 13:16 | 116630 AN0NYM0US
AN0NYM0US's picture

from conspiracy corner

Bob Chapman has postulated (on inside information) that BofA is being positioned as the catch-all for all of the toxic waste in the system or something to that effect and then will be imploded  - audio here

and Ron Paul in the current issue of Forbes here

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