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John B. Lounsbury Ph.D., CFP is a financial planner and investment advisor in Clayton, NC.
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  • The Atlantic Keeps Getting Wider and the Pacific Narrower 3 comments
    Nov 3, 2009 05:38 PM | about stocks: AIG, C, FNM, FRE, ING, RBS, LYG
    The UK is joining The Netherlands and Gernamy in forcing the break-up of banks that can't survive without government support.  The Royal Bank of Scotland (RBS), Lloyds Bank (LYG) and Northern Rock wiil be broken up, according to an article at ft.com by Angelo Faiola (here).

    This follows the news a day earlier that both Lloyd's and RBS have asked for  £54 billion in additional government support between them (here).

    The gulf of the Atlantic ocean is wider than ever for the financial world.  European governments are insisting that their troubled banks face the music and restructure into separate parts that can survive on their own.  This involves less long-term sovereign debt commitment, although the short-term financial pain for bond and equity holders as well as sovereign debt positions will probably be significant.

    This all follows the announcement last week (here) that ING has announced a four year plan to break up, under pressure from and sponsorship of the Dutch government and the European Commission.  This follows an earlier forced reorganization of Germany's Commerz Bank.

    Meanwhile, in the U.S. AIG (about 80% government ownership), C (about 40% government ownership), FNM and FRE (both virtually 100% government ownership) are proceeding on an undefined path.  There are viable financial operations buried inside these bloated carcasses but there appears to be no plan to get them out, let the unrecognized losses be put on the books and the equity and bond positions be restructured to meet reality.

    At the present time, the U.S. looks more Japanese than European, speaking in financial system terms.  Edward Harrison (here) has a good article discussing the dead end to which that leads.   Simon Johnson also has a good note about the lonely path the U.S. is following here.
    Themes: Commerz Bank, Northern Rock, European Commission, banking crisis, financial crisis Stocks: AIG, C, FNM, FRE, ING, RBS, LYG
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This post has 3 comments:

  •  
    John, your observations vs the American system now "looking very Japanese" is on the money.

    All we need to do now is have the Government start assembling keiretsu structures, LOL, they already own AIG, so add that to GM, toss in C, and they have the core of the typical Japanese keiretsu business group: A major manufacturer, its bank, and an insurance company, all with a snug arrangement with the central government. Add in some steel, maybe a few of the major supplier's GM cut loose to drown like puppies in a sack...

    Put outlandish fantasy valuations of certain assets on the books, loan the participants money at less than zero interest, and protect their home market share with the police power of the state...

    Yep, not too hard to see that in the current arrangement.
    Nov 03 06:15 PM | Link | Reply
  •  
    Nice post John L.---I agree that if the USA would simply follow the lead of Europe in this matter, there would likely be much pain averted later on. Of course, such an action would be prudent and require a small amount of foresight....Don't see it happening.
    Nov 03 06:20 PM | Link | Reply
  •  
    I agree with Swash! Great article and a low probability of necessary actions being taken here in the financial industry. It would require at least some pain now. I don't see this Administration taking that tack and risk even lower approval ratings. BO is listening to the polls, but has no idea how to interpret what they're telling him, IMHO. The only chance for a change in direction here is if the other G20 leaders force BO and Ben into a corner and extract it from them.
    Nov 04 12:36 AM | Link | Reply
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