British Banks Technically Insolvent, But Recovery Still a Long Way Off

Includes: RBS, XLF
by: Craig Brown

The banking problems are by no means isolated here. Britain has a host of its own problems. One of its own, RBS, is noting that a number of the major British banks are technically insolvent. As Yves, at Naked Capitalism, aptly notes, it would be good if U.S. financial institutions were as frank about the situation.

Of course the government there, as here, will come to the rescue. That to me is the problem, but I will not bore you with that discussion again. I just did it.

In the long run, no real financial recovery is in sight until real estate hits bottom. With a lot of option ARMs resetting this year and next, I do not expect an overall real estate bottom until 2010 at the earliest, in the U.S. Some of the real estate issues are even worse in Europe, which could make its economy suffer even longer, which will be a drag here as well. Europe lagged us in the economic drop and will undoubtedly lag us in the return. The same can probably be said for (sub)merging economies that rely on us and Europe for exports. Even when some of that demand returns, it will take time for them to catch up.

A host of factories in countries like China are now shut down and millions of workers have returned home to rural areas. Reversing this trend there will take a long time as this recession is building a distrust there that will mentally be difficult to turn around. This presents an opportunity for some enterprising companies in the U.S. and Europe to fill the void, but those opportunities are still a good bit in the future.

Show Him the Door

I suggested yesterday that BofA should show CEO Ken Lewis the door. Too many wrong moves at the wrong time. Well, I am just now seeing that others agree. I am not a stockholder, so I am not directly impacted, but when his mistakes put over $150 billion in taxpayer money at risk, I think I have a vote. This is a big thumbs down in may book.