RBS Good money after bad

#23
Then we lose all our money. RBS aren't dishing out bonuses for the fun of it. They're doing what they need to do to attract and retain talent.
The only people who seem to be saying that with any regularity are the assorted CEOs, who strangely enough sit on each other's pay panels and rubber stamp each other's bonuses.

Given the phenomenal rise in CEO's pay over the last fifteen-twenty years one would have thought that a golden age of prosperity would have engulfed the western world. But no, who'd have thought?

Remind me how much the Rev Flowers of the Co Op was paid?
 
#24
What state would it be in with less competent staff?
And we know they are less competent by what measure ?
Are we paying a lot of money for it, in effect, to die more slowly ?
 
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#25
Otherwise you'd be living in a hovel with a midden for sewerage, horse and cart for transport and nobody smart enough to work out to improve things.

.
Bugsy's life in a nutshell.
 
#26
Does RBS make or lose money by sponsoring the 6N?

The answer should be obvious, but many things fail to follow logic.
 
#28
Does RBS make or lose money by sponsoring the 6N?

The answer should be obvious, but many things fail to follow logic.
Nobody profits directly from sponsorship, but they will measure things like brand awareness and positivity ratings, and have some idea how that impacts their bottom line.
 

Cynical

LE
Book Reviewer
#29
If it looks like you can't gild a turd, no matter how much you pay someone to do it, perhaps we should stop trying.
If you let RBS collapse, which would be the consequence of stopping shareholder (taxpayer) support you would probably cause another banking crisis. It is generally understood that this would not be a good thing.
 
#33
#34
From the top:

1) RBS, like many other banks, is suffering from a loan book of questionable value. Bits of it might or might not come good in time. No one knows. As the value of a bank derives (at least in part) from the quality and size of its loan book, that makes valuing RBS impossible.

RBS expanded extremely aggressively before the crash, paying way too much for overseas businesses....explicitly encouraged to do so by the Scottish "political mafia" of the time. It acquired a good deal of its loan book through acquisition of these businesses, with those loans issued at ridiculously tight spreads. It has been hit by a pincer movement, first credit spreads have widened so the book value drops....and second, the quantum of regulatory capital required to be held against these loans has increased. So, they've had to sell assets to increase their capital base. This is classic "negative convexity", or, in common parlance, being forced to sell your stuff at the worst possible time.

2) There are some parts of RBS that are both standalone and potentially or actually profitable. But there is little interest in buying them from the banking sector. No one wants a branch network, No one wants a whole bunch more employees and few have the appetite for the potential risks of loans that they did not write. (yes, there are specialists who do this, but they buy for pennies in the pound).​

The "vanilla" type debt has already been sold. What remains is highly structured debt, which requires a higher level of capital. The secondary market is awash with this shit, and most of RBS's remaining exposures of this nature of offshore, and often in markets that are now unfashionable. See point one above for corollary.

3) If RBS were to sell an asset and raise cash that money would belong to RBS, (of which taxpayer is a shareholder) and RBS might well find a better (i.e. more commercial) use for it that returning it to taxpayer. These would include writing off more bad loans and keeping its cost of capital down.​

Again, see point one. The "regulatory capital requirement" has increased. RBS sell (mostly their good) assets in order to raise cash to comply with capital adequacy regulations.

Yes, bankers are massively overpaid and the terms for some are obscene. successive governments have done little to sort out the City, which fundamentally overcharges.
That's subjective. I worked for a bank that never reported a loss (or anything close), didn't take a penny of government money and managed to expand its business throughout the crash. All bonus was paid in equity, with long retention periods and strong claw-back clauses. Nevertheless, we were painted with the same broad brush as all banks, with a one size fits all regulatory response.

The problem with RBS isn't "sorting out the City", it was that RBS and Government were complicit in attempting to create a "Scottish global banking champion". Unfortunately, they had a narcissist fool as CEO and we had a nationalist fool for a Chancellor.

You have to remember, RBS was actively encouraged, nay pushed, by Brown to buy ANB Amro. I remember at the time laughing with colleagues about the pissing match between RBS and Barclays...both of whom wanted to buy a franchise that was grossly overvalued by any measure. They paid three times book value for ABN, and didn't try to rework the deal when the crash hit. It's since come out that RBS performed only the most perfunctory due diligence, and relied upon ABN for asset valuations. It beggars belief. Again, make no mistake, this was 100% an ego driven acquisition...championed by Gordon Brown. It's the best deal Barclays never did, and I suspect they sent a case of decent single malt to Goodwin once hindsight set in.

The reasons for this include:
(a) the government always needs to borrow money​

The UK Gov't does not use banks to place its debt. The DMO deals directly with real money investors (pension funds, insurers etc.). No business for banks there.

(b) the mass of regulation reduces the pool of people suitably qualified (in the eyes of the regulator) to run a bank, thereby raising the prices​

The regulatory environment is relatively simple. There are no academic qualifications required to run a bank, or be a significant risk taker ("code staff"). I know because I held those roles and left school at 16 to two O'levels. The only formal test is the 'fit and proper person" test.

Formal qualifications a good banker does not make. I've had many, many people with multiple finance/economics/maths PhD's work for me who couldn't run a car, let alone a bank balance sheet.

(c) the fact that finance is international, and the US (effectively the rest of the world) pays very highly (again for dodgy reasons).​

The market isn't really that "international", at least between firms. International movement within firms is common, but it's far less common for a London based banker to move to, say, NY...at least these days. It was far more common in the early 2000's.

Salary and bonus ratio benchmarks are taken against local market conditions rather than as a function of what other markets pay.

(d) few politicians (or journalists) understand finance or the other City activities. (I include myself in this, although I probably know more than most).​

Absolutely true, and it has always been thus.

(e) reform of the City sounds marxist (and some approaches are).​

The City is, actually, quite comfortable with well crafted and prudent regulation. What it dislikes is tarring all with the same broad brush. It's like playing hardball with Nissan because VW were found to be cheating on their exhaust emissions figures. Poor analogy, but you get my point.

(f) the City generates a disproportionate amount of revenue for HM Treasury, and killing golden (or even silver) egg laying geese is never a good idea; less so if you happen to be an insolvent government like ours.​

UK Government is not insolvent, or anywhere close.

Regulation will not, nor has it, negatively affected the amount of tax revenue. It's affected far more by market conditions.

The simple, awful truth is that regulation created (and continues to create) an impression of risk control that is entirely wrong.
That is because most people, and politicians, do not understand what is being regulated or how the regulations work.

The practical reality is that prudence, in its literal and regulatory contexts, is almost entirely down to the individual institution. All the regulators can do, outside competition related matters, is to make purchasing certain types of assets more expensive than other types of assets. Whether the institution should be investing in those assets classes at all is down to the management. See point on ABN Amro, above.

My last bank had, and maintains, an extremely strong risk culture. That's why it's been so successful. By way of contrast, a friend took over as head of trading for one of the Italian banks currently in trouble. He was truly horrified to discover, on his first day, that the bank's traders DID NOT have individual risk limits on their trading books. If you have even the most rudimentary understanding of risk, you would know that such an arrangement is unconscionable.

Not all banks are the same. To continue the motoring analogy, they are as different as Ferrari and Kia.

Worse, restricting where money can be invested creates both bubbles in asset prices and incentives to find unregulated instruments, such as the Collaeteralised Debt Obligations which were at the root of the crash. Fatally, much of the price modelling relates to an estimate of risk. Many of these estimating techniques (I believe, but can't prove) have flawed assumptions that the associated probabilities follow a "normal distribution" (the bell curve).
Again, regulators do not proscribe where money can be invested. Rather, they require different levels of capital to be held against different types of investment, thereby making one more expensive relative to the other in terms of regulatory capital.

CDO's were not, and nor are they now, "unregulated" instruments.

Almost all CDO's were priced using a Gaussian Copula, which is a mechanism (albeit imperfect) to estimate asset correlation and, indeed, the correlation of correlated assets (the second derivative, the gamma if you like). No CDO modelling, or any other modern financial modelling, assumes a normal distribution.

The basic thesis with CDO's is that a security collateralised by a pool of assets (debt instruments) will have a lower probability of default than a single asset of a similar credit quality, because credit correlation is generally well behaved. Despite CDO's having different tranches of risk within the same structure (from AAA down to "equity") this all went out the window when asset (debt) correlations went to "1" during the crash. Nobody predicted that some mortgage securities, historically quite safe, would lose 60% of their value. CDO's didn't cause the crash, they exacerbated it.

That they don's is, to me, obvious from some of the comments on the crash seeing daily "26 sigma" price movements. (sigma is the standard deviation - in a "normal distribution" 95% of outcomes lie within 2 standard deviations of the mean.) The probability of a 26 sigma event is, I understand very much less that 1 divided by the number of molecules in the universe. If you suffer such an event once you are very unlucky, or your probability calculation was wrong. If you suffer it more than once your probability calculation is almost certainly wrong. All those maths graduates ("quants" in the jargon) who were (and are) paid huge sums to produce algorithms have failed to track (or create) their error budget.
We can go deeply into the maths if you want, but it's a common mistake to conflate standard deviation with normal distribution. There is no mathematical link between the two. It's Taleb's so called "Ludic Fallacy", and goes to the heart of your point. This is old hat. Even rudimentary models use ARCH type approaches to deal with discrete periods of volatility clustering.

As an aside, what were these "daily 26 sigma price movements" you mention?

In summary, some bankers should, indeed, have ended up in jail. My personal view is that Goodwin should be among them. They were anything but prudent, and everybody in the market knew it. Their pissing match with Barclays over ABN was watched with genuine incredulity. The problem was that the government at the time was complicit in RBS's aggressive and nationalistic drive towards a Scottish banking champion. Old "one eye" has a lot to answer for......but he won't be called to account.
 

DaManBugs

LE
Book Reviewer
#36
You have to have large capital projects to develop your society. No one has the funds to pay for it up front, so in order to build your hospital, power station, reservoir, waste treatment plant, school, housing development, shopping mall, motorway, airport infrastructure, rail routes and stations and any number of other capital projects, you need to finance them.

Otherwise you'd be living in a hovel with a midden for sewerage, horse and cart for transport and nobody smart enough to work out to improve things.

Do you think Elon Musk has enough money in his arrse pocket to pay for Tesla? But he's fixing the reliance on fossil fuels. Not entirely without problems, granted, but he's making a difference, and he's got to borrow to make it on a grand enough scale for it to work.

The banking system is a pariah, but is a necessary thing. A necessary evil, if you will.

Unless of course you have a Communist economy. Then you just end up realizing your mistake and revert to Capitalism, but decades behind.
I wholeheartedly agree with you that your man Musk is making an impact on the future, and more power to his elbow for aggressively prodding the complacent “car folks” to get their act together. That he requires vast amounts of finance to do what he’s doing is not in doubt, but I believe you’re comparing apples and oranges when you mention public projects within the same realm of understanding.

The UK is a sovereign nation with its own currency. There’s no way in the world that it can ever go bust. All the laudable (and very necessary) public projects you mention could (theoretically) be financed by the UK gobment at a mere fraction of the prices on the open loan market – even at the present ridiculously low interest levels. In general, no company (independent of its size), or other local gobment authorities, can access money at the interest rates available to national gobments.

That throws up the rather interesting question as to why such diabolical (and still highly secret) conditions were (and are still being) entered into by the (whatever) UK gobment for the PFI schemes that are directly funnelling loads of taxpayers’ money to greedy companies only interested in the bottom line and who don’t give a shite whether they’re bankrupting the NHS (for instance) or many other public sectors. In addition, such colossal transfers of taxpayers’ funds are not being used to stimulate local (UK) economies, but rather ending up in the offshore accounts of companies that have no interest whatsoever in “national economies”.

The very nature of such “Public, Private Initiatives” is highly debatable. As far as I can make out, the Capitalists (in general) realised that it wasn’t in their interest to continue to invest in production because the rate of interest had been falling for decades. So they decided that a secure and long-term income was to be had from the public purse (that means taxes). In view of that, they began to develop ideas that would appeal to the greedier MPs , promising them a cushy position in the sector they were promoting – which has proved to be the case time and again!

There was a lot more I wanted to add, but I’m a bit stoned at the moment and my attention’s been taken by a fella on the other side of the road who looks remarkably like Fred Astaire and who’s dancing along the rooftops in a top-hat and tails. I’ve already alerted “Britain’s Got Talent”.

MsG
 

DaManBugs

LE
Book Reviewer
#37
@DaManBugs - ooh, a SABC but with no counter-argument: that's not like you.

Now, please direct me to the article or website that highlights the current plight of dock workers and builders.
You're trying way too hard, fella. Everyone else on ARRSE recognised that I was referring to was with regard to such jobs in the context of a representative symbolism. But you didn't. That's why no-one else but you has brought up the subject.

So your pathetically desperate bid for: "Hey, lookamee, ARRSE vermin (or ARRSErs in general)! Here's me asking Bugsy to explain himself. Ain't I great?" didn't have the desired affect. All that's falling on deaf ears, doobie. No-one on ARRSE is in any way interested whether you live or die.

MsG
 
#38
Old "one eye" has a lot to answer for......but he won't be called to account.
You mean the incompetent buffoon that presided over the near collapse of the banking system and almost single-handedly put his party into Opposition for a decade or more?

Useless, useless winker.

I don't whether to laud him for services to the Conservative party or have him shot. I am tending toward the latter.
 
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#39
Everyone else on ARRSE recognised that I was referring to was with regard to such jobs in the context of a representative symbolism.
Everyone? Really?

If you believe that, then you are more deluded than I thought.

'Representative symbolism' - is that shorthand for 'I made it up'?

So your pathetically desperate bid for: "Hey, lookamee, ARRSE vermin (or ARRSErs in general)! Here's me asking Bugsy to explain himself. Ain't I great?" didn't have the desired affect. All that's falling on deaf ears, doobie. No-one on ARRSE is in any way interested whether you live or die.
Nice try, but no: I was hoping that you would/could give depth to your original sweeping statement.

Given your response, I think someone may have over-caffeinated today.
 
#40
That throws up the rather interesting question as to why such diabolical (and still highly secret) conditions were (and are still being) entered into by the (whatever) UK gobment for the PFI schemes that are directly funnelling loads of taxpayers’ money to greedy companies only interested in the bottom line and who don’t give a shite whether they’re bankrupting the NHS (for instance) or many other public sectors. In addition, such colossal transfers of taxpayers’ funds are not being used to stimulate local (UK) economies, but rather ending up in the offshore accounts of companies that have no interest whatsoever in “national economies”.
Two comments.

First, the biggest proponent of NHS PFI schemes is......the NHS.

Second, the older NHS PFI schemes are being quietly renegotiated behind the scenes.

The last sentence isn't worthy of comment, it simply isn't true. The overwhelming majority of NHS PFI risk ends up with UK real money investors (read pension funds). The benefit of PFI, to governments, is that it keeps the debt off-balance sheet. That, in turn, allows government debt to be kept within policy caps.

You should also be aware that the migration of NHS Trusts into NHS Foundation Trusts has altered the risk borne by PFI investors. Strictly, the Minister (read Treasury) is no longer required to guarantee NHS Foundation Trust liabilities should the Trust become insolvent.

Still, don't let prejudice get in the way of opinion.
 

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