The Big Short - Backing the Banks to fail - UK
Discussion
I’ve just come across this article on the BBC.
https://www.bbc.co.uk/news/business-46472578
What are your thoughts on this? I’m no expert on this at all. I enjoyed the film, worth a watch if you’ve not seen it.
https://www.bbc.co.uk/news/business-46472578
What are your thoughts on this? I’m no expert on this at all. I enjoyed the film, worth a watch if you’ve not seen it.
Too big to fail, the governement will just bail them out like last time. Lower the interest rates to zero, print a load more money and they can kick the can even further down the road.
It does feel to me that we are on the cusp of something big happening. People just don't seem to want to spend money at the moment, if Brexit doesn't go well I suspect we will enter the recession we should have had ten year ago.
It does feel to me that we are on the cusp of something big happening. People just don't seem to want to spend money at the moment, if Brexit doesn't go well I suspect we will enter the recession we should have had ten year ago.
I seem to remember we did have a bit of a bumpy ride 10 years ago.
I don't know about the banks failing, I imagine the government would bail them out again and UK Plc would chug along as before.
Re Brexit, as far as I can see, our MPs are doing what they're supposed to do - asking the difficult questions, haranguing the PM about her solution, trying to cause rifts wherever they can and thereby forcing the poŵers that be to scrutinise the proposals in detail so that the best outcome is found.
Hopefully, this time next year, we'll look back and wonder what all the fuss was about.
I don't know about the banks failing, I imagine the government would bail them out again and UK Plc would chug along as before.
Re Brexit, as far as I can see, our MPs are doing what they're supposed to do - asking the difficult questions, haranguing the PM about her solution, trying to cause rifts wherever they can and thereby forcing the poŵers that be to scrutinise the proposals in detail so that the best outcome is found.
Hopefully, this time next year, we'll look back and wonder what all the fuss was about.
I think he is back UK banks to fall rather than fail, although obviously he will make more money if they fail.
You could certainly make a bearish case for UK banks, beset with crappy technology and reliance on resi and commercial mortgages secured by overvalued and volatile collateral.
What kills banks is liquidity crises rather than solvency issues, so to understand the potential of a bank failure you need to analyse the liability structure.
My impression is that UK banks have more long-term / sticky funding today than they did pre-2008 due to the decline of commercial paper and quasi-off-balance-sheet conduits feeding RMBS master trusts and the rise of BoE schemes like funding for lending. So hopefully most banks are not vulnerable to what happened to Northern Rock (i.e. inability to roll commercial paper stoking a deposit run).
Famous last words...
You could certainly make a bearish case for UK banks, beset with crappy technology and reliance on resi and commercial mortgages secured by overvalued and volatile collateral.
What kills banks is liquidity crises rather than solvency issues, so to understand the potential of a bank failure you need to analyse the liability structure.
My impression is that UK banks have more long-term / sticky funding today than they did pre-2008 due to the decline of commercial paper and quasi-off-balance-sheet conduits feeding RMBS master trusts and the rise of BoE schemes like funding for lending. So hopefully most banks are not vulnerable to what happened to Northern Rock (i.e. inability to roll commercial paper stoking a deposit run).
Famous last words...
A good investor, would never tell his/her position, especially in public! (c:
On the other hand, anyone in a small or medium size business would tell you that, banks have been super-rigid in the last 10 years, for offering business loans. Not to mention, mortgages, they are quite picky and the system has been quite water-tight.
In my opinion, the system is almost sorted, but the issue is "growth", which is global...
On the other hand, anyone in a small or medium size business would tell you that, banks have been super-rigid in the last 10 years, for offering business loans. Not to mention, mortgages, they are quite picky and the system has been quite water-tight.
In my opinion, the system is almost sorted, but the issue is "growth", which is global...
NickCQ said:
I
My impression is that UK banks have more long-term / sticky funding today than they did pre-2008 due to the decline of commercial paper and quasi-off-balance-sheet conduits feeding RMBS master trusts and the rise of BoE schemes like funding for lending. So hopefully most banks are not vulnerable to what happened to Northern Rock (i.e. inability to roll commercial paper stoking a deposit run).
Famous last words...
The wholesale market moved away from overnight funding / repo 101 wheezes under BASEL liquidity pillars.My impression is that UK banks have more long-term / sticky funding today than they did pre-2008 due to the decline of commercial paper and quasi-off-balance-sheet conduits feeding RMBS master trusts and the rise of BoE schemes like funding for lending. So hopefully most banks are not vulnerable to what happened to Northern Rock (i.e. inability to roll commercial paper stoking a deposit run).
Famous last words...
Liquidity Coverage Ratio (LCR) and Net Stable Funding Requirement (NSFR), have extended the banks Liability horizon further than its Asset base (which causes its own problems as the asset base becomes fixed). UK banks in general have better liquidity buffers than their EU peers; and should survive a minimum of 35 days. LCR and NSFR do have some quirky features, particularly cash deposit rollover assumption (assumption being that if the economy tanks people convert to cash so pay into banks). Retail deposits get long term liquidity credit; so a bank run CAN be very harmful – but that would probably be covered by BoE intervention.
Higher capital bases than Euro peers; and less exposure to harmful peripheral EU debt means that UK banks are fairly good credit; so should be able to raise funding in wholesale markets. I think there is capacity to take a Brexit shock (and a fall in value) but not a failure. In comparison a sovereign credit event in the EU; could cause a domino effect of banks failing starting in Italy.
GBP moves will be interesting (or not – if no deal is already priced in?)
Joey Deacon said:
Too big to fail, the governement will just bail them out like last time. Lower the interest rates to zero, print a load more money and they can kick the can even further down the road.
It does feel to me that we are on the cusp of something big happening. People just don't seem to want to spend money at the moment, if Brexit doesn't go well I suspect we will enter the recession we should have had ten year ago.
10 years ago we had one of the worst recessions on record. Were you asleep?!It does feel to me that we are on the cusp of something big happening. People just don't seem to want to spend money at the moment, if Brexit doesn't go well I suspect we will enter the recession we should have had ten year ago.
stongle said:
NickCQ said:
I
My impression is that UK banks have more long-term / sticky funding today than they did pre-2008 due to the decline of commercial paper and quasi-off-balance-sheet conduits feeding RMBS master trusts and the rise of BoE schemes like funding for lending. So hopefully most banks are not vulnerable to what happened to Northern Rock (i.e. inability to roll commercial paper stoking a deposit run).
Famous last words...
The wholesale market moved away from overnight funding / repo 101 wheezes under BASEL liquidity pillars.My impression is that UK banks have more long-term / sticky funding today than they did pre-2008 due to the decline of commercial paper and quasi-off-balance-sheet conduits feeding RMBS master trusts and the rise of BoE schemes like funding for lending. So hopefully most banks are not vulnerable to what happened to Northern Rock (i.e. inability to roll commercial paper stoking a deposit run).
Famous last words...
Liquidity Coverage Ratio (LCR) and Net Stable Funding Requirement (NSFR), have extended the banks Liability horizon further than its Asset base (which causes its own problems as the asset base becomes fixed). UK banks in general have better liquidity buffers than their EU peers; and should survive a minimum of 35 days. LCR and NSFR do have some quirky features, particularly cash deposit rollover assumption (assumption being that if the economy tanks people convert to cash so pay into banks). Retail deposits get long term liquidity credit; so a bank run CAN be very harmful – but that would probably be covered by BoE intervention.
Higher capital bases than Euro peers; and less exposure to harmful peripheral EU debt means that UK banks are fairly good credit; so should be able to raise funding in wholesale markets. I think there is capacity to take a Brexit shock (and a fall in value) but not a failure. In comparison a sovereign credit event in the EU; could cause a domino effect of banks failing starting in Italy.
GBP moves will be interesting (or not – if no deal is already priced in?)
Also (the main banks) they’re all different in exposure and “strategy”. As you know:
Lloyd’s - complete retreat from anything exotic, the work of LBI in places like South America a (disastrous) historical footnote and now almost complete UK exposure to any shock
StanChart - all over the shop in Asia and need to fight hard to maintain status there and in Africa, with 85%+ pbt from outside UK and eurozone
RBS - muddled go forward plan but heavily UK centric
Barclays - complete retreat - non-core - from Africa and EU retail with almost 50:50 exposure in UK and US in retail and IB
HSBC - spread out, and can live with JPM, BofA etc for pure funding
The profiles are all so different so harder to model the net effect on UK banks as a collective. BARC stock hit 153 yesterday I think. Hasn’t been as low since the referendum result. Whilst BARC has generally been an underperformer stock over the years, people were chewing their shirts when things went all the way down to 50p in January ‘09. Just tucked up a savage Lehman carve out from the bankruptcy court, saddled with an extra 10k employees that would require heavy immediate restructuring (cost, overheads, property added to the book), and they still found a way out...
Hard to model.
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hstewie said:
hstewie said: I think this article could be the kick up the arse I needed to open an NS&I account.
Is this because of the perceived protection of it being under control of the government? I must say I feel the same and load my premium bonds these days more than anything else. Has there always been so much uncertainty? I feel like my adult life has consisted of crashes, booms, threats and concerns around finance. I'm guessing it's always felt like that? rufusgti said:
Is this because of the perceived protection of it being under control of the government? I must say I feel the same and load my premium bonds these days more than anything else. Has there always been so much uncertainty? I feel like my adult life has consisted of crashes, booms, threats and concerns around finance. I'm guessing it's always felt like that?
Simple as that yes.I can't think of any scenario where the banks are "safe" but the government is not.
It's an interesting time for the non big 6 banks though I'd say, especially the mid sized challengers. No free fund current account base to lower cost of liquidity, bigger spreads on wholesale and with the likes of Marcus increasing overall cost of funding somewhat the future looks harder than it did 6 months ago. Added to them struggling to generate asset growth, against the big 6 who are lending at near historically low levels. To my mind there seems to be a bit of a dislocation that might start to bite across the next year or so. Especially the likes of Virgin/CYBG, Metro Bank.
Edited by whatleytom on Tuesday 11th December 22:12
whatleytom said:
It's an interesting time for the non big 6 banks though I'd say, especially the mid sized challengers. No free fund current account base to lower cost of liquidity, bigger spreads on wholesale and with the likes of Marcus increasing overall cost of funding somewhat the future looks harder than it did 6 months ago. Added to them struggling to generate asset growth, against the big 6 who are lending at near historically low levels. To my mind there seems to be a bit of a dislocation that might start to bite across the next year or so. Especially the likes of Virgin/CYBG, Metro Bank.
Interesting call around the challengers and will start to watch them more closely. Edited by whatleytom on Tuesday 11th December 22:12
My view might compound this: I see little appetite amongst the big firms for acquisitions (of other smaller UK banks) so next to no movement there. Stasis. UK retail is tired, and revenue growth plans are few and far between; its easier to start a cost reduction plan to meet EBIT & efficiency ratio targets. And the big banks with a broader international strategy to trade off can just soldier on through different difficult scenarios. The challenger pips might squeak if the economy gets really disrupted.
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