economic situation is dire

[ianrobo1]

agree totally my and the stats so far show we are coping worse than some and better than others ....

not long enough into it to judge and judgements can only be made after it has finished, whenever that is

for me we are the edge of near depression

[snowychap]

Barclays shares dive by 25% in final hour

On a day of broad weakness in the banking sector, Barclays is hit the worst with stock ending the week down more than 40%

Barclays shares dived by 25 per cent in the last hour of trading, a day of broad weakness in the banking sector.

The company said it didn’t know why its stock was falling, and that it hadn’t said anything that would require regulatory reporting obligations.

Shares in the bank, one of the few not to have asked the Government for more capital, ended down 32 to 98p, leaving the stock down more than 40 per cent on the week

Royal Bank of Scotland’s stock sank 13 per cent or 5.2 per cent to close at 347p. Lloyds TSB 5pc to 98.4p and HSBC 2pc to 535p.

...more on link

KPMG offers staff unpaid leave or four-day weeks

All eleven thousand UK staff at KPMG, one of the world's biggest accountancy firms, have been offered extended unpaid leave or will face an extensive redundancy programme.

Staff were asked in an e-mail this morning to volunteer for sabbaticals of between 4 and 12 weeks on 30 per cent pay or move to a 4 day-week with the fifth day unpaid.

The e-mail said the proposal, which it said was a "contingency" plan, was designed to help KPMG avoid a firm-wide redundancy programme and the sabbaticals were not compulsory.

KPMG will decide next month how many workers will take part in the scheme.

However, the programme underlines the fact professional services firms are now being seriously hit by the recession.

Last week, Clifford Chance, the world's largest law firm, had a cash call in which it asked partners to stump up an extra £100,000 each, totalling £40 million, to fund its working capital requirements.

[ianrobo1]

so the short sellers at it again ...

after a break it starts again

well BofA and citigroup have been bailed out and split up ...

Barclays was the only bank notto take the government money and the FSA were happy with that

[Gringo]

so the short sellers at it again ...

after a break it starts again

Maybe you missed this from page 17

Learning from Mistakes: The Short Sale Ban

The verdict is in. There is growing recognition that last September's ban on short selling in certain financial stocks was a mistake.

Most of the professional trading and investment community do not see short selling, per se, as a problem. There are several debatable issues: the uptick rule, credit default swaps, and mark-to-market accounting for assets intended as long-term holdings. Short sales were not controversial among professionals.

The Academic Verdict

There is some fast work from the academic community. A team led by Columbia Professor Charles Jones, Chairman of the Economics and Finance Division, has a strong data-based analysis of the short-selling ban. They note that despite the initial pop in these stocks, they actually did worse during the market decline over the period of the ban. More importantly, they note that liquidity in these issues got much worse. The average trader faced wider bid-ask spreads leading to more costly trades. Short sales add liquidity and even fuel rebounds when fundamentals change. As many noted at the time, there were various ways to avoid the ban, including purchases of put options and inverse ETF's.

The SEC Verdict

SEC Chairman Christopher Cox acknowledges this error. In a just-released interview in the Washington Post, he is quoted as follows:

Cox said the biggest mistake of his tenure was agreeing in September to an extraordinary three-week ban on short selling of financial company stocks. But in publicly acknowledging for the first time that this ban was not productive, Cox said he had been under intense pressure from Treasury Secretary Henry M. Paulson Jr. and Fed Chairman Ben S. Bernanke to take this action and did so reluctantly. They "were of the view that if we did not act and act at that instant, these financial institutions could fail as a result and there would be nothing left to save," Cox said.

Our Take

We should note first with applause the rapid data-based effort by unbiased academic investigators. We can all enjoy the effect of the Internet. Instead of waiting more than a year for academic publication in a peer-reviewed journal, results are now available more quickly. If there is criticism, that is also available to all. It is a major improvement in the way academic research becomes relevant.

We find more difficulty in the Cox "go slow" concept. It is clear that events were moving more rapidly than policy. Paulson and Bernanke were correct in identifying a problem, but the focus was wrong.

Eventually we will see an academic study that pulls together the key elements:

* The unregulated credit default swap market, easily manipulated with modest amounts of capital;

* The widespread publicity surrounding the CDS trading, implying insolvency of the institutions in question;

* The speculative put buying by those profiting from this pattern;

* The mark-to-market implications for institutions not involved at all;

* The possible manipulation of widely used ABX indices, affecting the entire market.

This all needs investigation. Will it be on the agenda for the new Obama team? We hope so. Learning from this lesson is absolutely essential.

[Xela]

so the short sellers at it again ...

after a break it starts again

well BofA and citigroup have been bailed out and split up ...

Barclays was the only bank notto take the government money and the FSA were happy with that

HSBC have never accepted any Government money either. Infact from the reports I have read HSBC are the only main bank not to accept any help at all as Barclays sold out to middle east investors as an alternative to government funding.

[Gringo]

Even govt owned banks are fkd

More scary still, RBS remarks that, on a fully mark-to-market basis, all the UK domestic banks are already technically insolvent. In a bank, insolvency occurs when the liabilities – depositors and wholesale funding – exceed the value of the assets, which are the bank's loan portfolio. Such an event occurs when you get a severe bad-debt experience, impairing the value of the assets, and there is an insufficient capital buffer to make up the difference.

As RBS points out, it is actually not unusual for banks to be insolvent at this stage of the economic cycle. What makes it different this time is that this dire state of affairs is much more transparent than it has ever been in the past. The banking system's greater reliance on wholesale funding also makes it considerably more vulnerable to withdrawal of funds on the liabilities side of the balance sheet.

RBS are obviously saying that they are insolvent. I'm sure trading whilst insolvent is a criminal offence.

[ianrobo1]

all of the banks ?

[snowychap]

Banks in crisis talks with Treasury after crippling market plunge

Treasury officials are preparing to work through the weekend on a fresh package of help for the banks following yesterday's dramatic stock market falls.

Barclays was the hardest hit, with its shares plummeting to a 10-year low, but Royal Bank of Scotland (RBS) and the newly merged Lloyds TSB and HBOS also suffered.

The falls — triggered by fears that the banks still had further losses to declare — prompted an intensification of efforts, which have been under way for some weeks, to agree a new bailout package.

Sources were today playing down suggestions that the banks were being summoned to the Treasury for crisis talks, as happened before the original bailout in October.

However, RBS today acknowledged that there were "ongoing meetings" with the Treasury, although they declined to give details. Barclays refused to comment.

A Treasury spokesman said: "We have been working with the banks for the past couple of weeks. We will be making an announcement on additional measures soon."

Earlier, Prime Minister Gordon Brown made clear that the banks would have to reveal the full extent of the "toxic assets" still on their books as a result of the collapse of the sub-prime mortgage market in the US.

"One of the necessary elements for the next stage is for people to have a clear understanding that bad assets have been written off," he told the Financial Times.

"We have got to be clear that where we have got clearly bad assets, I expect them to be dealt with."

The paper said that he refused to rule out a full-scale nationalisation of the banks or a further injection of taxpayer funding in order to restore lending to business.

Mr Brown and Chancellor Alistair Darling met yesterday with the Governor of the Bank of England, Mervyn King, and Financial Services Authority chairman Lord Turner of Ecchinswell to discuss the way forward.

Restoring confidence in the banks is seen as essential if they are to resume to flow of lending to business vital to the prospects for economic recovery.

Suggestions that the Government could use billions of pounds of public money to buy up "toxic" assets from banks were however being played down in Whitehall.

The plan would involve creating a so-called "bad bank" in order to cleanse the books of private institutions and free them to lend again, but that was said to be proving highly complicated in practice.

Another alternative said to be under discussion was the "ring-fencing" of such assets within banks' balance sheets.

The latest moves come amid growing concern over the scale of banks' losses from bad debts, evidenced by a further plunge in their share prices yesterday.

Many are due to report figures to the markets imminently, with more massive write-offs anticipated.

The Government has already attempted to shore up the banks with a £37 billion recapitalisation scheme, but the rescue has failed to kick-start lending.

Mr Brown warned that unless the issue was dealt with, there was a danger of "financial isolationism" as banks retrenched into their domestic markets.

"The greatest risk after the events of the last few months is a retreat into what I would call financial isolationism," he said.

[Risso]

Bugger, even us accountants aren't safe.

KPMG to offer staff 4 day week

(I don't work for KPMG by the way)

[snowychap]

I'd have thought there was plenty of work to be had for accountants and auditors in the next couple of weeks if Robert Peston, in his blog, has it spot on.

There is to be a scheme announced next week, apparently, which will insure against the possible losses for banks' dodgy debts (for a fee, obviously).

I hope that these declarations of dodgy debts will be ratified and audited rather than self-certified by the banks....

[Gringo]

all of the banks ?

Yes all of the banks - you were criticising barclays for not taking the govt shilling, but all the banks are kaput.

End of times.

Or maybe not. Current policies are deeping a digger trench. The incumbements say what is the alternative. Stop digging.

[BOF]

Clenches a little tighter

[snowychap]

^^

I think if there were a 'post that fits the avatar' title then you would have just won it, BOF.

[Xela]

all of the banks ?

Yes all of the banks - you were criticising barclays for not taking the govt shilling, but all the banks are kaput.

End of times.

Or maybe not. Current policies are deeping a digger trench. The incumbements say what is the alternative. Stop digging.

HSBC is probably the safest Bank in the world at this point. Which isn't saying a lot compared to its rivals! They are a very well run company who perhaps have had a conservative image but its paying dividends at the minute. There is no liquidity issues with them. Its assets outweight its liabities by a fair bit.

[snowychap]

Though HSBC continue to fall in HK SE, don't they?

Also there have been comments about the validitiy of HSBC's balance sheet, too.

Yes, I understand your point about HSBC but if the debt is bad then the debt is bad....

[Xela]

HSBC's shares in the UK have taken a battering in the last year as well. They were close to £10 last year and now they are not much more than £6! Glad i got rid of all mine (just under 1000) last year.

HSBC's problem was North America. That episode took a chunk out of the bottom line last year and I imagine will continue to do so. Luckily as a global company their assets are spread across a number of markets so haven't suffered as much as other banks. There has been increased bad debt...can't disagree with that but luckily (for my employment purposes) it isn't as bad as it could have been.

[snowychap]

But part of the point is that their assets are not what they said/claimed they were.

[Xela]

Well I don't know about that. I've not heard that to be honest. Their accounts and balance sheet would be subject to audits so if there were any discrepancies then i'm sure it would have come out?

[snowychap]

Well I don't know about that. I've not heard that to be honest. Their accounts and balance sheet would be subject to audits so if there were any discrepancies then i'm sure it would have come out?

I don't think banks have been transparent with either their assets or their liabilities.

They may have been 'legal' but that doesn't mean that they have given a true picture of what ought to be.

There is a significant amount of stuff which is off balance sheet and there is still a problem with what is on the balance sheet.

[leviramsey]

Alan Abelson is in rare form in this week's Barron's (you'll have to sign up for a free trial, or already subscribe, to read it)

Yes, we're quite aware that we were promised change if Barack Obama won the election, but we never dreamed it would come even before he was officially anointed, let alone that the agents of change would be George Bush and Dick Cheney.

But so they were. Consider: it is the norm in our politics for the winners to celebrate the electoral triumph by taking a victory lap. However, Messrs. Bush and Cheney, donning entirely new personas, set precedent on its head -- and more power to them for doing so, we say -- by taking what can only be called a defeat lap.

The virtually universal assumption is that the election results, which gave the Dems not only the presidency but strengthened their hold on the House and Senate, were a repudiation of eight years of Bush-Cheney. If you don't believe it, just ask John McCain.

Mr. Cheney, emerging from his bunker, shed his widespread image as Darth Vader and metamorphosed into the Energizer Bunny, hopping with frightening grin from one TV talk show to the next, from one interview with the press to another. Who knew the vice president was such a chatterbox and so cuddly?

Mr. Bush, who tended to treat the press (and not without reason) as if it were a communicable disease, transformed himself into just about the most approachable figure extant. He, too, popped up here, there, and just about everywhere on the tube and in print.

His message was straightforward. consistent, and clear: thanks to his vigilance, this nation was spared a terrorist attack after 9/11. And so it was, for which we are all profoundly grateful. And only the most vehement Bush-basher would sniff that the real reason for the absence of an attack was that Mr. Bush did such a thorough number on the country all by his lonesome that the terrorists figured, why bother?

No argument that he is leaving the economy in an absolutely awful shape. Our budget deficit is ballooning toward the trillion dollar mark and isn't likely to stop there. We are mired in the worst recession since the grandaddy of them all in the '30s; its end is by no means in sight. The stock market, after crashing 35% to 40% last year (depending on which bourse you follow) has started off '09 on the wrong foot, not an auspicious omen for the year as a whole.

Unemployment is pressing remorselessly higher, housing is a wreck, industrial production is contracting at its wickedest rate in 35 years, the retail business is in the dumps almost across the board. Detroit is about as near to running on empty as you can get without grinding to a halt. There is a whiff of deflation in the air.

Not all of this, obviously, is Mr. Bush's fault. But it happened on his watch. Not the kind of stuff, we are afraid, that shining legacies are made of.

As thousands upon thousands of aggrieved shareholders can attest, Thomas Jefferson had it pegged exactly right when he warned that "banking establishments are more dangerous than standing armies." And the trouble started, we might add, when bankers, tired of being regarded as heartless skinflints, departed from the traditional practice of lending you an umbrella when the sun was shining and yanking it back at the first sign of rain.

Instead, in search of a more congenial image (and a little more coin, to be sure), they chose to err on the side of liberality and shoveled out loans with gay abandon -- and, lest they be accused of favoritism -- to the deserving and undeserving alike. Sad to say, it was this excess of generosity and the remarkable discovery that leverage provided enormous bang for the buck that landed them smack-dab in the quicksand and helped drag the credit markets and the economy in after them.

Ironically, after sparing no effort in their quest to become lovable, bankers now find themselves everyone's favorite pincushion, scorned, ridiculed, and mistrusted. Even Wall Street, which for so many years had showered banks and their financial cousins with its favor and whose affection yielded so many happy returns, has bitterly turned on them.

The little table that adorns these mutterings tells more eloquently than any humble scribbler could hope to the sad story of how investors have treated banks and their financial kin. It is largely the handiwork of that estimable research outfit, Bespoke Investment Group, which, with an almost audible sigh, notes that in less than two years, the market cap of the S&P financial sector has shrunk to $959 billion from nearly $3 trillion at its March, 2007 peak (ah, those were the days).

Bespoke points out that Citigroup, which has been the pacesetter of the sector's horrifying plunge, has lost in value close to 10 times its current market cap! (Forgive the exclamation point, but we couldn't help ourselves.) Keep in mind, too, that the prices in this list of losers are as of Wednesday afternoon, and gobs more blood was spilled before the week had the grace to call it quits.

It is no surprise, unfortunately, that Citigroup led the parade of the basketcases, since it has been teetering on the edge and kept from toppling over by some awesome financial assurances from Uncle Sam. Las week, Citi disclosed that it suffered an $8 billion-plus loss in the final quarter of '08, twice as much as its analytical followers had expected.

In like sorrowful vein, Bank of America, citing what a horrible time it is having swallowing Merrill Lynch, put the arm on Uncle, who just can't stand to see bankers cry and agreed to cushion $120 billion of problematic assets against possible loss. BofA, which recently got a quickie $15 billion capital injection, also received the promise of $20 billion more.

To show its gratitude, the bank endowed the government with a heap of preferred shares, bearing an 8% coupon, and pledged to cut its quarterly dividend to a penny (which, somehow, we feel, didn't make shareholders happy campers).

Contributing no small measure to the downpour of selling to drench the already waterlogged financial sector was growing recognition of the sheer size of assets still on bank balance sheets that have gone sour. Beisdes scaring investors silly, the vast and poisonous pile has instilled a sense of needed urgency in Washington.

The worsening plight of the banks, as reflected in their dismal stock-market performance last week, has given currency to the notion that the powers that be will soon give the green light for wounded lenders to set up a bad bank into which they can dump the bad assets, all but a sliver of which the government would guarantee.

Whatever contraption is devised to relieve the banks' balance sheets of the burden of their mistakes and transfer that burden to the government's broad shoulders, we are talking humongous sums. The knowledgeable folks at ISI Group, who sedulously strive to err on the side of conservatism in their assays, reckon that the top four banks alone have something like $1.2 trillion in bad assets, a fearsome figure that swells to $2.4 trillion for the industry as a whole.

The bottom line is that Washington is going to be all over banks in an attempt to get them vertical and functioning again, a presence that doesn't automatically bode well. Mucho money and no end of exhortation will be expended, but to what effect and with what unintended consequences is anybody's guess.

At the very least, investor enthusiasm for banks and financial stocks is likely to remain restrained, and, conceivably, for quite a spell. And the most you can safely assume is that the banks and finance companies aren't going to vanish from the face of the Earth. Not all of them, anyway.