I must say that one of the few gratifying aspects of the current financial turmoil has been the way in which one of the UK’s biggest banks, Barclays, has decided to spurn any offers of help from the UK government – ie, the UK taxpayer – and raise funds from mostly private investors. In its recent raising of about $12 billion of funds to improve its capital position, Barclays made it clear that it wanted to stick with funding via the commercial market because, if it had drawn on the UK state moneys that have been provided for the likes of Lloyds TSB and Royal Bank of Scotland, it would lose its freedom to set pay, among other things.
Now, free market purists may object that the Middle Eastern funds that have pumped cash into Barclays are not entirely private sector organisation and of course they have a point. But the fact is that as a taxpayer, I haven’t been asked to write a checque to Barclays, in contrast to other UK banks. Barclays has also kept its affairs away from the hands of such characters as Alistair Darling, the UK finance minister. Those banks which have taken state aid face the risk that the confidentiality of their clients, especially in the wealth management area, could be compromised. Of course, even before 9/11, banks have been required to compromise on secrecy due to things like money laundering laws and the like. But there is no doubt that once a bank becomes an arm of the state, such erosions of client confidentiality that have already occurred will increase.
And the reaction of certain parts of the media has been interesting. On Friday evening, the BBC economics correspondent, Robert Peston, told us in that extraordinary voice of his how Barclays shareholders would be penalised by having to pay a higher amount to obtain funding than if they had, like good little corporatists, gone along to the UK Treasury. Peston, as a corporatist himself and creature of New Labour, cannot fathom why a bank wants to stay out of the public sector. Barclays’ executive bonuses may be “obscene” as far as Peston is concerned, but at least Barclays avoided some of the worst excesses of the credit boom. It is, as a result, relatively strong as a bank. Barclays must be thankful that it lost a merger battle to buy ABN Amro last year. If its refusal to eat from the state table annoys BBC journalists – who of course are paid out of a tax – then the bank must have done something very right. One cannot exactly say that of a lot of banks these days.
You be thinking it was such a great thing if you were a Barclays Share Holder?
Their value plummeted 20% when the Market got the “news” of the facts behind this loan.
Barclays is a established UK bank backed by the Bank of England, this fact is fundamental part of its value and ability to make money.
I am one of those shareholders, I am wondering just what the hell they are doing.
“….free market purists may object that the Middle Eastern funds that have pumped cash into Barclays are not entirely private sector organisation…”
Surely something of an understatement here. To find the matter in any way gratifying I personally find a little odd. That one bunch of robbing bastards has bailed out a second bunch of robbing bastards the upshot being to tweak the nose of a third bunch of robbing bastards, is hardly a matter for rejoicing. The fact that the perpetrators are sheikhs rather than barons of one description or another seems pretty much irrelevant in the final analysis, as the substance underlying the issue is much the same whatever the source of the bailout. You are, effectively, simply discussing your preference when offered the choice of being boiled or fried!!
This(Link) on the very good Capitalists@Work blog suggests as to why – too many strings attached to the money from H.M.Govt. Incidentally I thought Peston’s blog post about Barclay’s move being motivated by the desire to protect bonuses was vile facile would-be class war drivel… from the son of a Labour Peer – who’d a thunk it ?
Wells Fargo here in the US was blackmailed into the big bank buyout/settlement/whatever. They were one of 9 banks invited by SecTreas to a meeting to discuss the govt buying a share of each bank so that they could get recovery $$; they were the only bank not in trouble. Wells Fargo told them to take a hike…but were blackmailed into signing the proposal anyway.
In the US, among the other “strings” attached to the Treasury’s capital injection into banks (coerced, as was noted by andyinsdca; the front-page article in the Wall Street Journal about that meeting was truly extraordinary) is the mandatory issuance of transferrable warrants. This means that in addition to receiving interest on the preferred stock it “bought”, the government will also control a substantial piece of the bank’s equity. It will probably never exercise those warrants (it doesn’t want to own common shares), but rather will sell them (securities registration rights were also required) to someone else who will. So although the direct cost (in terms of dividends) to the bank may be somewhat lower than current market yields, the transaction is dilutive to its shareholders.
Dilution seems to be criminal’s principal objection to Barclay’s rejection of government money, but (assuming the UK’s approach is similar to the US’s) accepting it would have had the identical result. At least Barclay’s avoided all the other “strings”, both the explicit ones on the table now and the future ones whose nature we can only guess at. Good for them, I say. I hope many US banks adopt the same stance. Unfortunately, it appears that few will; most seem to be salivating at the propect of government money. They will come to rue it.
Sounds like Barclay’s is an enemy of the state. They will be dealt with.
Does anyone really believe Obama or McCain won’t use the power the Treasury now has over those banks?
The bankers have now shown how easily they can be taken. Their new partner will be back for more, and then more.
The government doesn’t care about the money. They will be back for more control.
Many have the odd idea that McCain is for limited government. Nothing is farther from the truth. McCain has no actual political beliefs, he does what seems best at the moment. Sometimes it works for him but mostly it resembles a zombie lurching right then left.
And by every indication Obama is committed to socialism as an ideology. No qualms about nationalization for him.
You really are a moron. I regard it as infinitely preferable that a bunch of – mostly – private sector investors inject capital into Barclays than the UK taxpayer. For unlike the UK government, the folk involved in this transaction will expect and require Barclays to be run in a commercially intelligent way.
criminal, in fact, the day after Barclays initially announced that it was not requiring state aid, its shares rose, while those of Lloyds, HBOS and RBS went down.
Wrong also. Barclays is a commercial institution and there is nothing, in theory to prevent it being made bankrupt. If the BoE, for whatever reason, felt that Barclays could be allowed to fail, it would.
I think K’s analysis is spot on. As I have been saying for a long time, we at totally screwed. Since I’m not prepared to move to Galt’s Gulch (Midwesterner is clearly more principled than I am, and my hat’s off to him), all I can do is relax and enjoy it.
‘You really are a moron’. –
Well, perhaps.
‘I regard it as infinitely preferable that a bunch of – mostly – private sector investors inject capital into Barclays than the UK taxpayer. For unlike the UK government, the folk involved in this transaction will expect and require Barclays to be run in a commercially intelligent way’.
In principle, you may be surprised to hear, so do I. I simply do not regard Sheikh Mansour Bin Zayed Al Nahyan and his kin, now the proud owners of 16.3% of Barclays, as your typical ‘private sector investors’. I regard them as, for the most part, an integral part of a corrupt political elite. Now, they may well indeed ‘expect and require Barclays to be run in a commercially intelligent way’, but does that alone make everything OK in your book ? – a mafia boss likely requires the same standards in respect of his investments. I fully appreciate that we live in a complex world and matters have to dealt with in the world as it is and not how we might like it to be – that is not the issue – I am simply trying to grasp why you, as a libertarian if I understand things correctly, find the whole incident so ‘gratifying’ bearing in mind the investors in question.
Well quite. I am certainly no apologist for such people. But, and this is a point I have repeated but obviously it is not getting through, is that they have not demanded, as part of the deal, any control over things like Barclays’ pay. Barclays management obviously decided that they’d rather pay an additional amount to get funding from these guys than go to the UK taxpayer. As a UK taxpayer, that is something I am glad about.
I’m with Jonathan on this.
Barclays may have had to hold their noses and deal with some fairly unsavoury characters, but by doing so they have kept themselves out of the clutches of the state.
It’s a pity our independent schools can’t see the writing on the wall and behave in a similarly principled way.
The government has every right to demand conditions on anyone who is given taxpayers money. These same banks rip off their customers at every opportunity.
Goldman Sachs has just wasted $6 of US taxpayers money on bonuses (how useful their little puppet, the retard Henry Paulson as turned out to be), a criminal act IMHO.
The banks are far too big, the government should not be bailing them out, it should be breaking them up or letting them die.