Chart courtesy of Google Finance
Remember just over one year ago? RBS (Royal Bank of Scotland) paid $100bn for ABN Amro.
For this amount it could now buy:
- Citibank $22.5bn
- Morgan Stanley $10.5bn
- Goldman Sachs $21bn
- Merrill Lynch $12.3bn
- Deutsche Bank $13bn
- Barclays $12.7bn
And still have $8bn in change with which you would be able to pick up:
GM, Ford, Chrysler and the Honda Formula 1 Racing-Team.
As the markets are closed in the United States we touched base with some colleagues in London and they rattled off the above, but don’t rely on those numbers they have probably changed by now.
Today The Bank of Scotland announced large losses and their stock price took a hammering, losing 66% of its value. The fallout was carried over to other banking stocks on the London Stock Exchange who also took a beating.
The thing that bothers us is that nobody appears to know the extent of the problem. If you can state a problem clearly you are half way to finding a solution, however, just when we think that the bloodletting is over another domino hits the floor. This in turn raises the question of whether or not we will have to go through another dash for cash. In the middle of 2008 all the market sectors were dumped, good and bad, as the liquidation process ran its course. The fundamentals of your favourite gold producer or the technical indicators of your favourite silver stock were rendered meaningless as those stocks went out with the bath water, as investors preferred cash, hence the rally in the US dollar.
As we noted recently:
Gordon Brown told banks to come clean over the extent of their bad assets on Friday, admitting the scale of the banking crisis could threaten the global economy with a new phenomenon: “financial isolationism”.
The United Kingdom has moved to provide yet more cash to the banks and now holds 70% of the shares in RBS. We are stunned that anyone would pump cash into a company that it did not fully understand, it was ‘come clean’ last week and there’s the cash this week! It reminds us of the Christmas pantomime ‘come out, come out, wherever you are’ and ‘he’s behind you’
Now, if you believe in these bailouts and were asked to write a cheque for £20,000.00 to go towards one of these rescue schemes, would you make that kind of donation? Liar! The tax department accepts voluntary contributions and you have not donated thus far. But you will pay for it soon enough, through stealth taxes, the kind that are not blindingly obvious but you are aware that money is tight and your standard of living is in decline.
Taxpayers across the globe are being saddled with huge debts as governments invest in enterprises that clearly could not hack it. If the RBS cannot perform then it should be carved up and sold to entrepreneurs who are successful and could make a go of it.
The next few months might provide us with a honeymoon period of a new president punctuated by more skeletons leaping out of the cupboard, making trading interesting to say the least!
Please feel free to add your two pennies worth.
Stay tuned for updates in this fast moving market…
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