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@ 10/11/08 – 10:11:04
“Shame of the Banks that are profiteering from the rate cut by axing their best deals.” said the newspaper headline.
And I say, shame on those who while using our money to bail banks out, did not take the opportunity to force banks to become more socially responsible organisations.
Because, until someone changes the rules of the game, banks will play the only game they know, and profiteering is the name of their game.
jackfrost
Pro Agreed. The whole premise of a financial institution is to make money without breaking the law, not to perform charitable acts. However, if the taxpayer is to "own" some stakes in those financial institutions then the taxpayer should have his interests protected just like any other stakeholder. One way of protecting the taxpayer is by regulating the way services are rendered by the banks. The government has acted willy nilly, without any prior thought given to other matter other than the frantic panic of trying to save its own skin. The banks did what they do best - made money out of it with minimum (or zero!) outlay on their part. Congratulations Mr Brown!
tylluanpenry
Totally agree. Our intrepid leader is definitely a wit of a banker, as Dr Spooner might have said. 
Jenniebaby
Ultimately, though, the taxpayer is likely to make a net gain, as the 12% that the banks are paying out on the prefs is a larger sum than will be negated by inflation, even given that the banks are likely to want to pay it back asap.
sorry, I don't think I follow the math of where I am going to make profit
Jenniebaby
your money is lent to the bank at 12%, which is a higher rate than you're likely to get anywhere else.
hence - profit
I am not sure where you got these numbers from. In RBS 20 billion case, for instance, it is mostly done via buying shares, not by giving a loan. In addition, the Government will pay for £5billion of special 'preference' shares.
This is the meaning of us becoming 'owners'. As loan does not change ownership. In your case, you own £340 in RBS shares.
When will you see a payout?
Jenniebaby
Well, you'll get 12.5% 'dividend' annually on the preference shares until they are repaid. Preference shares are much more like debt than equity and the 'dividend' effectively more like interest than a share of profits. Prefernce shares give no management or voting rights, so are not really a reflection of ownership.
The ordinary shares have not, at this time, been purchased, but are underwritten by the government in the event that they are not taken up by other investors (which, agreed, they might well not be, though in light of the interest in Barcalys from the Middle East, may no longer be the case).
I agree that the ordinary shares do not carry a guaranteed return, but, in all likelihood, if they are taken up, the banks will repurchase them as soon as they possibly can, as they do not like the loss of control, most likely at a premium, which implies further profit on the purchase and subsequent sale of the shares.
In my opinion (and, of course, it is just an opinion), although this is costing the taxpayer in the short term, he is likely to redeem his cash, with interest, in the longer term, so will eventually profit.
Unless, of course, the organisations do go down, in which case, his £340 loss on the RBS shares is likely to be the least of his worries!
There are many assumptions in your argument.
First is that the bank situation will improve, and that it’s value will go up.
Second, unlike bonds, interest payment of preferred shares are not guaranteed, but need board approval, and in this environment it’s not unlikely that some will be skipped.
Thirds, even if interest payments are met, the price volatility is a function of the value of the company, and not so much of the interest rate. That is, even if interest is paid, the notional (or part of it) is still at risk, even if RBS does not default.
Forth, still its only 5b in preferred shares, the rest are in common stocks.
In short, if it were a safe, risk free investment, you would not need government intervention. Even in the current environment, there are enough investors that will jump on the opportunity to get a risk-free return. On a risk/return basis this is not a good investment (I can do RAROC analysis if you are interested). The bailout of AIG is just one example how things can go wrong.
I think it is pointless to complain about banks at this stage, it's way too late for reform and who is going to impose it, the government? We need to realise that the govt are powerless. When Bernanke, the federal reserve chief was asked, by congress, to tell the peopel where the trillions went he simply said "no". One word which basically said it all, these guys, the bankers are above the law and above govt.
As least get some of your money back, start reclaiming unfair bank charges at http://debts.org/unfair_bank_charges/reclaim_ppi
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