BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Banks

TSB must learn lessons of past mistakes

Posted on May 31, 2014

A customer enters a TSB bank branch, operated by Lloyds Banking Group Plc, in Winslow, U.K., on Friday, March 21, 2014. TSB, the banking business Lloyds Banking Group was ordered to sell as a condition of a the U.K. government's bailout, is expected to have an IPO before this summer. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

Any bank that likes to say yes is asking for trouble. Unfortunately, there is nobody left at TSB to explain to its enthusiastic chief executive, Paul Pester, what happened last time this bank had more capital than it needed. Like nearly all other clearing banks since, it plunged into the exciting world of investment banking. It bought Hill Samuel, and the pain was such that it was not long before the TSB was saying yes to Lloyds, where it has resided quietly ever since.

Until now. The offer of shares will be aimed squarely at those who either bought, or wish they had bought, Royal Mail, and hope for the same instant profit. After all, this is a nice clean bank, a sort of mini Lloyds as it would have been without the horrors of HBOS, with low-risk mortgages financed by consumer deposits, and a socking £21.60 in equity for every £100 of liabilities.

    This is such a fat cushion that there is no hope of earning a decent return on the difference between mortgage and deposit rates, which is one reason there is no dividend until 2017. The other is Mr Pester’s ambition to grow by as much as a half (sensibly, he does not say how fast), winning market share from banks old and new. He might even buy one of the newcomers, but of course there is no question of going into investment banking, no siree.

    TSB seems likely to be priced at a modest discount to net asset value, so Lloyds shareholders are giving away far less than they would have done with the disastrous Co-op deal. Despite the summer ennui towards new issues, TSB is likely to get away. The 5 per cent bribe to retail shareholders if they hold on for two years looks curious considering that Lloyds is obliged to have sold out completely before then. Curiouser still is the decision not simply to give TSB shares to Lloyds shareholders and let the market price both. Nothing to do with the fees paid to the investment bankers, surely.

    More light, please

    David Blake at the Pensions Institute reckons that the disclosed fees on pooled funds can be as little as 15 per cent of the true cost to the investors. He is pressing for better, if not full, disclosure of the real amounts that punters pay to have their money managed by others.

    This is a thoroughly laudable aim, and the Retail Distribution Review has already forced reductions in management fees, but claiming that 85 per cent of the true cost remains hidden requires some heroic assumptions about the return on spare cash, the bigger spread on large trades and the rate of churn in the portfolio.

    The RDR has turned the spotlight on to a dark, and highly lucrative, corner of the City, while the Financial Conduct Authority’s push for fuller disclosure continues. The true rewards enjoyed by those managing other people’s money, often for mediocre performance, are only starting to become apparent, and as they do, more individual investors are likely to decide that they can (mis)manage their own affairs just as well, and save themselves the fees.

    Alternative Asset Class

    Go on, you have always wanted your own steam train. Here is your chance. Lovingly maintained, cleared to run on Swiss railways (in other words, everywhere) it is yours for . . . oh, probably not very much. The vendor of the magnificent locomotive prosaically named 141R568 is, curiously enough, Andrew Cook, co-author of Coal, Steam and Comfort, and better known as the boss and proprietor of William Cook Holdings, makers of precision steel castings.

    Mr Cook hardly comes across as sentimental, having successfully steered the family business through 32 years that have done for so many Sheffield steel businesses. The buyers of complex, reliable, mission-critical parts are not that worried about the price. The buyer of 141R568 should not be, either. He will find the purchase price is merely the down payment, as romantic buyers of the Flying Scotsman discovered as their money disappeared into the black hole of maintenance.

    Still, with imagination, 141R568 could be promoted as a 2-8-2 Alternative Asset Class loco, with dividends in the form of trips through the Gotthard Tunnel. Don’t all rush.