A Post Script on Banks

Chancellor Osborne’s proclamation about the ‘cocktail’ of economic threats to his National Accounting Jerusalem has left the market shaken but not stirred – he is acting as the alter ego of James Bond.

It was of course, inevitably, more of a politically motivated PR statement, than a new economic prediction. He evidently wanted to get ahead of the conceivable bad news carrying an Office of Budget Responsibility and IMF label, pointing out that much vaunted UK National budgetary surpluses may go down the pan of forlorn hope and busted expectations. Politically, his statement to the world is more of an “I told you so” media pre-emptive tactic. He has said nothing new!

It touches upon that ‘elephant in the room,’ the reducing credit worthiness of all those engaged with the resource industries of oil, gas, metals and minerals. That includes governments, banks and other lenders who are now very much in our minds now that oil is below $35 per barrel.

The point about elephants in rooms is that they are known facts rendered intellectually invisible and thus easily forgotten. They are facts we have established but tend to ignore until the time comes for them to become fully visible once again. This has just happened to hard commodities and oil on the revived belligerence between Saudi Arabia and Iran – danced to the age old tune of Sunni and Shia Muslim religious rivalry.

We have just been woken up to a real known fact which we had forgotten or sublimated. I merely point out that so far as UK banks are concerned, that they have already gone a long way in discounting that factor. The December note from the Limpopo pointed out that banks are generally selling at well below asset values; we should not now allow that to become another invisible elephant in the room as markets perhaps begin to panic over lending to oil and mineral development and production.

The share price trends of Barclays (BARC) and HSBC (HSBA) are still currently down, but they have reached a point where, possibly, they should have at least a short-term bounce within southerly pointing downtrends. If they crack that support, it will signal another bout of panic in which market makers may possibly mark shares down to avoid taking stock on their books. If that is a fact of life, it should not be ignored in the short term; but neither should the fact that most bank shares are already looking good value on the book to price yardstick. I guess that one now sensibly waits to see how the mood develops?

In the UK a critical approach to Chancellor Osborne’s view of banks has developed in the financial columns of the business sections of respectable newspapers. Our Chancellor is accused of letting banks too easily off the hook of regulation. In the language of the board game, he seems to be dolling them out unmerited “get out of jail” cards. That sets a currently more cautious market attitude to bankers and banking. For all our sakes, they must not be allowed to get away with murder, so far as “ring fencing” deposit taking and “living wills” are concerned. That would be like allowing a passenger liner to go to sea without sufficient lifeboats and lifebelts. A statement from the Chancellor on that would be reassuring.