The bank with the largest asset base is neither Bank of America, nor Citi. Apparently it is Royal Bank of Scotland with over $2.7 trillion in assets (1.9 trillion pounds).
Due to huge losses and write downs, in order to save RBS a full-scale nationalization of the bank is seen as a real possibility. Nationalization of RBS would mean that UK’s public debt has to increase by 369% (per Financial Times) to about $3.4 trillion, , which currently stands at $915 billion (650 pounds).
Compare that with the situation in US. A $700 billion bank bailout pot is only 10% of the $10 trillion current US public debt. Bad but manageable for the $14 trillion GDP economy. Given that UK’s GDP is only $2.1 trillion, this prospect rises a red-alert on UK’s sovereign debt.
RBS has already imploded. Lloyds of London and HSBC are right behind in the line. The CDS spreads on UK sovereign debt are about to explode to the upside.
To me it looks like UK is on the brink. With my limited knowledge of world’s financial system, I have tough time seeing how this will resolve without significant casualties.
Anyway, my point is – the losses and write downs have not yet come to a halt. Lehman assets were listed as$700 billion on its bankruptcy filing. Who knows how much the Lehman derivatives books cost the counterparties? Nationalization or not, RBS, Lloyds and HSBC are going to weigh in heavily on UK and Europe. Of course, not to mention the US bank troubles on this side of the Atlantic.
Isn’t it logical to expect more intense selling bank stocks in the near future?
im watching CNBC ASIA during the market lunch break. the current speaker is calling for a steep decline in US equities following the inaugaration speech and the Obama rally that many are calling for has already happened. man im loaded up short and got stopped of TNA on Friday for a modest gain. Is this the next leg down and was that a mini bear flag that interrupted the steep decline we witnessed? was the RBS news the catalyst required to really complete this wave through to the end of this month?
im staying with the positions i have and wont be adding further unless we have a clean break of 817.
6500 NIKKEI before month end? …. it is clear that its not any one country imploding…. its the worldwide economy and this is scary. Obama better just step up and be clear with the people tomorrow. everyone has splurged and Americans need to accept a lower standard of living going forward. anyone who does not accept this will be forced too on someone elses terms. better to make the choice on your own terms.
another think noted was a large Korean fund is asking the world. it is time to sell Treasuries. clearly the answer is yes… its not time to buy that is for sure. if you own something you simply have to ask yourself… would i buy this from myself at this level. with treasuries the answer has to be no… so if it ain’t time to buy? what time is it mr. wolf?
FYI: Oscar is currently short. Calling for lows to the 800s. That’s in line with Dan’s flat scenario.
http://www.livewithoscar.com/modules.php?name=Content
right there with you permabear…it is such a shame U.S. has squandered its lead over the years….building houses (monuments to ourselves)…its like a company taking all its profits and just paving the company parking lot bigger each year…never reinvesting in any productive assets.
we lived off the toil and credit of the rest of the world…but this too shall pass…
its hard to know what to do…i think you have to be REALLY nimble here – so many variables…and black swans like a terrorist attack early in the new adminstration…it could really be a huge tipping point.
“Compare that with the situation in US. A $700 billion bank bailout pot 10% of the $10 trillion current US public debt. Bad but manageable for the $14 trillion GDP economy.”
one fundamental flaw with this argument. the US had a $14 trillion GDP. it heavily relies on overconsumption. the binge days are over so expect this figure to drop drastically over the next few years. keep adding more bailouts combined with falling GDP and the US will end up in the same space in no time at all.
bottom line.. no sector to hide in. no country to hide in. only place to hide is short the market and short treasuries for the time being.
Well Mohan. You sure are making it tough on Obama. It certainly is going to be an interesting day and week. On one have the financial (11% of S%P) and Exxon (5% of S&P) pretty much in the dumps for Tuesday, so it seems. On the other hand you have 50% of the S&P 100 under RSI 30 ( http://www.indexindicators.com/charts/sp100-vs-sp100-stocks-5d-rsi-below-30-params-6m-x-x/ )
Tomorrow it will be about 80 degrees in Sunny Southern California. I won’t be hitting the waves, but I will bring both my longboard and shortboard to the market tomorrow. Glad I am in Cash even if I miss out on the first set.
By the way, BAC is down 80% since the beginning of October. UK is just catching up. Dumb Redcoats, they have always been a little slow.
i guess the only point requiring further clarification is the statement by gordon brown regarding RBS that almost all the loss was related to subprime mortgages on the balance sheet coming from the ABN acquisition – now is there a chance we are seeing a lag here with RBS, as though there is no doubt more to be revealed on the books of US financials, they have nonetheless sought to write down/take loss/make provision for a whole stack of defaulting subprime securities already… so fingers crossed this is ostensibly a UK lag issue that won’t feed back into the US… as far as the expected spike in CDSs in europe are concerned on the back of this RBS announcement, well what can anyone say but that it is to be expected, as expected as those indexes coming down after the markets feel there is nothing more to shake-out of the books of european banks… just a torturous waiting game unfortunately…
We are headed south on Tuesday, Strap on your boots!
I read these articles a while back. Iceland here we come!
http://www.marketoracle.co.uk/Article7526.html
http://www.spectator.co.uk/coffeehouse/3078296/the-true-extent-of-britains-debt.thtml
You American’s seem to forget that your in a worser situation. You just have a clever Fed who can cover up all your debts….. and total obligations of nearly 53 trillion. If we go down, I guarantee the rest of Europe and you will also. We are bad but we are not a leveraged hedge fund like you guys.