Barclays Rumours
There are unconfirmed reports that Barclays could be in trouble, and that the much hyped purchase of ABN Amro doesn’t have a hope in hell of going ahead.
It started with the sudden resignation in late August of Edward Cahill, Barclays Capital’s Head of European Collateralised Debt Obligations.
See : Barclays’ CDO chief in Europe quits as sub-prime crisis hits funds
And another: Barclays falls to earth
Note particularly the paragraph which says:
“Barclays has not helped its own cause. Twice in just over a week it has been forced to borrow expensively a total of £1.9 billion from the Bank of England’s emergency reserves. Such loans are routine, but in the current fragile markets any hint of financial distress has prompted panic among investors. Barclays is looking distinctly accident-prone.”
For more on the loan request see Barclays needs central bank loan.
The BBC has put together this list of questions regarding the Barclays loan.
In an otherwise upbeat article, it surprises me to hear the BBC say this:
“However, no-one outside the bank knows exactly how much has been lost.”
It also surprised me that if Barclays’ 2006 profits were a record £7.14bn, and it made another £4.2bn in the first six months of this year alone, why on earth would they need to pay a premium interest rate and go cap in hand to the BoE for a mere £1.9bn?
The answer (in my mind), is that the profits are merely paper profits - cash has run out. Remember Enron? It took them just 24 days from Oct. 16, 2001, when Enron announced third-quarter results that included a $1.01 billion charge against earnings, through Nov. 8, when it filed an 8K report retroactively reducing its previous three-year profit total by $586 million and noting that its financial statements for those three years “should not be relied upon.”
You can read the unbelievable Enron story in 24 Days: How Two Wall Street Journal Reporters Uncovered the Lies that Destroyed Faith in Corporate America:
Soon after the loan request, Bob Diamond, the chief executive of Barclays Capital, made a thinly veiled plea for the Bank of England to intervene in the money markets. See Barclays urges BoE to bail out money markets.
I really hope I’m reading this wrong. If Barclays goes belly-up, things are much worse than we could possibly imagine.
Finally, the following paragraph really surprised me, coming as it does from the Financial Times. This paper always defends the British government.
See Stopping a crisis becoming a catastrophe:
“How is it, voters might reasonably ask of the politicians, that an upheaval that began with some dodgy loans in the American mortgage market could bring one British bank to its knees and threaten the future of several others? Why, if London claims to be the world’s pre-eminent financial centre, did the regulatory system not work? Most people will not be much interested in complex explanations about the implications of the integration of global financial markets or about the balance of regulatory responsibilities in Britain between the government, the Bank of England and the Financial Services Authority. The buck has to stop somewhere; that may well be Downing Street.”
Wait, There's More!
Thanks for stopping by to see what all the fuss is about. I hope you enjoyed it! If you did, and you'd like to be updated whenever I publish a new post (totally randomly, but never more than once or twice a week) you can subscribe - for free - and receive regular updates. To receive updates by email, simply complete the Subscription Form in the top right hand corner of every page or, if you're so inclined, click here for the main RSS feed.
And if you want to leave a comment at any time - even if it's just to say hi - you're more than welcome - just leave your thoughts in the block at the end of every post. I look forward to hearing from you. Thanks again!
Oh, and before I forget, you really should read my Why I Blog post. It might numb the shock of some of the heretical things I say!
Comments (No comments)
What do you think?