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What will happen to bank share prices when the Government sell their stake?
Cockney Dave
Posted: 18 November 2010 11:35:54(UTC)
#1

Joined: 19/05/2009(UTC)
Posts: 13

Since the crash of the bank’s shares, I have now recovered my loss and pondering on the idea of selling up and staying away from the banks. We all know that technically the price is good to buy for a long term. But with all the hassles and issues the global financials are having, is it a good time to bail out now.
My concern is what will happen to the price once the government sell up? Will the market be so flooded with shares that the price will fall? Will it be a good or bad thing for those of us who are still breaking even?

I have only been trading for just over a year and I have done ok to date. But I have no knowledge as to what will happen when they sell as this kind of market is new ground to all traders.

Any tips from anyone? What are your plans if you currently have shares in the big UK Banks?

Cheers All

Cockney Dave
joe stalin
Posted: 18 November 2010 11:58:10(UTC)
#2

Joined: 25/06/2010(UTC)
Posts: 15

Was thanked: 1 time(s) in 1 post(s)
Hey Dave. I'll come clean straight away I am well long and looking to get longer still. I believe there is little fun to be had by following the herd into the long commodities strategy- in my opinion a very crowded trade. we have seen what happens to commodity shares every time the dollar has little blip up- suggest to me that thee are some very nervous longs in there. FWIW I believe that Bernake knows what he is doing and the that US does n't give a stuff what anyone else thinks. Unlike us who spend all our time looking at our "pals" in europe to see if they agree what what we are doing. In this context I feel that the US will come out recession earlier than most people think which will see a hardening of the dollar particularly with respect to the Euro.

For the banks I think that the Brussels bureaucrats will try to keep their uneducated and misguided regulatory efforts going for a little longer but will come to realise that an over regulated banking sector will serve no one at a time when liquidity is needed more than ever. The uS is already ahaed of the curve in allowing the restoration of dividend payments. The Government will look to sell but I would be surprised if they were in a hurry given that the potential return to the tax payer could be colossal in a couple of years time. As the restrictions come off te banks will be in aposition to begin buying back their shares thus mitigating at least some of the impact of the State's holding. This of course assumes that George Osborne is a little wiser that his predecessor when he sold our gold reserves. My own opinions of course GL and gretings from Moscow :)
Cockney Dave
Posted: 18 November 2010 12:15:57(UTC)
#3

Joined: 19/05/2009(UTC)
Posts: 13

Thank you for the reply Joe. Excellent input

Cheers
Graham Barlow
Posted: 18 November 2010 13:31:13(UTC)
#4

Joined: 09/03/2009(UTC)
Posts: 193

Was thanked: 21 time(s) in 18 post(s)
The internal news seeping out from Lloyds is good with the caveat of the Irish exposure, how big is that and what will be the write off? It would help if the Lloyds shareholders were given a rational explanation why the only triple A rated Bank in Europe took over the bankrupt HBOS without due diligence. What part did Gordon play and the B of E? I say this as it would give an indication of their legal rights if there is any further skulduggery on extracting the Govt. holding. This is a very sensitive area which involves some of the biggest players in the market who were facing massive losses on HBOS if they had gone to the wall. Lloyds saved their bacon but the small man was sacrificed ,medium term. I estimate depending on the news the share price could reach £2. over the next 2 years especially if dividends are restored. The wimps who head up these Banks have to stand up to the politicians, who do not understand Banking, but play to the gallery for votes. If Ireland is stabalised and time is bought ,then the Banks can manage out over the next 5 years or maybe sooner.
joe stalin
Posted: 18 November 2010 15:07:08(UTC)
#5

Joined: 25/06/2010(UTC)
Posts: 15

Was thanked: 1 time(s) in 1 post(s)
No probs Dave :)

Graham hi- I think that Daniels genuinely believed that over time the combinationof HBOS and Lloyds would make a great deal of sense and even knowing what he does now he probably still believes that to be the case. There is little doubt in my mind that Lloyds mgt were bounced into a deal by Gordo. Realistically and imo none of the other banks were probably in a position to take the inevitable hit that would result. Standard Chartered were too busy bleating that they had not been reckless like all their peers and should not be forced into taking any medicine. In fact they did what they could to ensure that Lloyds and RBS would be penalised as heavily as possible for having to be ' bailed out' They saw an opportunity to nobble the competition and used their New labour connections to do just that. HBOS was too big to fail and letting it go to the wall would realistically not have been option - Lloyds took one for the team but that said Lloyds mgt seems to be well aware that they owe the shareholders a lot and will do what they can to give them an excellent return. Within the next couple of years I see share buy-backs and the restoration of the divi and I'll be very happy to take your two quid.
Graham Barlow
Posted: 18 November 2010 15:43:13(UTC)
#6

Joined: 09/03/2009(UTC)
Posts: 193

Was thanked: 21 time(s) in 18 post(s)
Dave ,taking the long view Lloyds will have to look overseas for growth. There is litlle expansion growth to be seen in the UK market except in the Capital wholesale end in the City May be that is the focus for the Don taking over from Daniels. The UK book is enormous and as long as the loans perform normally there is plenty to sustain profits, although keeping the book up to present levels rests with the performance of the UK housing market. There is a problem with small business loans ,as so many small business people think Banks are suppliers of risk capital,and getting appropriate security can be a struggle. Don't worry Lloyds is well capitalised and big enough to launch out. The Government will probably sell of piece meal like BP, maybe in 4 tranches at a healthy profit, plus the 12% on the massive HBOS loans. Not bad for saving the World!
Gerico41
Posted: 18 November 2010 16:13:09(UTC)
#7

Joined: 06/07/2010(UTC)
Posts: 10

Thanks: 2 times
Was thanked: 1 time(s) in 1 post(s)
I am interested in this discussion as a long term investor and not a specular.

The spectacular falls in bank shares indicated a widespread failure of professional managers, accountants, and auditors to report on the true financial position of the business they reported on. The main banks had issued rights issue prospectuses to support share prices far above the post crash levels.

In most occupations failure to perform as expected will result in demotion or loss of employment. Can the financial professionals claim to have carried out their duties properly?
The Chancer
Posted: 18 November 2010 18:17:04(UTC)
#8

Joined: 30/03/2007(UTC)
Posts: 1

Lloyds Corporate Markets is looking to ramp its FX business up by c16x current volumes and its bond trading business by c10x current volumes with the associated ramp in credit derivs trading along with it. If they get even half way there then this wing of the bank alone - which pre-crash was responsible for c30% of the groups total revenue - stands the possibility of delivering serious cashflow to the new LBG - but it doesn't come without downside risk.

Meanwhile, Halifax's old mortgage book and BoS's old commercial lending book still weighs heavy on the balance sheet and therein lies the potential 'landmines' should even a semi-double dip hit the UK. That said, the markets seem to be pricing in an anaemic to mild recovery over the next 3 years and several equity analysts have a 12month price target on LBG of between 90-110p mostly with the consideration built in that the Govt won't be divesting itself of its share in 2011. With that in mind, the pros see good upside from the current price right up to the point where HMT starts selling so even if downward pressure ensues there's a lot of cushion between now and those 12month targets. Why then is the s/p heading South instead of North right now? My guess is because the bears are winning the battle of hearts and minds with their 'double-dip' mantra but frankly history shows us that the year after the US mid-term elections almost always gives a boost to the DJIA of (on average) 17.5%, mainly due to market players prefering an environment of political inactivity by legislators - if that proves to be the case this year then watch World markets soar off the back of it and leveraged bets like bank shares and commodities get an andrenalin and nitrous oxide injection when combined with more Fed QE.

I'm long and going even longer.
joe stalin
Posted: 19 November 2010 09:19:07(UTC)
#9

Joined: 25/06/2010(UTC)
Posts: 15

Was thanked: 1 time(s) in 1 post(s)
The fact that we appear to be hearing less and less from luminaries such as Roubini, Rogers and Farber suggest to me that the double dippers are being rounded up and put back into the asylum. QE has undoubtedly primed the pump and even if it is fazed out gradually I dont feel that we are heading back towrads the edge of the abyss. Talking about abyss wrt to the banks in particular I feel that the action that was taken was spot on to put an end to the media-whipped hysteria that followed the demise of Northern Rock. it was BBC's sensationalist coverage of the first run on a bank sinec the 1930's that set the ball rolling. Sure US investment banks sold the odd piece of subprime trash bundled in with good quality stuff, bought a great investment rating for it from the agencies and got their hedgie mates to short the very same stuff. It was the panic being spread by the media including our own FT and the BBC as well as CNBC that every asset held by the banks was worthless that led to implosion of confidence, surge of mistrust, and collapse of liquidity. The UK rescue package and TARP succeeded in halting the slide. Most of the US banks have already repayed TARP money and others are set to follow suggesting a return to normality across the pond, add to this the mid election results and I too feel that we are on the way up in the US and would not be surprised to the US be the first to begin tightening seeing a further pick up in the Dollar so we may well see some of the speculative money come out commodities and hence a drop in the rate of inflation - ie a Goldilocks recovery. On the back of this asset prices will continue to recoever as confidence returns enabling our main banks to continue to write back property values on the balance sheet and ultimately repay the State. Osborne et al will realise that bank bashing is counter productive, capital ratios are becoming too high and over regulation will choke global competiveness. The penyy will drop that our two partly State - owned banks at current price levels offer an investment opportunity of a life time. Best of all they are ISA able a tax free capital gain and a tax-free dividend flow.
J
Posted: 22 November 2010 17:29:25(UTC)
#10

Joined: 10/06/2010(UTC)
Posts: 12

Hi Joe,

Please explain how they are ISA able. Thanks
joe stalin
Posted: 23 November 2010 11:04:43(UTC)
#11

Joined: 25/06/2010(UTC)
Posts: 15

Was thanked: 1 time(s) in 1 post(s)
Hi J

What I meant by that is that you can have these shares in an ISA. Any gain will therefore be tax free. I have put all my various ISA's under one roof so that I can buy and sell shares myself rather than pay a fund manager to do it for me. The costs compare favourable and of course you have an opportunity to be a little more creative than some of the players out there. If you take you allowance the gains could be very reasonable indeed. I read an article the other day that there are some ISA 's that have already topped the £1m mark! Stick some of that in good quality high dividend paying stocks such as RSA for example you have income and capital appreaceation. Longer term I am of the opinion that Lloyds and RBS will get back to paying a dividend so I am looking for high capital growth short term and income later. FWIW I have my self invested ISA's with RBS and have found them very professionel to deal with. Of course these are just my own personal points of view so please bounce any ideas off a "professional advisor " before doing anything. Hope this helps . cheers and gl
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