Bank Sector Trading - Spread Trading
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Bank Sector Trading

Bank Sector Trading - Spread Trading


Trading Features / Strategies from Simon Denham of Capital Spreads.

So...adieu Northern Rock hello www.nr.gov.uk.

The only real option open to Capt’n Darling became his final decision. Offloading the whole kit and caboodle into the private sector with a big government guarantee was never going to fly. The political fall out from huge wealth being created in the private sector from handing over an ‘operationally’ profitable bank for peanuts would have been an albatross around the neck of the Labour Party for years.

The bank can now be wound slowly down (or aggressively if the government wishes it) whilst making substantial sums for the exchequer at the same time and then sold off after attracting reasonable long term funding commitments from other banks. With the Government now taking up 45% of the entire economy it is nice to know that a small part of it will actually be making a profit! The only black spot is the possible legal ramifications from investors but this should be assuaged by paying the closing price on Friday to each and every share holder as it would then be difficult to argue that you had not been paid a fair market price (as that was the market price at the time).


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This week is the beginning of the bank reporting season and both Barclays and Lloyds have indicated that they will be raising dividends. This is not a ‘weak’ signal! The banks have other sources of income than ‘sub prime’ mortgages and, whilst growth may be difficult to come by for the next year or so, the other areas are doing very well indeed. Barclays have indicated that, even after writing off all their dodgy debt (they may well get a lot of it back), they will match last years numbers. World growth (not the UK or US) is still very robust and the big players earn a huge slice of total revenue away from these shores.

The reason for the extreme weakness of operators such as Bradford and Bingley is that they have too many of their eggs in one basket (aka Northern Rock) and are heavily reliant on UK growth. Their forays abroad, a surprise anyway for many investors, seem to have brought nothing but pain which will naturally create a tortoise like retreat into the ‘safe haven’(!?) of home just as it looks to be contracting. For those who think that shortage of land is a protection against price falls, the lessons of Japan (an even more ‘green belt’ protective nation than the UK) are educational. It was the travails of the banks over there which precipitated the huge falls in real estate values (at one time property fell some 70% off the peaks) and we can only hope that the same does not happen here.

Varying indicators from the economy shot across our radars last week and whilst we can worry about inflation (next months number should be a doozy) long term pressure looks slightly less obvious. Wage demands are not getting out of control, aside from ‘outside influences’ inflation is not accelerating and we might be about to pass the worst of the commodity based inflation anyway. The real pressure on the UK economy comes from the public sector not from the private, which has been doing reasonably well of late. With so much of our economic interests now tied in with government expenditure the prospect of this being pared back do not bode well. With a very poor trade deficit and public sector deficit there are many arguments in favour of a weak pound and if this happens (in conjunction with a sudden increase in government debt issuance) the consequences may be dire.




The above comments do not constitute investment advice and neither Capital Spreads nor Clean Financial accept any responsibility for any use that may be made of them.


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Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

Article provided / approved by Capital Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.

'Bank Sector Trading' edited by SD, updated 18-Feb-08



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Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The contents on CleanFinancial.com are for information purposes only and are not intended as a recommendation to trade. Nothing on this website should be construed as investment advice.

Neither CleanFinancial.com nor any contributing company/author accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.


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