Spread Trading 21 Jan 09 - Lloyds HBOS News

Spread Trading 21 Jan 09

Today's update see » Financial Markets.

Spread Trading 21 Jan 09 - 3pm Update

The markets appear to be in no mood to believe anything the banks say. Why should they?

The most stark example of this must be the Lloyds/HBOS tie up. Lloyds effectively paid £9bn way back on the 15th of January. The combined value of both banks as of this moment is…£6.5bn. ‘Sir’ Victor Blank’s incomprehensible assertion that the merger was ‘good value’ for shareholders obviously uses a definition of ‘good value’ not previously known to any dictionary on the planet.

This commentator was particularly scathing of the plan when it first reared its head and subsequent events have done nothing to change my mind.

The old saying “do not throw good money after bad” would sum up every rights issue made by the financial markets for the last year.

Huge derivative books held by virtually every Bank and Investment house are reeling under the fear that ‘matched off’ risk (for example 10 yr swap with one institution offset with the reverse swap/bond/option with another) is now vulnerable to one side or the other failing to match their obligations.

As Sterling continues to crumble dealers are falling over themselves to offload the currency and with virtually every analyst giving ever more dire prognoses for the beleaguered pound it is tempting to suggest that a small contrarian punt might be in order. With the current GBP / USD spread at around $1.3775 we have seen reversals that struggle to be rational.

Trading continues to be fast and furious across a wide range of markets with clients trying ‘pick bottoms’ on an almost daily basis. We are seeing continued buying in banking stocks in defiance of the falls as clients seem unable to believe what is going on.

Of course nobody can forecast what will be the final outcome but the fact that you could buy the entire Irish Banking system for a small plate of beans might be a good indication.

Barclays are now below 60p, Lloyds at 38p and RBS still effectively worthless at 11p, only HSBC (Hallelujah!) seems to be bucking the disaster scenario, and we may see a Scandinavian solution where all the various Norwegian, Swedish, Finnish and Danish banks (Christiania, UBF, SKOP, KOP etc) eventually ended up under one umbrella, Nordea. The arguments that the Lloyds and HBOS tie up was contrary to the competitive ethos now seem ludicrous.

The FTSE has now recovered from the early sell off after the US seemed to take the moment President Obama stepped up to swear in as a signal to sell. The index is now in positive territory at just over 4100 and this level (approximately) continues to be a difficult one for the market to close beneath.

Gold and Oil seem to be oscillating around current price levels with the Yellow Metal struggling to make headway above $850-$860 and Brent rejecting the lower $40’s ($41/$42) once more.

On a micro scale the valuations of virtual every asset appears to be low but this is only from the view point of the bubble values of 2006/2007.

An educational tour might be made by viewing the Nikkei/Tokyo land price performance since 1989. An economy with huge trade surpluses, a reasonably stable currency and mega low interest rates has seen property and equity values plummet for 20 years.

Compare this to the UK. Similarly appalling budget deficit and banking crisis to be fair. The UK seems to be in the same space as Japan in 1989 but without the manufacturing or modern infrastructure base to help. A sobering outlook.

Under no circumstances are the comments and the information provided herein to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice.

Neither CleanFinancial.com nor Financial Spreads or any contributing 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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'Spread Trading 21 Jan 09' edited by SD, updated 21-Jan-09

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