Tuesday, September 18, 2007

Politics save Northern Rock; Lehman delivers na KenGen?

At the rate savers were withdrawing funds (£1.5bn a day), you can see that NRock with £24bn was due to run out of the stuff soon. And no politician likes to be associated with such public failure. Least of all one who has just become PM and wants to hold election soon like Gordon Brown. The decision to cover all deposits introduces moral hazard of the kind not seen before because bankers are being told to take risk without bila worry. Fractional reserve lending strictly allows a bank to lend £8.8 out every £10 you deposit with it. Lakini now a bank will be able to lend even their branch because there is govt coverage.

Lehman Brothers took a 47% hit on its Fixed
Income (that's where its CDS and ABS income was put) and still managed to only miss breakeven by 3%. Fixed Income used to be 50% of its earnings, so you can imagine the fear they had. As I always say, Investment Banking is the only business where you make money as the market is going up and everyone is buying stocks, commercial paper and derivatives and when the market is going down because they are all selling their stocks and looking to unwind hedged positions.
Bear Stearns is next. They are even more into CDS and ABS than Lehman.

Anybody else see KenGen's nasty surprise coming? And to make it worse, after increasing their dividend from last year when they are on their investing cycle, they are thinking of increasing their borrowing. This is might now be a very long-long term stock for some.
After this factual commentary on Equity' performance, I suppose they will be accusing Rina Karina @ Faida of being on Equity's pay. Sometimes, Equity reminds me of Professor Wangari Maathai, unappreciated in Kenya, radical and innovative in some ways, eccentric in others. But showered with accolades internationally.

2 comments:

Ssembonge said...

Brits can be unforgiving. The run seems unnecessary unless they is a whiff of impropriety. In the US, there's been no runs.

Viva capitalismo!

MainaT said...

There was no impropriety, simply unsophisitication on the part of the Brits.