Welcome to Markets Live.

This is FT Alphaville’s daily markets discussion

Neil Hume is with me.

Booting up

So he’ll just be 20 minutes or so

Get your comments in below!

Thanks for all the funnies on Junk Mail

Remind me of another one i had a few years ago:

Cashpoint

Cashpoint

Cashpoint

Cashpoint

That should register on some guy’s screen at Lloyds TSB

They own the rights to Cashpoint — and we have to get their permission to use the word Cashpoint

Apparently

Gen — not sure what is wrong with Live prices

Portakabin

Hi there

morning all

took 10 mins to boot up this morning

that joy of using dell

We’ve had just another one of those lazy Monday mornings, where we potter about eating croissants, dipping into the odd bit of news, laughing at nonsense in the Sunday press that sort of thing.

Murphy is being sarcastic. Just to be clear

Hmm. We have actually been rushing about trying to get a handle on this new Bank of England thingy.

I think Thingy should have a capital T in this context.

Yes, the Special Lending Facility – the SLS

Thingy

And then we have been wading thru the UBS mea culpa

Yeah, have you read that. Just fascinating.

It’s 50 pages. I’ve skimmed it.

THERE’S TOO MUCH GOING ON

Calm, calm

let’s go Draismaland

breaking news from Teun Draaismaland of Morgan Stanley

The bear market rally is over

Helen’s doing a full post on that — so have a look on the AV home page a little later

We must do the SLuSh story — copyright G Cox

Just talk us thru the SLS – what is it, how does it work, what are the repurcussions?

Well I don’t know do i?

Gone STRAIGHT over my head.

First thing I had to do was ask what is the three-month general collateral repo rate?

When its at home.

Anyway – I’ve lined up an expert to explain all this. Unfortunately she’s late or gone for breakfast

Or she’s shy= or busy or something

So we may have to stumble on, on our own – shaken by the knowledge that quite a few readers know much more about this than we do.

Hmm.

What we can say is that salvation is not yet upon us.

The terms are arguably tougher than the banks were expecting.

Banks will be charged a fee equal to the spread between three-month Libor and the three-month general collateral repo rate. The latter, which involves the temporary exchange of cash for gilts, should be close to risk-free rates on gilts of a comparable duration. So the fee paid by banks should narrow as Libor, hopefully, returns towards risk-free rates. The cut off spread of 20bp is about where Libor would normally sit, versus the 90-odd basis points at which it’s been stuck. In opting for a spread over the GC repo rate, rather than the base rate itself, the Bank has maintained a market risk element in the spread.

Hang on – you are just cutting and pasting that from Helen’s post on Alphaville earlier!

So wot?

God gave you eyes, plagiarise.

Hmm. What else did she say?

Obviously the big thing to watch is LIBOR – be watching for that around 11.40

Won’t see immediate effect tho, surely.

I suppose the wider point here is that there is a clear split between the Treasury and the BoE

I think you are right

Merv is not playing ball

he’s is not backing down

not playing enthusiastically anyway

he wants a pound of flesh from the banks in return for this facility

anyway it is not enough for the Council of Mortgage Lenders

Their spokesman described the £50bn facility as “conservative”

Course it is!

give’m £100bn

or £150bn

good question from Helen there

Thank you BSB for that penetrating comment below

other quick thing to note is the reaction of the banks to all this

they started quite brightly

RBS got up to 398.75p

but once the terms of the SLS – or SLUSH as it has been dubbed already – they went into reverse

You will get a letter of complain from Cox you know — using SluSh

so we now have

Hmm — not what was supposed to happen

nope

and now to some breaking news

when did that come out?

First thing this morning

let me just recap the news

let me just recap the news

RBS is considering a right issue

of course for the details you will have to go the press

because the company does not want to release a proper detailed statement

so here they are:

Peter Thal Larsen, our banking correspondent, says that RBS is targeting a tier one capital ratio of 6%

which implies RBS will have to raise around £10bn and they don’t write anything off

but as our paper said on Saturday, RBS is expected to reveal about £4bn of losses from the credit turmoil

and some people reckon it will be more

So that means either the rights issue will have to bigger

£12bn perhaps

and they will have to sell assets

and possibly announce a scrip dividend

really?

At the AGM

that’s one rumour doing the rounds this morning

although I am not sure whether they can

the dividend was announced with annual results in February

I suppose shareholders could vote to change it

and as they are being asked to cough up at least £10bn

it would seem to stupid to take a payment with one hand then hand it back with another

might as well cut out the post man

electronic post man of course

anyway, how much is the dividend worth??

£2.3bn

so if they move it to scrip, that a pretty chunky saving

and its a lead that a lot of the other banks will follow

That on its own should cost Goodwin his job — canceling the divi

of course the upshot of scrip divis is further dilution

but if needs must

Hmmm — got any analyst comment on this?

yep

loads of it

This is from Cazenove

and this is from Merrill Lynch

and remember Merrill is one the banks that is going to underwrite the RBS cash call

OK thanks for all that

anymore to say?

yep

but I think the wider point here is that this is being driven by the FSA

they obviously screwed up over Northern Rock

got slaughtered for it

and are going to make damn sure it is not going to happen again

so, they have gone back and looked at the tier one ratings of the banks

and decided that RBS

ss running on a capital base that is too thin

and they have told them do something about it

you can imagine the conversation

your business model – running a low capital base on the grounds that you need less capital because you are more profitable than everyone else – is too risky

and it must change

Well that’s one view

i agree — but it also suits the banks politically

They can blame the rights on regulators rather than their own business practices

Fact is write downs have eaten capital — and it needs replacing

and the other point to make here is…

and if RBS are going to operate with 6% tier capital in future

they are going to be less profitable

their return on equity is going to be lower

Hmmmm

hang on a minute here’s some more from the Merrill note

it highlights how RBS got into this mess