The market clearly doesn’t know.
As of mid-morning on Friday, Barclays had fallen 14 per cent since the ECB confirmed on Thursday afternoon that it would substantially tighten the collateral terms and haircuts for its various lending operations. RBS is down 13 per cent – threatening once again to fall back through the rights issue at which £12bn was raised in June.
In tightening its lending conditions, Lex notes, the ECB seems to be adjusting its facility for the long haul, and this has once again spooked investors:
The ECB seems determined to make banks share a greater proportion of the pain they have inflicted on everybody else, and protect itself. If this view is shared by regulators, which may be emboldened to raise capital requirements significantly, tough times lie ahead for banks and their shareholders. The most recent bank rally may have been premature.
So tangible regulatory risk can now be added to the toxic pile of downside risks facing the sector as whole.
Meanwhile, amid the carnage, Ross Curran and Alastair Ryan of UBS have had a look at the underlying bank franchises – “to see,” in their own words, “if any value exists.”
After having adjusted for overseas business, the research has thrown up some curious stats:
Taking Barclays as a specific example, the pair looked in detail at it customer base and have magic-ed up the new metrics of “market cap to deposits.” Currently trading at circa 9 per cent of deposits, the stock would appear cheap, having typically traded at between 15 and 25 per cent over the past decade. Then again, the ratio sank to 5.6 per cent back in 1992.
But it’s actually RBS that looks the cheapest using this measure – currently trading at 7 per cent of deposits, against a 1992 low of 3.9 per cent.
Here’s one more ratio – market cap to loans:
Related links:
Perhaps the BOE has been watching too many American cop shows – FT Alphaville