Second Largest UK Bank RBS to be Nationalized

If you watch Bloomberg television you may have seen the Royal Bank of Scotland commercial advertisements which display some of the worst corporate hubris imaginable.

RBS is the second largest UK bank by assets, following HSBC. It is being taken over by the British government. Their bailout plan involves the dividend being cancelled, and top management losing their bonuses and jobs, among other things.

AP
RBS to be taken over by British government
By Emily Flynn Vencat
Friday November 28, 12:51 pm ET

Royal Bank of Scotland says British government will buy majority stake in bank

LONDON (AP) - The British government will take over Royal Bank of Scotland Group PLC with a majority stake of almost 60 percent after the shareholders of the nation's second-largest bank shunned an emergency share issue.

The 20 billion pound ($31 billion) rescue takeover, the result of a plan announced last month, means that dividends on common shares will be scrapped and top executives' bonuses will be canceled. Chief Executive Fred Goodwin has resigned and Chairman Tom McKillop, who last week personally apologized to shareholders for the 85 percent fall in the bank's share value, has said he will retire next year.

RBS's 1.8 trillion pounds in assets are topped among U.K. banks only by those of HSBC. Its operations around the world include Citizens Financial Group, a commercial bank holding company headquartered in Providence, R.I., and Greenwich Capital Markets, based in Greenwich, Conn.

Fears about the solvency of RBS intensified this year as the global credit crisis contributed to it writing off 5.9 billion pounds ($9.2 billion) in bad loans. A third of that was due to last year's ill-timed euro14 billion acquisition of part of Dutch bank ABN Amro.

The government's shares will be held by a company called UK Financial Investments LTD. Its charge is to maximize value for taxpayers and prevent politicians from making business decisions about the bank.

"The investment will be managed at an arm's length from government," the Treasury spokesman said.

The bank, which has indicated it could post its first ever annual loss this year, was forced to resort last month to the British government's bailout plan, which offered as much as 37 billion pounds to prop up RBS and two other U.K.-based banks, Lloyds TSB Group PLC and HBOS PLC. In all three cases, the government guaranteed to buy any shares not purchased by investors.

At the government's request, RBS announced a share issue a month ago at 65.5 pence a share. But because its share price has fallen by almost a quarter since then, investors knew the government, in its role as guarantor of the issue, would end up having to shoulder the full amount when the deadline expired Friday. The result is an immediate $5 billion pound paper loss for taxpayers.

Only 0.2 percent of the shares were taken up by investors, leaving the state with the balance and boosting its ownership stake to 57.9 percent. Three-quarters of Friday's 20 billion-pound government investment was in ordinary shares and the remainder was preference shares.

Shares in RBS fell 2.4 percent to 53.7 pence on the London Stock Exchange Friday as investors braced for dividend payments to be cut.

As long as the government owns preferential shares, its restrictions on dividends and bonuses will be enforced. The bank had already scrapped a cash dividend for the first half of the fiscal year 2008, paying instead a dividend in shares.

A Treasury spokesman, who declined to be named because of government policy, called the government's imminent purchase of the stake in RBS "the next step" in "a process that supports financial stability, protects ordinary savers, depositors, businesses and borrowers; while safeguarding the interests of the taxpayer."

The drastic fundraising plan comes on top of a 12 billion pounds rights issue by RBS earlier this year -- at the time the biggest ever rights issue in Europe.

RBS shares were above 380 pence last December, and above 200 pence as recently as Sept. 26.

The Wages of Irrational Greed

The actual costs of several of the items can be debated, especially in the case of warfare and its soft and collateral costs. Joe Stiglitz has estimated the cost of the total Iraq war to three trillion dollars when all the expenses are considered.

One can quibble with the details, and even make the case that any expenditures financed by debt are of equal economic value, that there is no difference between pure consumption and greed, and productive investment in infrastructure. That there exists no good or evil and that justice has no penalty or value.

But one has to ask what could have been accomplished, what great achievements could we have endowed to posterity, if we had only restrained the greed of Wall Street and the corruption of the world's economy through the US dollar as its reserve currency which permitted the almost unrestrained creation of debt by a succession of narcissists and sociopaths?

If this chart is not shocking, does not sicken you at heart, repulse you, fill you with righteous anger, make you feel ashamed, then you may be emotionally a child, or perhaps no longer human.

An Itemized Breakdown of the 8.5 Trillion Bailout to Date

Ecuador to Selectively Default on Foreign Debt as "Illegitimate"

Opening salvo in a restructuring negotiation no doubt, but it will be interesting if this becomes a trend amongst those who perceive themselves in debt peonage to the corrupting schemes and usury of economic hitmen.

Alter.net
As Crisis Mounts, Ecuador Declares Foreign Debt Illegitimate and Illegal
By Daniel Denvir
November 26, 2008.

A special debt audit commission released a report charging that much of Ecuador's foreign debt was illegitimate or illegal.

Amidst the spreading global financial crisis, a special debt audit commission released a report charging that much of Ecuador's foreign debt was illegitimate or illegal. The commission recommended that Ecuador default on $3.9 billion in foreign commercial debts--Global Bonds 2012, 2015 and 2030--the result of debts restructured in 2000 after the country's 1999 default.

Although Ecuador currently has the capacity to pay, dropping oil prices and squeezed credit markets are putting President Rafael Correa's plans to boost spending on education and health care in jeopardy. Correa has pledged to prioritize the "social debt" over debt to foreign creditors.

The commission accused Salomon Smith Barney, now part of Citigroup Inc., of handling the 2000 restructuring without Ecuador's authorization, leading to the application of 10 and 12 percent interest rates. The commission evaluated all commercial, multilateral, government-to-government and domestic debt from 1976-2006.

Commercial debt, or debt to private banks, made up 44% of Ecuador's interest payments in 2007, considerably more than the 27% paid to multilateral institutions such as the International Monetary Fund (IMF). But the report also lambasted multilateral debt, saying that many IMF and World Bank loans were used to advance the interests of transnational corporations. Ecuador's military dictatorship (1974-1979) was the first government to lead the country into indebtedness.

The commission found that usurious interest rates were applied for many bonds and that past Ecuadorian governments illegally took other loans on. Debt restructurings consistently forced Ecuador to take on more foreign debt to pay outstanding debt, and often at much higher interest rates. The commission also charged that the U.S. Federal Reserve's late 1970's interest rate hikes constituted a "unilateral" increase in global rates, compounding Ecuador's indebtedness.

If President Rafael Correa follows the commission's recommendations--which is far from a certainty--Ecuador could default on some portion of its foreign debt, becoming the first Latin American country to do so since Argentina in 2001.

But despite all the hints at a default, it seems likely that Ecuador will use the commission's report as leverage for restructuring the country's debt. Commission president Ricardo Patiño indicated as much to Bloomberg News, but said that Ecuador would not settle for a 60% reduction, a number that had earlier been mentioned.

Ecuador announced that it would delay paying $30.6 million in interest on the Global Bonus 2012, taking advantage of a month-long grace period. The announcement sent the global financial universe into a panic, with Standard and Poor's cutting Ecuador's risk rating to CCC-.

Social movements have long alleged that corrupt former governments illegally negotiated loans for their own personal financial gain.

Significantly, the commission singled out foreign debt for being "illegitimate" rather than simply illegal. Social movements have long declared most foreign debt to be illegitimate, but Ecuador's use of legitimacy as a legal argument for defaulting would set a major precedent; indeed, the mere formation of a debt auditing commission does so. Osvaldo Leon, of the Latin American Information Agency (ALAI), says that it remains to be seen if other countries in Latin America will follow suit.

Ecuador's findings could set an important precedent for the poorest of indebted countries, whose debt burden has long been criticized as inhumane...

Chicago PMI Worst Report Since 1982

It may seem counterintuitive that US stocks are resilient after a morning of some of the bloodiest economic numbers to date.

Talking heads were on the financial channels proclaiming "Priced In!" and "a bottom is at hand."

It should be noted that this is a holiday-shortened week, heading into the November weekend close. Many financial institutions end their fiscal year in November.

The nation will not recover until the financial sector is brought back into a balance with the real economy.

Increasingly the public is not believing the usual lies and deceptions. A bottom may be in for the willing acceptance of fraud and a tolerance of white collar crime. The backlash could be terrific.

Dollar briefly extends declines vs yen after Chicago PMI
Wed Nov 26, 2008 9:58am EST

NEW YORK, Nov 26 (Reuters) - The U.S. dollar briefly extended declines versus the Japanese yen on Wednesday after a report on business activity in the Midwest fell more than expected...

The Institute for Supply Management-Chicago said its index of Midwest business activity fell in November to 33.8 from 37.8 in October. Economists polled by Reuters had forecast a drop to 36.7.

"The Chicago PMI is the worst number since Feb. 1982 and the numbers continue to show that the economy is still deteriorating," said Andrew Bekoff, chief investment officer at LPB Capital LLC in Doylestown, Pennsylvania.