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Socialise the losses, privatise the profits

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Socialise the losses, privatise the profits

This week HSBC bought the UK arm of the battered Silicon Valley Bank for £1.

It thinks that is a good deal which will work out well commercially, but the wider sense is of HSBC doing the right thing. A strong bank bought a weak one, to save the rest of us from worry.

Fair play to HSBC. It also wins political brownie points, but we hope not too many.

In its note on the takeover Lex reports that the SVB deal isn’t risky for HSBC since it has “total equity of almost $200 billion”.

What does this really mean? Well, it is the difference HSBC and its auditors put on the gap between its assets and its liabilities.

Another way of looking at it, is that it’s the break-up value of the bank.

So it is plainly in decent shape.

But wait, HSBC does not have a stock market value of anything like $200 billion – it’s closer to half that.

Why is that? A colleague offers: “Because years of experience have taught us not to believe the values that banks apply to their assets.”

Quite.

So the next think not to believe is that banks, old ones or new techy ones, are deserving of looser regulation. As the latest bank crisis surely shows.

The FT has been very strong on that lately.

Martin Wolf writes that “crisis by crisis, we have created a banking sector that is in theory private but in practice a ward of the state”.

That’s a result of what lobbyists and PR folk worked for: “Get rid of onerous regulations, they cried, and we will deliver miracles of growth”.

His colleague John Thornhill notes that this libertarian approach is nowhere to be seen when things turn bad. Bail us out, say the former freedom fighters.

“Just like many of the banking titans after the global financial crisis of 2008, tech tycoons appear to favour the privatisation of profits and the socialisation of losses,” he writes.

Bank CEOs or PRs pushing the line that lenders need greater freedom, should be given a long raspberry and advised to knock it off.

Press release of the day

What does the budget mean for pension planning? This from Charles Stanley offers a good guide. There’s a clear explanation of what the rules are, and what they will be later.

“The changes could help many people build up their retirement nest eggs, especially if they are playing catch up due to missed contributions in earlier years or gaps in employment,” says Rob Morgan.

Stories that will keep rolling

1) What’s the thing that might cause Jeremy Hunt’s luck to run out?

2) Isn’t it equally likely that the pension reforms will see people retire early rather than stay in work?

3) Which are the most at risk banks in the world?

4) Is that Credit Suisse loan going to be enough?

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