Goldman swallow doesn't make a summer for banks

On top of figures much better than Wall Street had forecast, Goldman launched a $5 billion new share issue. With this it plans to pay back half the $10 billion it received from Tarp, the US government's troubled-assets relief programme. The shares were snapped up in double-quick time at a modest discount to the market price.

The headlines were all about the return to bonuses at Goldman. The Tarp pay-off supposedly clears the investment bank once again to set its remuneration levels without interference from the Obama administration.

In fact that's not entirely true. Goldman won't be free of government shackles until the Treasury has offloaded the warrants it took as part of the bailout.

They are exercisable at $122.90, which is pretty much the current market price. Clearly the government would like to make a profit on them, so Goldman has either to ensure its share price rises much higher or find a third party prepared to pay a premium.

Then there was the matter of Goldman's numbers. On the surface, they looked good. Almost too good. Being able to leave December's $1.3 billion loss out of the first quarter, thanks to a shift in the financial year-end, was certainly handy. But the quality of the earnings was also questionable, with one analyst remarking that they were "strong on the surface, quite weak below it".

This side of the Atlantic, the results triggered two common questions: is this the beginning of the end of the banking crisis, and could the British banks buy themselves out of government control so quickly? The short answers are no and no.

As UBS showed clearly yesterday, the banks still have plenty of toxic assets to deal with. Many people hoped that the first quarter of 2009 would be the final great purge of rubbish from balance sheets. It won't.

But even assuming the toxic stuff does at some point work its way out of the system, we are now moving into the part of the economic cycle where straightforward vanilla loans - to companies, housebuyers and credit-card holders - are beginning to deteriorate sharply.

BernsteinResearch recently upped its expected loss levels for Lloyds and Royal Bank of Scotland to 3.5% of loans, and for Barclays, which has a better-quality loan book, to 2.2%. Those are hefty slugs of profit removed which will almost certainly drive both Lloyds and RBS into the red this year and probably next. That in itself is enough to answer why neither of our mainly nationalised banks is in any position to buy back the Government's shareholdings.

There is also the small point that HM Treasury is still sitting on hefty losses. It pumped £20 billion into RBS and has a 70% stake now worth just £11.5 billion. It put £17 billion into Lloyds and HBOS as they merged, for a 43% stake now worth just £6.1 billion. Politically, it would be impossible for the Government to accept any buyback at anything like these levels.

The result is that Lloyds and RBS face years of being effectively state-controlled. Barclays, which fought tooth and nail against taking state aid, has been rewarded with a quadrupling of its share price in the last three months.

Longer term, there is every reason to believe that Barclays (and the UK operations of HSBC and Santander) will continue to pull ahead of the nationalised banks. They will have earlier access to fresh capital and will be able to move more quickly when opportunities come up. They will make decisions on commercial grounds not political ones. And perhaps most importantly they will attract the best people as they continue to reward success appropriately.

Blogs are fun but they're not fundamental

Is blogging the future of financial journalism?

Reuters certainly appears to hope so, with its massive investment in a soon-to-be-launched UK blog that has recruited some of the best and most venerable people in the business.

It is clearly fighting back against the Financial Times's Alphaville, whose Markets Live section has built up a particularly strong audience. So strong it's about to start covering New York.

The internet and financial markets were made for each other. Both move in real time, relying on a mix of facts and tittle-tattle. Both are open to abuse.

Regulators hate much of what appears on chatrooms and blogs because they are so hard to police. Blogs can skirt around the laws of libel and the concept of fair comment.

So far, perhaps with the possible exception of the Allen Stanford scandal, blogs have broken few real financial stories. (I'm sure Alphaville's boss Paul Murphy will supply me with an extensive list of scoops.)

The truth is, just as was the case with Guido Fawkes last week, blogs are fun and can get things moving. But newspapers are where the real stories and commentaries are to be found. And always will be.

Sorry, Marcus, it's part of your job to be given a bloody nose

I have known Marcus Agius for more than 25 years, and I like him. So I apologise immediately for recommending to small shareholders in Barclays that when they turn up or send in their proxy voting forms for next Thursday's annual meeting, they vote against Resolution 4.

That's the first of the 14 resolutions that have been put to the meeting in an unprecedented show of unity which sees every member of the board standing for re-election. As chairman, Agius goes over the top in front of the rest of his troops.

He will also, like all good commanding officers, come back alive but more bloodied than his foot soldiers.

I predict as low a yes vote for him at 70% (you will read it here first), as against the 90%-plus for each of the other directors.

Several institutions, notably Legal & General, have already declared they will use the Agius vote as their protest against the way in which Barclays raised £7 billion from Middle East investors last year, on better terms than existing investors were offered. I will join them and hundreds of private investors at the Queen Elizabeth II Conference Centre next week to see the fun.

I expect a game of two halves. On the simplest level, it will veer between "Why did you let those Arabs buy in so cheap?" to "Well done for not letting the UK Government interfere with our bank." There will be plenty of ire from small investors who have lost a fortune.

Agius will take it all in his stride.

I first met him when he flew a bunch of journalists out to the Thistle oilfield, when he led the privatisation of Britoil back in 1982. Anyone who can bear the rigours of the North Sea, an alcohol-free oil platform and my company for 16 hours can handle a few rowdy shareholders for a couple of hours.

At £750,000 a year, Agius is paid less than some chairmen even though he's been putting in long days and seven-day weeks of late.

But that's not the point. Overpaid or overworked, the annual meeting is when the chairman's job is very clear. He should be the symbol irate investors kick against.

Stand up and let the votes be counted. You'll survive, Marcus.