Tonight:
5°c
City Comment
Eric Daniels, chief executive of Lloyds Banking Group, was criticised by some ingrates last week for announcing a marked improvement in his bank's fortunes.
They were complaining because when the bank published its annual figures less than a month ago, he gave no hint that things were going so well.
Could they really have turned round so fast?
One suspects Daniels had little choice to update the market because of what appears to be happening at Royal Bank of Scotland (RBS).
It seems highly likely that Chancellor Alistair Darling in his Budget speech on Wednesday will report that RBS is showing signs of progress.
Darling will use this partly to underline his claim that the wider economy is on the mend and partly to give substance to an electorally useful hint that the Government will be able to sell its stake in the bank at a profit perhaps sooner than most people think.
Such a bullish update on RBS would inevitably lead to more attention on Lloyds, so anticipating this Daniels took the opportunity to get his news in first while he had the advantage of surprise.
There is good reason to believe the Chancellor will be able to report better times from RBS, albeit he must be careful not to produce anything price sensitive, because of what was said in the annual business plan of the Asset Protection Agency (APA) which was published a few days ago.
The APA is the body — an executive agency of the Treasury — set up to watch over the taxpayers' interest after the Government decided to provide excess of loss insurance for £280 billion of Royal Bank of Scotland's more toxic assets.
In the plan, chief executive Stephan Wilcke makes three interesting disclosures.
First, he says the central expectation is that the overall net losses on the insured pool of assets will not exceed the £60 billion which was always going to be borne by RBS.
Second, he says that “RBS and the Government as the insurer have benefited hugely from market conditions in 2009. Asset values for structured credit assets, non-performing loans and leveraged loans have all recovered strongly”. RBS is seeing the benefit “in lower amounts of realised losses to date”.
Third, Wilcke says the agency will provide its first preliminary independent forecast for the likely loss on the portfolio by the end of this month.
His earlier comments suggest this forecast will be much better than expected assuming the economy does not fall off a cliff again.
This being the case it is surely likely that Darling will be given a sight of the figures at least in draft form before Wednesday's Budget.
And if he has them, and they are good, then you have to expect him to use them to produce at least one positive surprise.
