Morning:
8°c
Picture the scene. Here is Sir Fred Goodwin in his splendid chief executive's suite in his spanking new head office next to Edinburgh airport. In his hand is the warrant proposing the final dividend from Royal Bank of Scotland. Does he put the payment into the shredder? Or does he grasp that if he does so, he'll rapidly follow it?
You may be able to curb your enthusiasm at the prospect of next month's bank reporting season, but if you do, you haven't been paying attention. The banks, big and small, international and domestic, have seen their shares collapse over the past few months. We used to marvel at the 7% yield on Lloyds TSB (a good deal more than the bank would pay you for looking after your money) and wonder whether chief executive Eric Daniels would finally crack under the strain of maintaining the dividend his predecessor established.
Then, just before the storm broke last summer, Lloyds actually raised the half-time payout for the first time in five years. It has done the shares no good, and they are now yielding over 8%. Yet they are no longer the highest-yielding High Street bank. That dubious distinction belongs to RBS, whose shares return 8.4%.
Or do they? RBS won another takeover battle last year, but it may yet prove a pyrrhic victory for Fred the Shred. He paid e70 billion for ABN Amro, selling on bits of the bank to Fortis of Belgium and Santander of Spain, leaving a net cost of e27 billion (£20 billion).
Since RBS launched the bid, its share price has halved, and the whole shooting-match, NatWest and all, is valued at less than £40 billion. Fortis paid e24 billion for its slice of the ABN pie, and is now valued at e31 billion, implying that Old Fortis is scarcely worth sweeping up off the streets of Brussels. The only winner, aside from the ABN shareholders, was Santander. It paid e20 billion, including e 6.6 billion for Banca Antonveneta, which it immediately sold on for e9 billion.
Fortis has promised not to cut its dividend, and says it has no plans to ask shareholders for more capital, but analysts fear that RBS may have to do both. On one broker's estimate, it needs £12 billion of capital - enough surely to put Sir Fred into the corporate shredder.
The big bank balance sheets won't be pretty, cluttered up with the remains of all those special investment vehicles, credit derivative swaps and the other toxic paper that nobody can yet value convincingly. Yet had any of them discovered anything much nastier than they've so far admitted, they would have been obliged by the listing rules to announce it promptly.
Alliance & Leicester, with full results just three weeks away, has trebled its loss provisions, but the numbers are relatively modest. The dividend might even rise, and the shares yield 7.6%. Bank dividends are such a big slice of the market's total payout that if the season passes with no cuts, it would provide a massive fillip to shares generally.
Bank shares stand on derisory ratings because nobody believes the published figures. In the last proper banking crisis, 35 years ago, the ratings were even lower, since not only did nobody believe the numbers, but the banks themselves had no idea how bad things were. Let's hope they're better informed this time.
