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Triple Crunch Log                                                                                                            

12.9.10. Barclays’ Bob Diamond hits out at criticism of “casino banks”, saying critics don’t understand how banks work. “These aren't casino businesses, these are real client-driven businesses,” he tells the Sunday Telegraph. “We are providing services to corporate clients, to fund managers, to retail clients through branch banking and high net-worth banking. … It's disappointing when we hear reference to banks as casinos. It's disappointing when we hear reference that Barclays Capital as a casino – we closed down our proprietary trading in 1998. It is just not right to use a phrase like that to encompass investment banking or banking, it is not based on fact and it creates the wrong impression.” But he says Barclays will work constructively with Osborne’s banking commission.817

Barclays: “an ordinary British bank became a Wall Street powerhouse.” Now it has a controversial boss to match:” Observer strap-line. Peter Hahn of Cass business school says: “I think the real point is that five British banks account for around 80% of the market, posing a concentration of risk that is too great for the authorities to tolerate.” Observer: “Don't expect Diamond to take radical reforms lying down, however. Sources say he is preparing contingency plans to take Barclays Capital to America via a flotation, as soon as the murky regulatory landscape begins to clear. Whatever route he takes, you can bet that he will be well rewarded along the way.”818

No British banks in top 10 of world's safest financial institutions Observer: “Britain's banks are too weak to register in the top 10 of the world's safest institutions, according to an annual ranking that highlights concerns over risk-taking and the amount of capital held by banks in the wake of the financial crisis. The highest-ranking UK bank in the Global Finance survey is HSBC, Britain's largest bank with a market cap of $112bn (£73bn), slipping one place from last year to 19th position. Despite having one of the largest banking systems in the world, Britain has only three institutions into the top 50. Barclays, the only other UK registered bank on the list, is at number 34. … Capital requirements that previously required banks to hold up to 12% of their loan book in cash or its equivalent have been eased over the two decades. By 2007 many banks held in cash as little as 2% or 3% of their total loans.”819

“The case against homeownership”: Article in Time magazine. “Homeownership has let us down. …. Our leaders, with our encouragement, went much too far. The dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac.820

Basel sets banks new capital rules: effectively, a 7% capital cushion up from the current 2%. FT: “Global banking regulators on Sunday sealed a deal to effectively triple the size of the capital reserves that the world’s banks must hold against losses, in one of the most important reforms to emerge from the financial crisis. The package, known as Basel III, sets a new key capital ratio of 4.5 per cent, more than double the current 2 per cent level, plus a new buffer of a further 2.5 per cent. Banks whose capital falls within the buffer zone will face restrictions on paying dividends and discretionary bonuses, so the rule sets an effective floor of 7 per cent. A majority of countries, including the US and UK, wanted tougher standards than those that finally emerged, but they agreed to a lower total ratio and an extended implementation period after resistance from Germany, among others. The new rules will be phased in from January 2013 through to January 2019.821

Borrowing by Europe’s banks soars. FT: “European banks are borrowing at their fastest rate in almost six months and are set to continue exploiting a positive market mood in spite of longer-term funding concerns and worries about the economic health of weaker eurozone governments.”822

Banks win respite over bonus details. FT: “Britain’s banks will be spared the embarrassment of giving details of big bonus payments to staff in their annual reports next spring, after the Treasury admitted the relevant legislation will not be on the statute book in time. … Labour reacted with dismay to the news, saying the delay was inexcusable. Lord Myners, former City minister, insisted there had been substantial debate on the subject already and any delay would run counter to the coalition government’s stated desire for more scrutiny of bonuses.”823

“We have failed to muffle the banks,” writes Clive Crook in the FT. “The only difference is that lending is suppressed while the banks recuperate – keeping the rest of the economy in the recession that the banks made in the first place. … Regulators have been working hard, but the reforms taking shape are too mild. Case in point: the Basel III capital-adequacy ratios. … The Great Recession showed that financial regulation needed more than tweaking. Obscured by politics and special pleading, the lesson has still not been learnt.”824

Doubts on Coal India’s coal reserves as it heads into IPO. FT: “Coal India is set to begin a roadshow to promote what is expected to be India’s biggest stock listing, even as tightened environmental regulations (to stop wholesale felling of eastern forests, affecting 40% of Coal India reserves) and a Maoist insurgency threaten to render much of the state-owned miner’s reserves inaccessible. …  “Although India has large reserves, actual production of coal has only been growing at 6-7 per cent per year,” said Arvind Mahajan, head of natural resources at KPMG. Coal India hopes to raise up to Rs150bn ($3.2bn) from the sale of a 10 per cent stake. That would make its initial public offering bigger than India’s largest completed listing. … Coal India claims to be the world’s largest coal producer and accounts for 85 per cent of production in India, which has the fourth-largest reserves on the globe. But it recently revised down its annual production target from 520m tonnes to 486m tonnes, citing delays in environmental clearance for mine expansion. Meanwhile, Indian coal imports are surging, with KPMG estimating a domestic shortfall of 189m tonnes a year by 2015. … In spite of the problems, bankers expect a strong reception for the offering given its near monopoly status and demand from the power sector. “It just depends on the price,” said one person familiar with the deal. Citigroup, Morgan Stanley, Kotak Mahindra Capital, Enam Securities, Deutsche Bank, and Bank of America-Merrill Lynch are managing the IPO. The offering is part of government plans to raise $8.6bn through stake sales in the fiscal year to March 2011.825

World's largest offshore windfarm to open off Kent as UK electricity hits 10% wind for a day. Guardian: “Last week, the National Grid confirmed that at one point over 10% of the UK's electricity was generated from wind power.” Costing over £750m to build, Vattenfall's Thanet farm is poised to open off the coast of Kent, with 100 turbines producing enough electricity to supply heat and light for 200,000 homes … The Thanet farm, which will be able to produce 300MW of electricity, will be the biggest offshore facility of its kind

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