Betfair Official Blog

Banks struggling to fight the storm

Daily View - 8th July 2008

Well so much for yesterday's rally.

The early call is for the FTSE to come in over 120 points lower which is exceptional even in these days. Normally we have to trade for a while before the market takes this kind of a dive. Banks and Builders will once again lead the way down and Bradford and Bingley widely reported last summer as not being another Northern Rock now transpires might be an even worse basket case in that it could go to the wall for very good reasons (bad loans) rather than NR's very bad reason which was lack of liquidity.

It is getting increasingly worrying that many UK banks appear on the cusp of implosion when the wider economy has not actually yet felt much in the way of the cold winds of recession. Corporate loans have not seen much analyst focus to date as most of the investigation has been into the housing market but most of our major banks have huge small and medium business risk. Of course the equity prices of many of the banks seem to have written in worst case scenarios by the bucket load but we stand in danger (small at this point I realise) of a 1990's Scandinavian style bank failure.

'Our Gordon' seems to have spent most of the G8 summit worrying about a dead journalist and food waste. Worthy causes, no doubt, but hardly of import to an ailing economy or to the millions of hard pressed inhabitants of this sceptered isle. It is in the nature of things that when times get tough bad politicians start to focus on areas about which they can make little difference but where they can sound good. The entire 'green' issue over global warming is a classic example of this as we all know, in our heart of hearts, that no matter what Europe and America does we cannot stop (nor should we stop) the headlong rush into growth of the developing world. Greenhouse gas emission is not going to fall even if the UK turned off its power stations completely and we all went to live in the woods. Concentrating huge resources on a problem that we cannot solve is pointless and oddly enough seemingly at odds with actual policy on the ground. As the country virtually stops sea defence spending (needed now) we put the money into Quangos over renewable energy which might (at some time in the next 150 years) stop sea levels rising.

Oh well lets get back to today and ignore the year 2158.

Party Gaming has announced worse numbers than expected in its poker and sports sections which will no doubt knock a bit off the price this morning. Poker is becoming such an easy arena to join that the fragmentation of punters may begin to tell on growth.

Persimmon have announced a sales slump of 34% and reservations down 45% which presumably means that they are sitting on a huge wad of completed and part completed properties. The announcement of 1,100 job cuts is slightly academic as it hides away the fact that the vast majority of employees on their sites will be contractors who will also be surplus to requirements. As these people are mainly 'self employed' it will be a considerable time before they impact the employment numbers but the cut in their income will start immediately. Multiply this by four or five for all the other builders and you soon reach a sizable slug of earnings reduction.

Rumours that commercial lending was entering a Siberian winter were confirmed by Bank of Ireland's strong indication of a 3 month hiatus. Speculation that Barclays and RBS have been refusing new personal loans on top of the Mortgage gridlock will be renewed but many might feel that the horse has well and truly bolted already leaving the stable door closure a touch academic.

On the currency front the pound is weakening a touch versus the Dollar and Yen but the trading range of the past few months remains intact. Punters continue to trade the 1.94 to 2.00 cable range and there seems little indication at the moment that this will change. Every trading bloc has its own problems and switching from one disaster area to another is losing its appeal!

Oil has fallen to errrrr... $142.33 a full 4 bucks from the highs but hardly a drop in the bucket compared to the overall move higher. Having broken into the 140 region the price does not seem to want to go back down again. 140.00 appears to be something of a support level so dealers will be buyers so long as it remains north of this.