This is actually patently obvious to anyone who considers it for more than a moment, it does need to be written down, articulated, specified through layers of abstraction as a constantly twittering software engineer in my timeline is currently obsessing about.
Its not complex, its simple, basic even; it's the rules of trading, the basics of exchange. You do not buy an obvious 'pig in a poke' no matter how little the government is trying to sell it to you for!
I wont bore you with a 19th century econo-agricultural explanation of the metaphor. I am no Corporate Finance Guru, I never was the whiz kid in a Porsche because of silkily advising on mergers and acquisitions but I know the basics.
When investing in an offered security do some basic due diligence, ask the basic questions, primary of which is 'Do you know that the entity in which you are buying stock is a stable legal entity over the time period you are intending to hold the security' (titre in French)?
Sine the initial 'test the offer' announcements from both RBS and Lloyds, (HMT in all but name) preparing the market for the whateveritistoday billions for which it is tapping the UK equity market, the outlook going forward for the legal entities offering stock has changed dimensionally, orthogonally; you are not buying LBG or RBS as described pre-EC announcement in accepting this paper offer, you are buying an option over several UK retail banks, the odd American bank and a potentially monstrous UK HeadQuartered Investment Bank!
Which of these properties in these basket (case) offerings your chips land on depends upon your active management of that paper for at least three years forward.
It is hubristic and hypocritical to participate in this offer and criticize the casino-mentality for getting us here, at the same time.
This paper is the biggest roulette chip I have come across, in several years.
I remember describing 'Political Risk', as something to do with world famine zones, I suppose now in terms of banking services, that's right where we are.
Comments
Our Stock Price is Valued as an Option
"Forget the value of the equity in thebusiness. Our stock price is valued as an option. Until we're further down the road, that will
remain the case"
John Hourican, RBS
http://gbm.rbs.com/psp/public/OpenMetis.aspx/EUROMONEY_MAY_COVER_09.pdf?docid=200905132290103&folder=gbm0004&attachmentid=%2F2009%2F05%2F13%2F200905132290103.0.1.pdf
How many times are we going to be mugged?
It isn't just bonkers to give these monster banks more money, it is also criminal. In the case of Lloyds Banking Group, they have confirmed on the one hand that their toxic albatross HBOS is being investigated by the FSA for possible misrepresentation
or concealment of facts over its last rights issues and on the other hand they're asking investors for more money. It is logical that if and when the FSA take enforcement action against HBOS (which they will have to unless they want to be complicit in the various HBOS frauds they are investigating), it will effect the Lloyds share price. The Government are well aware of this fact and are still planning to give Lloyds more billions of tax payers money even although they know the share price will plummet in the near future.
Hello, we've already been mugged - you don't need to supply the cricket bat Gordon, so they can hit us harder.
If this is to be considered to be good business practise, then surely, everyone who has a loan or overdraft they can't afford to pay (possibly because the consequences of the masters of the universe has left many people jobless) should be able to nip down to their local Lloyds, explain they've run out of money and ask the bank to give them some more?
Goose, gander comes to mind - but somehow it doesn't work like that.
Nikki Turner UK