Goverment actions haven't really helped the situation so far

Oct 7 2008 By Nevill Boyd Maunsell

It takes no more than an excitable blog to start a run on bank shares nowadays.

On Tuesday it was the turn of the HM Government, or rather some plausible talk on the BBC that it was planning a multi-billion bail-out.

Matters were made worse when Barclays denied quite promptly that it had gone to Downing Street with a begging bowl and The Royal Bank of Scotland, freshly downgraded by Standard & Poors, took nearly four hours to say the same.

Amid the calls for Governments to “do something” to bolster confidence in banks, it is worth noting that recent Government actions have been doing banks no good at all.

First, it was the American Government. Hank Paulson who used to run Goldman Sachs and now runs the US Treasury, came up with the astounding notion that his one-time muckers on Wall Street would cause less havoc in future if they were handed $700 billion in return for the dud assets that got them, and us, into the present mess.

Mr Paulson said nothing about how the price for these “assets” was to be fixed, or strings to be attached. Result: the House of Representatives cleared the thing only at the second attempt, after $100 billion of sweeteners had been attached.

In the interval bank shares round the world took a slamming.

Next came the Irish Government. Alarmed that collapsing share prices might expose Ireland’s banks to dreaded foreign bidders, and even more by talk of a run on two of them, it guaranteed all deposits – but not for the Ulster Bank (prop. RBS).

The lack of such blanket guarantees sent non-Irish bank shares reeling and the leaders of Europe’s big four into a weekend huddle in Paris. They agreed on nothing except to refrain from panicky reactions without consulting each other.

Next morning the German Government, or rather Chancellor Merkel, did just that, announcing a guarantee for all German bank deposits. After some hours of dismay and confusion, the Germans explained it was just a political statement that didn’t actually mean anything – except to non-German bank share prices.

Now we have Iceland. To be fair, it is hard to see what that Government could have done other than nationalise its over-adventurous banks straight off.

Still it was an unhappy coincidence with the report that our own Government was contemplating a bail-out for depositors at the expense of their shareholders.

It may turn out to be the right thing to do and the only way to do it. No Government could contemplate a run on, say, HBOS or the RBS. But it is a rotten prospect for the shareholders.

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Here’s something going seriously right in the West Midlands. The British Chambers of Commerce survey showed a remarkable burst of export successes on the part of unspecified service providers in the West Midlands.

The cold numbers don’t tell what has been happening. But Angi Egan, a consultant specialising in such things as brand identity, suggests that Birmingham firms ranging from lawyers to design agencies really have become faster-moving, more adaptable and downright excellent than some of their counterparts in London and Manchester.

They quote sensible prices, too. That is good to hear.