Monday, October 13, 2008

Will we own Second Class Banks?

The attached article from the Telegraph discusses why Barclay's has preferred to try and raise capital itself rather than go cap in hand to Gordon for some of our money to keep them in business.

As the article says

Barclays yesterday unveiled plans to raise £6.6bn of new capital from the private sector as chief executive John Varley warned that government ownership of rival banks will leave them "hobbled" and at risk of losing key employees.
John Varley the Chief Executive says Barclay's can get the money privately and it will also stop dividends for a few years and raise further money through savings. If it can do this then it will not have to put up with any interference from the government nor any hobbling on their chosen strategies.

It is also worried that if it did take money from the public purse it could not retain top employees as they might feel constrained or perhaps they would not like the idea of following government instructions.

If this is so it means that if Barclay's survives the next couple of years it will be better able to perform and will have better personnel than banks who have taken the public money.

If this is so then we may well have just bought 37bn worth of second class banks. This could mean a greater loss on this high risk investment or a much longer repayment period. This means that the British public will suffer as we have less money for public spending and/or possible tax cuts.

Barclays in £6.6bn private fundraising to avoid constraint - Telegraph

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