"Morgan Stanley in 20% stake sale"

As predicted on this very 'blog*, once you net off all the debits and credits, the ultimate source of finance for our cheap loans was China, Japan etc, and seeing as we can't repay them in cash, we'll let them gradually take over our banks.

One story I missed from July was Barclays issuing more shares to The China Development Bank and other SFW's. Which is mighty chucklesome; the self same bank invested £1.5 billion in Barclays just over a year ago, and has, presumably, lost one third of its money, even after the recent upward tick.

See also Nomura to buy Lehman's Asia business.

* See here or here.

"Goldman Sachs and Morgan Stanley on the ropes"

More fun and games from The Evening Standard.

"Mr Mack believes his bank has become the victim of short selling."

Pots, kettles.

Interesting is the very last sentence...

"Chinese investors, unaffected by the sub-prime meltdown and awash with cash, are also said to be considering a stake in Morgan Stanley."

As I said at the end of this recent post;

"the ultimate source of all this easy credit and cheap finance is The People's Republic Of China and oil rich countries like Russia and the Middle East. So we in the West can pull a fast one, put our banks into receivership (in a controlled and orderly fashion) and tell the bond holders (the PRC and petro-states) "Oops, sorry! We can't repay the full value of those bonds, but hey, we'll issue you new bank shares to the face value of the shortfall." This would, from the banks' point of view convert a short term liability (bonds) into a long-term non-repayable liability (shareholders' capital), so our banks would be recapitalised on the sly without the need for these messy and embarrassing rights issues."

Mark's negative-equity-o-meter

If you take the distribution of loan-to-value figures from Chart 1.9 to The Bank of England's latest Financial Stability Report, then, subject to a few assumptions*, the cumulative total number of households in neqative equity for each 5% fall in house prices is as follows:
* The assumptions are: there are 11.8 million outstanding mortgages; mortgagors have no other financial assets or liabilities; mortgagors have kept up with normal repayments; and that the BoE's figures are as at December 2007 (a few months before the report was published). Further, it ignores BTLers (who have more than one mortgage-per-household and bought at recent peaks), which would reduce the 'number of households' slightly.

The Halifax House Price Index for June 2008 showed that house prices had fallen by an average of nearly ten per cent since December 2007, in other words, there were 200,000-odd households in Nequity^TM a month ago. If prices slide another ten per cent by the end of 2008, there will be 650,000 households in Nequity^TM.

According to last Saturday's Times, "Morgan Stanley, the investment bank, said that if prices fall by 25 per cent in the next two years, more than two million - or one in six borrowers - would be in negative equity.", which ties in nicely with the table above - we're already down ten per cent, so another twenty five per cent gets us to thirty five per cent in total, reading across from thirty five per cent gives us the grand total of 2,179,140 households in Nequity^TM by the end of the year.

Thanks to Alice Cook for the steer.

"Negative equity threat spreading for homeowners"

From today's Telegraph:

An estimated 145,000 mortgage holders already owe more in mortgage payments than their houses are worth ... The research company CACI analysed the 1.2 million people who bought a home since the start of last year and calculated that one in eight are in negative equity. This figure could rise to as many as 360,000 by the end of this year if house prices fall by 20 per cent, as some economists fear is now possible.

Wot?

From The Telegraph, 10 June 2008

"A leading City bank has warned that a quarter of a million homeowners have slipped into negative equity since the start of 2008 ... Michael Saunders, head economist at Citigroup ... has warned that house prices could fall by 15 per cent or more by the end of 2009, taking the number of households in negative equity over the million mark, but now says the drop could be even greater."

From The Times, 12 June 2008:

"Falling house prices have left more than 30,300 homeowners in negative equity, says the Council of Mortgage Lenders. Morgan Stanley, the investment bank, believes that a further two million households are at risk of owing more than the value of their property if house prices fall 20 per cent by 2010."

So our starting figure - those in Nequity already - could be anywhere between 30,000 and 250,000.

CACI's Nequity-o-meter suggests for every 1% fall in house prices (i.e. every month, at the speed at which prices are falling) there'll be an additional 10,000 households in Nequity. But this only relates to the 1.2 million people who have bought in the last year-and-a-half. There are about 12 million outstanding mortgages and LTV's are fairly evenly distributed (between 'nearly paid off' and '100% mortgage') - so that means the real figure is 100,000 more in Nequity for each 1% fall.

Which ties in nicely with the Nequity-o-meters used by Citigroup and Morgan Stanley, which suggest that for every further 1% fall in prices (i.e. one month's worth of falls), there will be another 100,000 households in Nequity.

My magic fag packet says for every 1% fall in prices, it might be as many as 120,000, but let's go with 100,000 as a nice round figure.

Morgan Stanley's negative-equity-o-meter

From The Times:

Morgan Stanley, the investment bank, believes that a further two million households are at risk of owing more than the value of their property if house prices fall 20 per cent by 2010

So that's about 100,000 borrowers in Nequity^TM for every 1% fall in prices; Citigroup reckoned about 70,000; and my more pessimistic fag packet said about 120,000.

So let's go with 100,000 in Nequity^TM for every 1% fall in house prices as a nice round mid-figure.

Tee hee!

In the cosy world of The City of London, the top boys just shovel piles of (shareholders') cash at each other, e.g. when banks are issuing shares, they even appoint other banks as 'advisors'. There is a practice called 'underwriting new issues', whereby Big Investment Bank is promised oodles of issuing shareholders' readies in exchange for a vague promise to pick up any shares than the issuer can't sell in the market. And Big Investment Bank uses that cash to pay eye-watering boni to its senior employees; shareholders in Big Investment Bank don't see much of it.

Without going into technicalities, it looks as if Morgan Stanley and Dresdner Kleinwort have finally been hoodwinked by HBOS. For the first time in ages, underwriters might actually made a loss on a deal. In which case, the shareholders in Morgan Stanley and Dresdner Kleinwort's parent, Dresdner Bank AG are the ones being robbed.

Nice one, Andy Hornby!

H/t Fubar at HPC.