Private Equity Increasingly the Place to Go for Money

At 12:32 PM, George and Laura Bush will take their last helicopter ride away from Capital Hill by helicopter. Already, approximately 2 million people have converged on Washington to witness this historic moment when power gets handed over to Obama. The Americans know how to do their pomp and pageantry well, but when tomorrow comes, Barack Obama will have some heavy lifting to do with two wars and a crisis not seen since the Great Depression.
The banking black hole is far from over. NYU Professor Nouriel Roubini who bet his career describing the reason for a poor outcome for the U.S. housing market and outlined that U.S. financial losses from the credit crisis could reach U$3.6 trillion, half by banks and brokers dealers. Roubini says, "If that's true, it means the U.S. banking system is effectively insolvent because it starts with capital of U$1.4 trillion. This is a systemic banking crisis…In Europe it's the same thing."
In the New York Times, economist and Nobel Laureate Paul Krugman wrote that many U.S. financial institutions, "are already wards of the state, utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover."
Former Securities and Exchange Commission head, Arthur Levitt echoed that view saying we are witnessing a "slow but inevitable nationalization…we will see it and see it soon."
The U.K. is already well down that road.
Yesterday the government announced it was converting its Royal Bank of Scotland preferred shares into ordinary shares, potentially increasing its stake to 70%. They U.K. government also has a 43% stake in the combined Lloyds TSB and HBOS. Shares of Royal Bank of Scotland (RBS) fell almost 70% yesterday on the news. RBS also said it does not expect to pay a dividend on its ordinary shares this year.
While Canadian Banks are not in the same position, Canadian Bank stocks are lower on this news this morning. The banks will be under extreme pressure, making it a difficult time to get money.
"For smart business owners wanting capital to take advantage of this econmy by buying competitors or cheap assets," says Jacoline Loewen, author of Money Magnet, "Increasingly, the private sector will be the place to go for money. This money will be different from banks - it will work with entrepreneurs to build competitive Canadian businesses that will not be eaten for lunch by global competitors."

1 comment:

Anonymous said...

Very well put!

Those people with Royal Bank of Scotland shares will be crying into their tea. "How have the mighty fallen." Sad to see!

Alainnah Robertson