Sunday, October 12, 2008

Inefficient market hypothesis

An intriguing sentence in a Wall Street Journal report (subs. req'd) about the UK banking sector bailout, the flavour of the month on the way out of the banking crisis --

The capital raising will be for four of the U.K.'s largest banks: Royal Bank of Scotland Group PLC, Barclays PLC, HBOS PLC, and Lloyds TSB Group PLC.

One plan under consideration is to shutter London stock trading to allow investors to digest the news. That plan hasn't been finalized, said a person familiar with the situation.

This means that, among other things, Silvio Berlusconi was not pulling things of thin air when he spoke of G7 discussion about closing financial markets for some period of time. It does indicate the depth of disillusionment with the ability of these markets to function properly.

UPDATE: A new and more dramatic story in the Wall Street Journal (subs. req'd) says that the London Stock Exchange will open tomorrow, but --

LONDON -- In a dramatic turn, the U.K. government was finalizing plans Sunday night to take control of Royal Bank of Scotland Group PLC, by purchasing a big stake in the banking giant.

The government, which already has nationalized two other lenders, is now poised to become one of the world's biggest bankers. It also is buying a controlling stake in mortgage lender HBOS PLC as the government accelerates a rescue package that was unveiled just days ago to halt a dive in bank stock prices. The U.K. is set to unveil an investment in its banks of more than £35 billion ($59.70 billion) Monday.

The U.K. is expected to inject at least £15 billion into RBS. As part of the measures, RBS CEO Fred Goodwin, who built the bank in his eight years at the helm, is expected to step down, people familiar with the matter said. It is a comedown from a year ago when RBS was leading the world's biggest-ever bank acquisition.

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