Ok – this post really if Off Topic (OT) – but what value can we put on banking shares?
See my separate post on Jon Moulton's comments about the current situation being "very frightening", and noting Former US Federal Reserve Chairman Alan Greenspan and many other commentators describing the current crisis as the worst in a century, my own view that many if not most banking shares could be worthless. At the moment, I believe that without the support given to them by governments, virtually all banks would fail to survive – they survive on confidence, and only the support of government can keep that confidence up.
Is it right for governments to use tax-payers funds for this? The grumpy side of me says no – why should tax-payers bail out institutions that have squandered their own funds in obscene levels of pay and bonuses to their directors, managers and staff? The logical side says – what if all the banks failed? – the prospect is far more frightening.
But even if governments keep up the support – will all the banks survive? I suspect not – as the credit crunch continues, many economies (like ours in the UK) that have been funded by debt will inevitably contract – as a result there will be a long-drawn out recession – and many of our big name companies will hit hard times. If those companies have high borrowings there is every chance that (although they may be profitable at the operating level) they are unable to pay their interest charges and the banks/financial institutions will not get their loans repaid. i.e. after the sub-prime mortgages and toxic loans, then the rusty car loans, we will have the rancid corporate loans. Will the Banks have sufficient cash to survive – will governments have sufficient cash to provide the support needed – I think not – so my money is not staying in any bank stocks at the moments.
I've not revised my FTSE guesstimate for the end of the year (4,800) – but if this crisis continues for another year – as it looks as if it could – will the FTSE be at 3,200 by the end of 2009?