Jeremy Warner's Outlook: Now it's Varley's turn to be brave, this time by refusing to follow the RBS rights issue

Here comes the end of free banking; Persimmon freezes all housebuilding
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Sir Fred Goodwin won the battle, but it looks to be his opposite number at Barclays, John Varley, who is winning the war.

Though he started the bidding for ABN Amro, Mr Varley refused to get drawn into an auction and eventually ended up ceding the prize to a Royal Bank of Scotland-led consortium of rivals. It was a moment of triumph for Sir Fred, but look who's laughing now. The reversal of banking fortunes could hardly be more striking.

Forced to announce £6bn of new writedowns, a £4bn asset disposal programme and a £12bn distress rights issue, Sir Fred is today fighting for his very survival.

With an apparently decent first quarter beneath his belt, Mr Varley, by contrast, still feels strong enough to resist calls from regulators to follow in Sir Fred's wake and recapitalise. Mr Varley is not altogether ruling out a rights issue, but his preferred route to rebuilding capital is still through profit generation and balance sheet restraint. Is this credible?

Certainly it is brave. It takes guts in this environment to resist the demands of the Governor of the Bank of England, and it may also be dangerous. If economic conditions deteriorate precipitously, causing bad debt experience to mushroom, Mr Varley may end up regretting his bravado.

Yet there are a few things that make Barclays a bit different from RBS. Sir Fred's first-quarter write-offs have been made much worse by the acquisition of ABN's wholesale operations, which doubled up his exposure to capital markets. Barclays was already quite reliant on investment banking through Barclays Capital, but failure to buy ABN at least avoided higher exposure still.

It may also be the case, as Bob Diamond, the head of Barclays Capital, insists, that Barclays has simply been better at hedging its exposures to sub-prime and other forms of suspect debt. RBS is in any case said to be more reliant on the commodity end of the capital markets business. Barclays would claim a more sophisticated level of operation. Monoline exposure also appears to have been more limited.

With RBS, there has plainly been an element of "kitchen sinking" in the level of the write-offs announced. With no rights issue to get away, Barclays is able to take a less copper-bottomed approach. Underwriters to the RBS rights issue demanded a robustly extreme view of bad debt experience.

With Barclays there has been no such pressure. As a consequence, the bank is able to claim that all elements of its business were profitable in the first quarter. Whether that would have been the case had it adopted the same approach to write-offs as RBS is anyone's guess.

Finally, Barclays' core tier-one capital ratio was in any case quite a bit better than that of RBS. Barclays starts with a better capital cushion. All the same, this is high-wire stuff. Mr Varley is taking quite a gamble. If the economy holds up, then it ought to pay off for his investors big time.

But if it plunges into the abyss and Mr Varley is eventually forced to go cap in hand to shareholders anyway, then he's in trouble. In such distress conditions, there would be limited appetite for providing more equity and the terms would be correspondingly harsher.

Here comes the end of free banking

Rejoice, rejoice. The courts seem to be coming down in favour of the tens of thousands hit by unauthorised overdraft charges. The legal battle is far from over, but it looks as if eventually it will be decided that the charges are extortionate and unfair, laying the way open to compensation claims totalling more than £1bn.

On the face of it, this looks like a victory for consumerism. As is their wont, the big bad banks seem to have been fleecing those least able to afford having an overdraft. Yet as ever, there will be unintended consequences, and the outcome of these proceedings is likely to be far from benign for the great silent majority who keep their current accounts in order.

Banking conforms to the waterbed principle of charging: squash the charges down in one area and they merely rise up somewhere else. As things stand, those who keep their accounts in credit – the majority – pay nothing for their banking. Yet banking doesn't come free. Anauthorised overdraft charges are one of the methods by which banks earn the money to pay for the service. The profligate minority subsidises the sensible majority.

Make no mistake, in the short term, big banks will suffer extreme pain from the removal of these charges. But in the medium to longer term they will thank the authorities, for it will enable them to justify bringing in a whole welter of other charges that will ultimately make them even more profitable.

As on the Continent, each transaction from direct debit to electronic transfer will begin to attract a charge. Meanwhile, there will be no overdraft facility at all on plain vanilla, "social", banking. Poorer people will find access to credit that much more difficult. Once customers have been softened up to accept current account charging as a matter of course, free ATM withdrawals will disappear too, at least for customers of rival banks.

No wonder the bigger banks, once they have recovered from the shock of having to pay all that compensation, are rubbing their hands with glee. They've been wanting to introduce a "saner" and more profitable approach to current account charging for years. It looks as if the courts will give them that opportunity. But don't knock it. Banks need to earn big profits just to pay for all the billions they've just flushed down the drain of the last credit boom.

Persimmon freezes all housebuilding

It seems like only yesterday that we were all worrying about Britain's chronic lack of housing stock, and how, unless more homes were built, it would cause house prices to rise so steeply that in time even a two-bed semi would set you back a million pounds or more.

Now the mortgage market has got so bad that Persimmon, Britain's largest housebuilder, is ceasing new construction altogether. There could scarcely be a more powerfully symbolic manifestation of the now-extreme correction taking place in the UK housing market.

The Government target was for 240,000 new homes a year, so as to produce three million additional dwellings by 2020. Never a realistic goal, it's now so much fish and chip paper. About 165,000 new homes were built last year, the peak of the boom. Many of these now lie empty, with new-build, inner-city apartment blocks, the preferred investment of buy-to-let landlords, particularly hard hit.

Some industry experts are predicting not much more than 100,000 completions for this year, and, unless the mortgage market picks up, even fewer the year after. The Bank of England's £50bn bank support operation may help the mortgage market to get going again, but it will do little good for the housing market now that the psychology of falling house prices has set in. Only a fool would buy today if they think they will be able to buy cheaper tomorrow.

This in turn will severely limit new build until the overhang is cleared. Britain's demographic characteristics suggest that in the longer term there will be a continued problem of excessive demand on limited supply. Yet perhaps oddly, this doesn't necessarily imply that UK housing will resume double-digit rates of price increase once the present correction is done.

Historically, house prices track average disposable incomes fairly closely. In the past five years, they have strayed very significantly above this long-term norm. It will require a quite severe correction of perhaps as much as 30 per cent to bring them back to trend. That process is very much underway. The wider economic consequences are still unknown, but for a major housebuilder to to switch off the cement mixer in this way doesn't bode well.