Could it be RNS time for Xcite Energy tomorrow at last?

Investors in Xcite Energy have been patiently waiting for news on the Rowan Norway rig. Now the deadline (extended for the second time) passed on Friday, so it seems pretty unlikely that CEO Richard Smith will either delay things yet again or issue no news at all. I'm sure lots of fellow Xcite Energy investors will be glued to their computers tomorrow morning waiting for the all important RNS.

I would be surprised if we see a takeover announcement (but of course it would be pleasant surprise), more likely I believe is that the CPR (Competent Persons Report) may be issued together with a farm-in announcement from one of the Bentley Alliance partners.  It would seem incredible that the delay is purely caused by price or contractual negotiations with British American offshore who own the Rowan Norway rig. Of course the other scenario is that production may be accelerated by leasing the Rowan Stavanger before it goes to Talisman Norway in the North Sea. 

So lots of possibilites, but it seems the least likely that they'll just keep quiet. If its another delay...they're lawyers need a damn good talking to!! Anyone seen any Champagne bottles piled up in a skip outside the offices in Banchory recently?

I'm keen to invest in some other companies hence I've added my watch list page (http://contrarianinvestoruk.blogspot.com/p/watch-list-shares.html) but a big chunk is tied up in Xcite so little flexibility at the moment. Come on Mr Smith, lets get this share moving again, we're fed up with it under £4!!

Have we learnt anything from the last financial crisis of 2008 & 2009?

The 2008/2009 financial crisis saw the bankruptcy of Lehman Brothers and the effective nationalisation of Royal Bank of Scotland, Northern Rock, AIG, Lloyds, Freddie Mac and Fannie Mae and Citigroup. We saw the takeover of HBOS by Lloyds TSB, Bear Stearns by JP Morgan Chase, Merril Lynch by Bank of America and Wachocia by Wells Fargo. Without the U.S. government backed TARP (Toxic Asset Relief Programme) and the U.K. government backed cash injections it is likely that the global financial system could have collapsed following the Lehman bankruptcy, a spiral that ultimately was caused by the Sub-prime mortgage debacle in the United States.

The U.S. TARP was agreed to purchase assets and equity from financial institutions to strengthen its financial sector which was signed into law by President Bush on October 3, 2008 and allowed up to $700 billion to be allocated to the programme. However by the end of 2010, much of the money used had been repaid, with the final liability to the U.S. tax payer of as little as $20-30 billion. Whilst $245 billion was pumped into financial institutions, over $169 billion has been paid back, including $13.7 billion in dividends, interest and other income, along with $4 billion in warrant proceeds as of April 2010.

The U.K. tax payer has spent around £850 billion pounds propping up the financial sector including the nationalisation of Northern Rock in February 2008 and now owns owns 84% of Royal Bank of Scotland (RBS) and 41% of Lloyds. The U.K. government spent £45.2 billion rescuing RBS in November 2009 at an average price of 49.9p (currently 44p) and Lloyds Banking group cost at an average of 75p (after open offer, currently 66p) in return for insuring £260bn of the group's toxic assets.

Have any lessons been learnt from this near calamity, which nearly made the Great Depression of the 1930's and 1940's (following the Wall Street crash of 1929) look like a picnic?

The causes of the 2008/2009 financial crisis are many and too complicated to go into here, but there are several good books on the topic (I particularly enjoyed Andrew Ross Sorkin's Too Big too fail). However there is some examples of key themes which contributed to the near collapse:

1. Excessive leverage by financial institutions - excessively large bets without oversight by the SEC, FSA etc. of the potential risk and capital required. Although stress tests have been done both in the U.S. and EU, the severity of these tests is still under question. LESSON LEARNT - NO

2. Risk taking culture exacerbated by focus on short term profit for bonuses - although Project Merlin in the UK has tried to address short term versus long term financial incentives for bankers, it looks like a damp squib. There is reluctance to adopt a true global compensation system for the financial services industry and individual countries are worried about draconian action unilaterally because of the threat that banks and hedge funds will relocate elsewhere. Hence, the problem is still there. This is likely to be illustrated by Barclays Capital (Barcap) this week, since it is expected to announce that it has handed an even bigger share of revenues to its investment bankers. Whilst individual bonuses have been cut by as much as 10%, the overall compensation pool covering pay and incentives will have risen to about 40% of revenues. LESSON LEARNT- NO

3. Too much global liquidity due to low interest rates and sovereign wealth funds -  this situation is unchanged, interest rates are at historical record lows and China and other countries with plenty of capital to invest are driving up asset prices. The U.K and U.S. quantitative easing programmes, where government bonds are bought has probably heightened the problem and encouraged money flow to riskier assets with larger returns.  LESSON LEARNT - NO

Overall, we seem to be in little better shape to deal with the next financial crisis and it will come one day. Being very gloomy you could see a scenario where central banks are forced to raise interest rates because of rising inflation (caused to some extent by speculation in commodities fueled by cheap money), which kills economic growth and leads to financial institutions taking big write-downs in their assets. Do they have enough capital next time to deal with the darkest of financial scenarios?