The Reason Scottish Banks Are Voting 'Nay': Ritholtz Chart

Barry Ritholtz is a Bloomberg View columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He blogs at the Big Picture and is the author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
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Albert Edwards, the insightful but not especially upbeat analyst at Societe Generale SA, writes to warn:

The sequence of events which might flow from a Yes vote may be as unpredictable and as uncontrollable as those of the late 1980s in Eastern Europe, which led to the ultimate demise of the USSR.

Edwards notes how successfully the U.K. currency union worked during the 2008 crisis. The relative strength of the pound worked in favor of two Scottish banks that required bailouts -- Royal Bank of Scotland and HBOS Plc (now part of Lloyds Banking Group Plc.).

Edwards writes:

U.K. bailout of Scotland showed the fruits of a mature, stable currency and political union, hundreds of years in the making.

Consider what would happen to Scotland's banking sector in the event of a "Yes" vote today. The Scottish financial institutions have already said they would move their headquarters south of the border. This move would, theoretically, relieve an independent Scotland of the cost of any future bank bailout. More pragmatically, the move relocates the banks to a nation that can afford future bail outs.

And here's Edwards again:

If left to their own devises a Scottish bailout of RBS and HBOS would have comprehensively bankrupted the nation in the same way it did Ireland, Iceland etc. in the 2007 crisis.

The U.K. has both the size and the financial strength to absorb another -- though not many more than that -- financial disaster without bankrupting the nation. The upside for the new Scot-less England would be all of those high paying finance jobs...as if housing prices in London weren't high enough already.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Barry L Ritholtz at britholtz3@bloomberg.net