Loans and Finance

Loans and Finance


News and information about loans, money, debt, finance and business issues.

Tuesday, April 15, 2014

Inflation Falls To 1.6%

The Office for National Statistics (ONS) reports that UK inflation rate as measured by the Consumer Prices Index (CPI) fell to 1.6% in March from 1.7% in February.

This is the third consecutive month inflation has been below the Bank of England's 2% target rate, and the lowest rate since October 2009.

The largest contribution to the fall in the rate came from petrol prices.

The rate of Retail Prices Index (RPI) inflation also fell to 2.5% from 2.7%.

What does this mean?

It gives the Bank of England more time to keep interest rates low.

Monday, April 14, 2014

ONS On Crack

The EU has decreed that, in order to ensure that statistics from EU countries are fully comparable, the UK's Office for National Statistics (ONS) will have to start to include illegal activities in GDP calculations as from September.

This is expected to add approximately £10BN to the UK economy.

Initially the UK will only include UK production of cannabis, drug smuggling and prostitution. However, in due course illegal employment, gambling, pirating of software and fencing of stolen goods will also have to be included.

Quite how the ONS will derive "reliable" figures for these activities remains to be seen!

Friday, April 11, 2014

Co-op Loses £1.3BN

The Co-op Bank made a loss of £1.3BN last year (in line with expectations), and will remain loss making for the next two years.

The Co-op has begun talks on raising £400M to ensure that it doesn't breach its minimum capital requirement.

Niall Booker, chief executive of the Co-op Bank, apologised for the situation and said it would be clawing back about £5M in bonuses from former directors and executives due to the failings.

He is quoted by the Telegraph:
We appreciate that customers and other stakeholders continue to feel angry about how past failings placed the future of the business so seriously at risk. I would like to apologise to them, to thank them for their continued loyalty and to thank colleagues for their commitment during such difficult times."
The bank will withhold most of its £5M executive bonuses.

Yesterday Lord Myners, one of its directors who is currently conducting a review of the Co-op's governance, resigned. He will remain a director until the Co-op's annual meeting on 17 May, when he had been due for re-election. He is still expected to complete his review.

Wednesday, April 09, 2014

Wonga Advert Banned

Wonga have fallen foul of the Advertising Standards Authority (ASA) which has banned a Wonga advert for implying that the representative APR of 5853% was "irrelevant".

ASA received 31 complaints that the ad confused viewers about the interest rate applied to a Wonga loan, implied that the representative APR was irrelevant to a short-term loan and was irresponsible because it encouraged consumers to disregard the representative APR and thereby trivialised the decision to take out a short-term loan.

This is all very well in theory. However, short term loans from comapnies such as Wonga are exactly that, short term. In the event that the debt is not repaid after a period of around 30 days these companies enact procedures to reclaim the outstanding amount.
ASA is quoted by the Telegraph:
"Whilst we acknowledged that viewers taking out and repaying the loan within the stated time period would not repay 5853pc of the loan, we were nevertheless concerned that viewers would be left without a clear understanding of how the information in the on-screen text could be applied to a Wonga loan, given the ad's assertion that the representative APR was not indicative of the cost of the loan.

We considered that, though it attempted to clarify the costs associated with a Wonga loan, the ad created confusion as to the rates that would apply. On that basis, we concluded that the ad was misleading."
It ruled that the advert must not appear again in its current form.

Tuesday, April 08, 2014

ONS Massages The Statistics

The Office for National Statistics (ONS), for the first time in 15 years, is to change the way that it measures the economy.

The new accounting standards will take effect from September. The ONS will look at research and development spending to calculate its estimate of gross domestic product, rather than treating it as a cost of production. The construction of aircraft carriers and other weapons will also add to GDP.

The changes could add up to 5% to economic growth.

The ONS, in a bizarre move, will also count future pension rights as if they were present income.This is predicted to double the savings ration to around 10%.

Coincidentally George Osborne last week said that Britain needed to save more and that the measures announced in his “Budget for savers” were just a start.

Thus in one fell swoop the ONS has done Osborne a "solid".


Monday, April 07, 2014

Tectonic Shifts In Cement Industry

Lafarge and Holcim have announced the terms of a merger that will create the world's largest cement maker with combined sales of €32bn.

The joint company is to be called LafargeHolcim, and will be based in Switzerland and listed in Zurich and Paris.
However, there are a catalogue of regulatory issues that will need to be addressed and as such the approval process could take up to two years (according to UBS analysts quoted by the Telegraph).
In the meantime expect further tectonic shifts in the concrete industry as other players look to consolidate their positions.

Friday, April 04, 2014

QE Not Neglected But Not Enacted

The ECB on Thursday proved once again that it is enthralled by the theoretical monetarist dogma championed by its German masters at the expense of a real life economic crisis endured by the Southern members of the eurozone.

Mario Draghi, ECB president, said the governing council had agreed unanimously to take emergency measures if inflation falls too low. He is quoted by the Telegraph:
There was a discussion of QE: it was not neglected.” 
However, interest rates have been left at 0.25% as inflation fell to 0.5%. This level is half that of the 1% “danger zone” highlighted by Draghi in the past.

The eurozone is now heading towards a protracted period of deflation which will destroy the economies of its Southern members, as they will be unable to service their debts.

The euro is the currency of mass economic destruction.

Thursday, April 03, 2014

SWIFT Wars - America Blinks First

America's attempt to use SWIFT (letting JPMorgan block a Russian payment for Sogaz, part-owned by sanctioned Bank Rossiya) as a means of pressurising Russia into backing down in the Crimea dispute has fizzled out, as America has blinked first.

JPMorgan will now, "following consultation with our regulators", process the payment.

Whilst this little financial skirmish, on the face of it, appears to have fizzled out there will be long term ramifications. Russia and other countries (eg China, those in the Middle East etc) will not accept having their economies threatened by US actions such as this, the Dollar will not remain the reserve currency of the world for much longer.

Wednesday, April 02, 2014

London Property Twice National Average

London has now the distinction of having property within its boundaries that, on average, is twice the value of the average property in the rest of the UK.

According to the Nationwide the difference in price between the average home in and outside London is now £183,000. The Telegraph reports that London prices were up 18% on the previous year.

Is that a good thing?

Only if you are a London property owner looking to downsize or move outside of London.

Sadly the bubble is brought about by a disproportionate number of wealthy foreign property investors, and a limited supply outstripped by an excess demand from those who do not wish to endure the increasingly barbaric daily commute into London.

The situation is unsustainable, and the correction will be brutal.

Monday, March 31, 2014

Speculators Get Fingers Burned in China

Speculators have been borrowing dollars to buy Chinese assets (aka the "carry trade"). They are gambling that the yuan will strengthen. However, the gamble has not paid off because (as per the Telegraph) the yuan has fallen 2.5% against the dollar since January.

The situation will be exacerbated as the US Federal Reserve brings forward plans to raise interest rates. 

Friday, March 28, 2014

Ukraine $18BN Bailout

Ukraine has secured an emergency bailout of up to $18BN from the International Monetary Fund to stave off imminent default. However, it will see no debt relief and will be forced to slash spending.
Arseny Yatseniuk, Ukraine’s Prime Minister, said his country was “on the edge of economic and financial bankruptcy”. However, in moves akin to the Greek crisis, he promised to comply with demands for drastic austerity (including a 50% rise in fuel prices).
However, unlike Greece, there will be no "haircuts". As such banks (including Russian ones) have been bailed out.

Let's see where this all ends up in a few months then!

Thursday, March 27, 2014

Ofgem Calls for Energy Investigation

Ofgem has stated that energy companies may be making excess profits and ripping off loyal customers. As such it has called for a full Competition and Markets Authority investigation that could result in the break-up of the Big Six (British Gas, SSE, Npower, EDF, Scottish Power and E. ON which control 95% of Britain's energy supply market).

Ofgem said that energy retail profits of Britain’s six largest energy suppliers had risen from £233M in 2009 to £1.1BN in 2012 “with no clear evidence of suppliers becoming more efficient in reducing their own costs”.

The Telegraph quotes Ofgem:
Further evidence would be required to determine whether firms have had the opportunity to earn excess profits.” 
Ofgem also said that suppliers were “consistently setting higher prices for consumers who have not switched”, who are often the most vulnerable and least engaged customers, while offering cheaper deals to savvy consumers.

It found evidence of "possible tacit coordination reflected in the timing and size of price announcements", which "reduces competition and worsens outcomes for consumers" although it is not a breach of competition law.

Dermot Nolan, Ofgem chief executive, said:
Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices."
An investigation is likely to begin in June and to last at least 18 months, potentially two years.In other words the long suffering consumer will have to endure at least two more years of high prices and lack of transparency.

Wednesday, March 26, 2014

Government Sells 7.8% of Lloyds - Legalised Theft

The government has today announced that it has sold 7.8% of shares in Lloyds Banking Group, at 75.5p per share.

The government has now sold 36% of its original stake in Lloyds, which now stands at 24.9%.

Chancellor of the Exchequer, the Rt Hon George Osborne MP, said:
"I can confirm this morning that we have sold a further £4.2 billion of shares in Lloyds Banking Group at 75.5p a share, taking the taxpayer’s stake down to below a quarter of the bank. This represents good value for the taxpayer and the money will again be used to reduce the national debt.
This is another step in the government’s long term economic plan to deliver a more secure and resilient economy. It is another step in repairing the banks, in reducing our national debt and in getting the taxpayer’s money back."
The taxpayer paid an average of 73.6p per share when it was forced to rescue Lloyds in 2008. Thus the "profit" is little more than 1.9p per share, or £106.4M.

The sale comes at a time when Lloyds has been exposed as unilaterally reducing payouts to people who were mis-sold PPI. The bank’s behaviour has been described by one expert as “a scandal coming out of a scandal”.

An investigation by the BBC has found evidence to suggest that in some months the bank provided more than one in four PPI claimants – a figure that the bank disputes – with “alternative redress” – an obscure loophole that allows Lloyds to assume victims who were wrongly sold single-premium PPI policies on loans would have bought a cheaper regular premium PPI policy. Single-premium policies involve one-off payments, rather than monthly outlays.

Claims management companies told BBC Radio 4 that when they challenge Lloyds’ reduced offers on behalf of clients, the financial ombudsman has overruled the bank in every single case.

Cliff D’Arcy, an expert on the PPI scandal, said he believes Lloyds has reduced payments by tens of millions of pounds over the past year. He is quoted by the Independent:
“Frankly, I’m amazed that this problem has existed throughout the last year and hasn’t emerged into the light.

What’s happening here is a taxpayer-sponsored bank depriving taxpayers of their rightful compensation by using a loophole. It’s a scandal coming out of a scandal.”
The MP John Mann, who sits on the Treasury Select Committee, said:
 “This appears to be legalised theft and yet again it shows Lloyds as the unacceptable face of banking. This raises major questions for the Treasury, which has a multibillion-pound stake in the bank. ”
The government may be itching to relieve themselves of their stake in Lloyds, lest other scandals emerge that destroy value.

Tuesday, March 25, 2014

Russian Capital Controls and Macho Interest Rates Policy

Unsurprisingly, since the Crimea crisis erupted, capital flight from Russia has increased and may reach around $70BN over Q1 of this year.

Bartosz Pawlowski from BNP Paribas is quoted by the Telegraph:
It is shocking, markets have been extremely complacent, fooling themselves that Russia is invulnerable because it has almost half a trillion in foreign reserves. But reserves can become almost irrelevant in this sort of crisis.
There is now a risk of capital controls being implemented, as per Lars Christensen from Danske Bank:
Capital controls are a serious risk, and should not be discounted. Whatever now happens, there has been permanent damage to the Russian economy because investors are not going to forget this lightly.” 
Given that markets are driven by greed, fear and raw emotion, the very fact that capital controls have been flagged as a risk will now be the catalyst for ever larger movements of capital out of Russia. Thus the prediction will become a self fulfilling prophecy.

Additionally, as I noted in January, Russia is using interest rates to prop up the Rouble.This outdated macho policy of currency support has the effect of strangling the economy:
"A macho defence of one's currency is all very well in the short term, however in the medium to long term it will achieve nothing (as Britain's disastrous flirtation with the ERM in the 1990's showed). At some stage Russia will be forced to allow the rouble to float, or else face a recession caused by an excessively tight monetary policy.

Turkey’s “shock and awe” doubling of interest rates on Tuesday has failed to restore confidence in the lira, it too will have to allow the lira to go where the markets wish.

Suffice to say Russia, given its rigid mindset and macho self belief, will not in the near future allow the rouble to float. Instead it will continue to tighten monetary policy, and will impose capital controls to prevent currency flight.
This in turn will prompt other countries in East Europe to do the same, resulting in a general stagnation of the world economy as the flow of free moving capital dries up and people's confidence in the banking system is eroded."
Russia will learn, to its cost, that you cannot buck the market!

Monday, March 24, 2014

Co-op Needs Another £400M

The much maligned and previously ill governed Co-op Bank has discovered that it needs a further £400M, after unearthing more costs related to past misconduct.

The Co-op raised £1.1BN last year. However, it has discovered further costs related to mis-selling PPI, mortgages and interest rate swaps as well as "technical breaches of the Consumer Credit Act".

Niall Booker, chief executive, is quoted by the Telegraph saying that the result is the Co-op Bank is starting on its road to recovery with a capital position that is "weaker than in the plan announced last year."

The impact on the 2013 figures is expected to be between £1.2BN and £1.3BN.

The sins of the past catch up with you in the present!