Loans and Finance

Loans and Finance

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

Thursday, April 24, 2014

Labour Rats Leave Sinking Co-op Ship


The Labour Party has finally decided to give up on the Co-op Bank, and will move its enormous debt (granted by the Co-op at preferential rates) elsewhere.

This late action comes as the Co-op sinks further into the mire. Aside from the issues surrounding its losses, governance, Paul Flowers, and the resignation of Lord Myners it also recently came to light that Munir Malik one of its board has been suspended because he falsely claimed to be a chartered accountant.

Malik, who was part of the group's "values and principles board" was been suspended, and an investigation launched into his qualifications.

The ICAEW told economia that Malik had been previously struck off as a chartered accountant and shouldn't be using the qualification. He was appointed to the Co-op board in May 2013.

"Values and Principles" eh!?

Those of you wondering where labour will be placing its debt need look no further than the Unitytrust bank.

Oddly enough its shareholders include the Co-op!

Wednesday, April 23, 2014

Governance Matters

The Co-op Bank debacle shows just how much corporate governance matters, or in the Co-op's case how much the lack of it matters.

The Telegraph reports that Sir Christopher Kelly, a former official at the Treasury, is to publish a report next week which is expected to say that  the Co-op Bank failed last year due to a combination of woeful oversight and its disastrous merger with the Britannia Building Society.

Sir Christopher will say that only “cursory” checks were made before the 2009 takeover of the Britannia and that the Co-op's directors did not have “their eye on the ball”.

The proposals follow a review by Lord Myners, the former City minister who resigned from the board of the Co-op, who has looked at ways to improve how the Co-op as a whole is run.

Quite why the Co-op is some 10 years behind the basic tenets of the Higgs and Smith reports published in 2003 is beyond me.

Tuesday, April 22, 2014

Shutting The Stable Door

Reforms introduced by the Financial Conduct Authority (FCA) will require borrowers to endure “invasive” inquiries into their spending and lifestyle, including their expenditure on weekly groceries, gym membership etc.

This is all very well and prudent. However, given that the bedrock of the UK economy is the ever increasing value of property and that the debt horse well and truly bolted many years ago, these reforms are somewhat late and counterproductive.



Wednesday, April 16, 2014

SSE Potential Overcharge

It seems that faulty electricity meters may have given rise to a situation where 16,000 customers of SSE have overpaid their energy bills.

Customers on 'Economy 10' tariffs may have paid too much because the meter clocks were set incorrectly.

SSE said a "manufacturing fault" with one batch of electricity meters could result in them incorrectly switching back an hour after a power cut in winter.

SSE is quoted by the Telegraph:
"For customers timing their electricity consumption in order to benefit from off-peak rates, this could mean that some of these units would be charged at the normal rate rather than the off-peak rate. SSE... estimates that a total of around 8,000 customers are likely to have been affected."
It also admitted a separate issue where meters had been "installed with the off-peak times set incorrectly for the customer’s supply distribution area". About 8,000 meters could also be affected by this problem.

SSE will now write to all customers who may have been affected to inspect their meters.

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".

Simples!

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!