Loans and Finance

Loans and Finance

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

Tuesday, July 31, 2007

The Housing Crisis

Those of you who believe Gordon Brown's promise that he will help improve the housing crisis in Britain, may care to to refer to Andrew Gilligan's report on Channel 4's Dispatches last night.

In it he revealed a sorry tale of corruption, lies and underhand dealings between local councils and property developers.

There is absolutely no chance in hell that the property crisis will be alleviated, as long as these practices are allowed to continue.

See The FT for some background.

Monday, July 30, 2007

The Metronet Debacle

It would appear that following on from the Metronet debacle, it is a case of once bitten twice shy.

That at least is the view of Terry Morgan, chief executive of the company responsible for maintaining and upgrading the Jubilee, Piccadilly and Northern lines, said he would not put Tube Lines at risk by simply taking on Metronet work.

"I think there's a number of things to happen yet," Mr Morgan said, referring to Metronet's decision to call in administrator Ernst & Young.

"First, someone has got to make certain it can't happen again. Tim O'Toole [London Underground managing director] and the mayor [Ken Livingstone] have made it clear there will have to be some changes with the way the Metronet contracts are let and London Underground will have to rescope the programme."

Source The Daily Telegraph

Saturday, July 28, 2007

Liars, Scammers and Bullies

'Britain's banks and building societies have lied to and threatened customers who complain about overdraft charges, the Government's financial regulator said.

The Financial Services Authority (FSA) has rebuked current account providers for making "false or misleading statements" to customers. The City watchdog said that some institutions had lied to account holders to deter them from reclaiming unauthorised overdraft charges
.'

Source The Times

Says it all doesn't it?

The financial services industry in Britain truly has a most appalling reputation, one of its own making.

Thursday, July 26, 2007

The Metronet Debacle

Workers from Metronet facing redundancies, following its demise last week, are urging the prime minister to bring its contracts back into the public sector.

When Gordon Brown was Chancellor he bulldozed the Public Private Partnership (PPP) initiative through, despite fierce opposition, this was the scheme under which Metronet bid for its contracts.

RMT general secretary Bob Crow has asked for infrastructure work to be the control of London Underground.

In a letter to Brown, Crow said:

"The collapse of Metronet means there has to be a fundamental rethink on how the London Underground infrastructure is maintained and renewed.

We support the view of the Mayor of London that infrastructure work should be taken back in-house under the control of London Underground
."

Brown will have to make quite a political contortion, something that he is not prone to do, if he is to meet the desires of the Metronet workers; ie it won't happen.

Wednesday, July 25, 2007

Friends Financial

UK life insurance companies Friends Provident PLC and Resolution PLC are to merge.

The companies' boards have agreed to an all-share combination creating Friends Financial Group PLC, the United Kingdom's fourth-largest insurer with an approximate value of £8.6BN.

The deal is contingent on shareholder and regulatory approval, and is expected to be finalised in the fourth quarter of 2007.

The firms say they expect cost savings of at least £100M, by the end of 2010.

Doubtless the market will be alive with gossip as to other possible mergers.

Tuesday, July 24, 2007

Bricks and Mortar

The increasing reliance of the British economy on the housing market was revealed yesterday, when the government released figures that show that a staggering 60% of the UK's £6.5 trillion wealth is now tied up in property.

The Office for National Statistics (ONS) said that the value of Britain, if it were up for sale, has risen by over 5% (an increase of £326BN in 2005).

The increase was more than accounted for by the rise in the market value of Britain's housing stock.

The ONS figures show that the wealth of the UK is now highly sensitive to movements in the housing market, particularly given the declining importance of manufacturing to the economy.

Britain is now worth £6.5 trillion, with the UK housing stock accounting for £3.9 trillion of that figure.

The trouble is that a large factor within the "value" of the housing stock is that of speculation, rather than fundamentals.

This bodes ill for the economy as a whole, given that speculative bubbles have an annoying tendency to burst.

Monday, July 23, 2007

Inflation Figures Fudged

Mervyn King, the Governor of the Bank of England, has finally has admitted (albeit in a coded manner) that the inflation figures on which UK economic policy is based are fudged.

King stated that he was "surprised" that rising house prices are not included in the official inflation figures.

Given that the house price figures are included in the Retail Price Index (RPI) but that Gordon Brown, during his heady days as Chancellor, changed the official inflation index on which policy is based to the Consumer Price Index (CPI) which excludes house price inflation, I am surprised at King's "surprise".

Since 1997 King and the Monetary Policy Committee at the Bank of England has had the task of keeping the CPI around a target of 2%.

Currently the CPI stands at 2.4%, but the RPI stands at 4.4%.

There you have it, interest rates are being set on the basis of erroneous figures. This fudge has caused the credit boom of the past decade, which has lead to the house price boom which in turn has lead to the debt crisis that is facing Britain today.

The architect?

None other than our new Prime Minister Gordown Brown.

Friday, July 20, 2007

The Metronet Debacle

Yesterday I asked, in a somewhat ironic tone, how is it that Metronet managed to get itself into such difficulties.

The answer lies in it's "jobs for the boys" approach to its contracting. More formally known as "tied supply chain", this ensured that Metronet's five shareholders (WS Atkins, Balfour Beatty, Bombardier Transportation, EDF Energy and Thames Water) were guaranteed most of its work maintaining and upgrading the Underground.

A nice little earner for those with their fists in the honey pot. However, rather a poor arrangement for the tax payers and commuters who find themselves holding the shitty end of this rather unpleasant stick.

This arrangement has been criticised regularly by London Underground, Ken Livingstone and Chris Bolt, arbiter of the £30BN Underground public-private partnership.

A prophet seemingly receives no honour in their own country!

I look forward to seeing how the "listening" clunking great fist tries to get himself out this mess.

Thursday, July 19, 2007

The Price of The Metronet Failure

Gordon Brown has not escaped quite so cleanly, as he may have hoped, from the Metronet debacle.

Transport for London (TfL) has promised to stump up £750M to prevent the "meltdown" of London's primitive and shameful tube system, following on from yesterday's announcement by Metronet that they have placed themselves into administration.

Alan Bloom, an insolvency expert from Ernst & Young, has promised the hapless commuters of London who endure on a daily basis the third world tube system that he had an "overriding obligation" to ensure that the tube network does not grind to a halt.

Well, he would say that wouldn't he?

Ken Livingstone, Mayor of London, to his credit had resolutely opposed the PPP Metronet scheme. However, he was bulldozed out of the way by the "big clunking fist" aka Gordon Brown.

Chickens now are coming very firmly home to roost; and the Mayor has warned that the refitting of over 100 tube stations might have to be pushed back years, in favour of a multibillion-pound overhaul of the underground's signalling systems that Metronet was due to carry out.

Mayor Livingstone said that London now faced a "difficult period", while TfL tried to handle Metronet and "the clunking fist's" legacy of a £2BN cost overrun, a lending freeze from its banks and question marks over who inherits its two PPP contracts.

One has to ask some blindingly obvious questions:

1 How were things allowed to get to this stage in the first place?

2 Was no one overseeing this fiasco?

3 Who will be held to account?

4 What has the clunking fist got to say for himself now?

Needless to say, it will be the long suffering taxpayer who gets saddled with another one of this government's financial foul ups.

Tim O'Toole, a senior TfL executive and head of London Underground, said that he expected the taxpayer to plug any financial gaps left by the Metronet intervention.

"This will feed in with the larger discussion with the government about the funding of TfL and transport in London."

Quite!

The cash bung of £750M will be enough to cover Metronet's funding gap until the end of this year; after that...who knows?

By the way, the reason the clunking fist imposed PPP contract was to transfer the financial risk of managing public sector assets to the private sector.

Yes, you did read that correctly!

It would seem that the risk has been very speedily transferred back, which would indicate that PPP contracts are not worth the paper that they are printed on.

Well done Metronet and the clunking fist.

Wednesday, July 18, 2007

Metronet Goes Into Administration

Metronet, the London Underground contractor, has announced that it will go into administration after overspending by a staggering £2BN; it has asked Mayor of London (Ken Livingstone) to appoint the administrator.

Alan Bloom, an insolvency specialist at Ernst & Young and the former administrator of Railtrack, is expected to be appointed to run Metronet.

Metronet said that its two Public Private Partnership contracts to renovate and maintain London's tube system were unsustainable. Its Metronet BCV programme, for the Bakerloo, Central and Victoria lines, had an unpluggable funding gap of just under £1BN. Metronet's creditors and shareholders – Balfour Beatty, WS Atkins, Bombardier, EdF and Thames Water – had refused to provide more funding.

Quote:

"Metronet Rail BCV requires additional funding to enable it to carry out its contractual obligations during the period of the Extraordinary Review.

This company has now established that it has no access to such further funds
."

The second contract, Metronet SSL, for London's sub-surface tube lines, has an an overspend of £1BN. Metronet said blamed the PPP regulator for not providing emergency funds for Metronet BCV.

Quote:

"Applying the logic of the PPP Arbiter's draft direction to the circumstances of Metronet Rail SSL, the Board of this infrastructure company has come to the conclusion that any application for Extraordinary Review... would come to a similar position."

The collapse of Metronet is a kick in the groin to the then chancellor, Gordon Brown, and his PPP policy. Brown bulldozed the tube PPP through despite strident objections from those who knew it would be a disaster.

Hardly surprising that he was so keen to become PM, thus avoiding the mess that he created.

The head of London Underground, Tim O'Toole, has assured Londoners that the service on the lines that Metronet is responsible– nine of the capital's 12 – will continue as normal.

Hardly much of a reassurance, given that the service is a shambles anyway.

We can expect this to be a shambles, not just for the current tube passengers but also for the Olympics 2012.

Tuesday, July 17, 2007

Government Rules Out Theft

The government has ruled out topping up a pensions lifeboat fund with surplus unclaimed pensions cash from life insurers, ie it has ruled out theft of private money for use in public expenditure.

Andrew Young, of the Government Actuary's Department, said that non-tax sources of funding for the Financial Assistance Scheme FAS (inherited estate orphan assets, windfall taxes or an extension of existing levies on solvent occupational pension schemes) were largely unsuitable.

He noted that there would be:

"substantial legislative and administrative barriers to establishing such a scheme".

How annoying when the law blocks government plans for theft!

You can be assured that this will not be the last that we hear of this scheme, and that the government will be doing its best to try to find a way around these "legal obstacles".

Monday, July 16, 2007

The Last Post

It would seem that the post office workers are determined to drive the final nail into the coffin of Royal Mail, the Times reports that they are gearing up for a series of strikes.

Royal Mail has suffered two national walkouts in the clash over pay and modernisation, and more strike dates are likely to be set tomorrow. The CWU could escalate the action beyond the one-day walkouts that it has called so far, or it may stage a series of regional strikes.

Given that Royal Mail suffers from a lousy reputation re lost letters, outdated working practices, fuddy duddy post offices and stiff competition from the "wired world"/professional delivery companies this strike action is the last thing that it needs.

The customers will simply vote with their feet and walk.

Thursday, July 05, 2007

Rate Rise

Be warned today the Bank of England is expected to raise interest rates again, which will of course negatively impact the cost of borrowing for all of those already labouring under mountains of debt.

Last time the MPC narrowly voted 5-4 against raising rates, it is widely expected that the vote today will go the other way.

Those of you who glibly say that people should not get themselves into so much debt int the first place, would do well to remember that the level of house prices that we are now seeing in the UK is unprecedented.

How else are people meant to be able to afford to buy a home now, without taking on an excess level of debt?

Wednesday, July 04, 2007

FSA To Warn on Sub Prime Market

The Financial Services Authority (FSA) will this week issue a warning about the UK's subprime mortgage market, which lends to people with poor credit records.

The FSA will criticise both lenders and brokers, when it publishes the results of its investigation into the mortgage market.

The FSA has reportedly found poor record-keeping at some brokers, showing that they are unable to demonstrate that they sold customers mortgages that were suitable for them (echoes of the endowment mortgage scandal, don't these people ever learn?).

The FSA's report comes amid the continuing collapse in the US subprime market, partly due to a sharp rise in borrowing costs in the past three years.

Another nail in the coffin of the tarnished reputation of the UK's financial services industry.

Tuesday, July 03, 2007

Savings

Given the recent increases in interest rates, and the expected future increases, people may be forgiven for thinking that savers have not had it so good for sometime.

Some banks claim to be offering savers rates of between 6%-12%.

Unfortunately, when dealing with banks and other financial institutions, the actualite of what they offer very rarely matches their eye catching headlines tempting you to sign up for one of their products.

The Telegraph today looks behind the headlines, and reveals a few ugly truths about some of the banks' offers.

Despite the eye catching rates, the amount of money that people put by to save has fallen to its lowest in almost five decades.

The Office for National Statistics has released data that shows that the savings ratio, the share of incomes that people save, fell to 2.1% in the first quarter of 2007. This is half the previous quarter's level, and the lowest since 1960.

The fall in savings can be blamed on a number of factors:

-Low interest rates offered on savings accounts
-The disparity in rates between savings and loan offers (thus stretching family budgets)
-Low levels of income growth
-Ever rising house prices, forcing people to dip into their savings to be able to afford buy a home
-The tarnished image of the financial services sector as a whole (tarnished by eg bank charges, the endowment scandal and poor customer service)

Monday, July 02, 2007

US Sub Prime Infection Spreads To UK

The fallout from the US sub prime mortgage collapse has spread to the UK. Cambridge Place, the London fund manager, has been forced to close its $908M listed fund as a result.

Cambridge Place said that it would sell the assets of Caliber Global Investment, a London-listed fund, after suffering a net loss of $8.8M in the first quarter of this year.

Caliber has about 60% of its investments in the US, mostly in mortgage debts rated BBB or below. These are securitised tranches of mortgages given to people with impaired or nonexistent credit histories.

Not surprisingly such loans are high risk and carry an interest rate premium. The collapse in house prices in the US has caused borrowers to default on their payments, thus causing a knock on effect affecting those funds that bought the securities.

A sneeze in America can give Britain a very nasty cold.