Loans and Finance

Loans and Finance

Text

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

Friday, May 30, 2008

Valuing Northern Rock

I see that the Treasury is having trouble (which it of course denies) in finding an independent valuer to assess compensation payments due to Northern Rock shareholders.

Unsurprisingly no one wants to pick up the poisoned chalice, as whoever does will be liable to be sued by disgruntled shareholders who still labour under the illusion that Northern Wreck has value.

Wouldn't the Treasury save itself a lot of heartache by simply allowing the shares to trade openly on the market, as I recommended in February, thus providing a real time and open valuation of the company?

Today, by the way, it was reported that The Wreck is looking to hire more staff to work in its debt division; a clear sign that its debts are going bad, and that the value of its mortgage book may need to be revised downwards.

Let me save everyone the time and trouble of trying to find a valuer, prepared to stick his neck out.

The value of Northern Wreck is zero (as I stated in February).

Problem solved!

Thursday, May 29, 2008

King Canute

Gordon Brown and Alistair Darling tried to play King Canute by holding talks in Aberdeen with members of Oil & Gas UK, a trade body for companies operating in the North Sea.

The objective was to call for a cut in oil prices by pushing up production.

Brown called on OPEC to increase production to help lower skyrocketing fuel prices. Brown is also of the view that the best long-term solution is to become a low-carbon economy.

"The cause of rising prices is clear: growing demand and too little supply to meet it both now and — perhaps of even greater significance — in the future.

Our goal that Britain becomes a low-carbon economy is now an economic priority as well as an environmental imperative
."

Whilst all of this hyper activity may make him look busy, it will have no discernible effect whatsoever on the current price of oil.

The current high prices are as a result of a speculative bubble that has disconnected itself from the laws of supply and demand.

Don't believe me?

George Soros says the same:

Wednesday, May 28, 2008

Record Number of Disputes

The Financial Ombudsman Service (FOS) has published its annual review for 2007/08, which shows that there has been a record number of enquiries and complaints about the quality of the financial services industry in Britain.

In the year ended 2008, the FOS handled a record 794,648 consumer enquiries and 123,089 new complaints (a 30% annual increase).

The number of mortgage and banking disputes tripled and insurance disputes doubled, whilst complaints about mortgage endowments fell by 70%.

The FOS settled 99,699 disputes.

Sir Christopher Kelly, chairman of the ombudsman service, said:

"This time last year we had hoped we were starting to see a downward trend in complaint numbers for the first time. But instead, events during the year have led to the ombudsman service receiving record numbers of new cases.

The sudden surges in banking and insurance disputes this year have meant that predicting, managing and dealing with complaint volumes has been more of a challenge for us organisationally than ever before
."

Unsurprisingly there was a ten-fold increase in complaints about charges on current accounts, and a six-fold increase in complaints about payment protection insurance (PPI).

The rising number of complaints shows that the financial services industry in Britain has its work cut out if it is going to improve its image, reputation and quality.

The question is, does the financial services industry really care about quality or its reputation?

Tuesday, May 27, 2008

Banks Speed Up - Sort Of

A rare piece of good news for bank customers whereby the banks, whose reputation has sunk to an all time low, have actually started to do something the benefits their long suffering customers.

A banking scheme for one-day cash transfers over the phone or on the internet has started.

This is designed to speed up the process of transfers, which previously took up to four days.

Can you guess what happened to the money being transferred during this four day period?

It earned the banks a very nice £30M in interest per annum.

How nice for them!

Under the new scheme customers will be able to make one-off payments, up to a maximum value of £10K, over the telephone or via the internet. These payments will leave their account and arrive at the destination account on the same day.

The 13 banks included in the scheme are: Abbey, Alliance and Leicester, Barclays, Citi, Clydesdale and Yorkshire Banks (National Australia Group), Co-operative Bank, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Northern Bank (Danske Bank), Northern Rock, and Royal Bank of Scotland Group (including NatWest and Ulster Bank).

I wonder what the catch is?

Friday, May 23, 2008

Banks To Appeal

Eight leading street banks, including Barclays, HSBC and Royal Bank of Scotland, have sought permission to appeal against last month's ruling which gave the Office of Fair Trading (OFT) legal jurisdiction to determine whether bank charges are unfair.

If permission is granted bank customers, who have submitted claims for "rip off" fees, may have to wait years to receive their compensation.

Needless to say, there have been accusations that the banks are using this appeal to delay repaying customers.

Phil Jones of Which?, is quoted in The Times:

"The banks should stop stringing this out. The charges are seen as unfair by consumers so they should do the decent thing and pay compensation to those who have made a claim and reduce the fees to a fair level."

Whatever the outcome, one thing is for certain, the banks will find other ways to charge their customers. The most likely change will be an introduction of charges on all current accounts, whether they are in credit or not.

Banks are not charities!

Wednesday, May 21, 2008

Building Slump

Bloomberg reports that UK housebuilders will be cutting tens of thousands of jobs as the housing slump continues.

Stewart Baseley, chairman of the Home Builders Federation, said:

"There isn't a builder in the land who isn't considering overheads and job losses.

Job losses will be in the tens of thousands.

I've never seen a downturn escalate as quickly as this
."

The slump is being caused by the mortgage drought, rather than unemployment or inflated borrowing rates. However, if the slump is not corrected this will have an adverse impact on the rest of the economy.

That being said, it's not all gloom. Those of you wishing to hire builders, plumbers and related tradesmen now have an ideal opportunity to negotiate hard on the price tendered.

Tuesday, May 20, 2008

A Small Ray of Hope

The beleaguered property market and those attempting to buy/remortgage were offered a small ray of hope yesterday as First Direct, part of HSBC, resumed selling mortgages to new customers six weeks after it suspended sales on 1 April.

The suspension arose because of the deluge of new applicants that it had received.

Chris Pilling, First Direct's chief executive, told the BBC that they had processed a year's worth of applications in just three months.

"Last month we took the bold decision to withdraw from mortgage sales to non-customers to allow us to process the huge number of enquiries we had received.

We've now assessed all the loan applications outstanding from 1 April and earlier and let everyone know the outcome
."

In another glimmer of hope, the Halifax will reduce interest rates by 0.15% on some offers for existing borrowers seeking to remortgage as from Wednesday.

Not much maybe, but for hard pressed borrowers at least it is in the right direction.

Monday, May 19, 2008

We're Alright Jacques

Jean Claude Trichet, the president of the European Central Bank, warned that the credit crunch will worsen, and that there would be a "very significant market correction".

Despite this, Trichet and the ECB have steadfastly refused to lower European rates in concert with the Fed and Bank of England.

Trichet is of the belief that there are no risks of a recession in Europe.

Would that all bankers and economists have his gift of "perfect" foresight!

Notwithstanding Europe's alleged immunity to recession the ECB, by its inaction, has ensured that the credit crunch will be deeper and more protracted that it needs to be.

The world needs a co-ordinated response by the central banks, not an isolationist "we're all right Jacques" response.

Friday, May 16, 2008

The End Game

In fighting talk, reminiscent of Maggie Thatcher's last days in office, Gordon Brown flung himself into a series of media appearances yesterday keen to deliver the message that he can turn the economy around.

Brown claimed that he is the best person to lead Britain through a worsening economic slowdown.

He told the BBC:

"The right thing to do is continue to do the job I'm doing.

We've got to steer the economy through these difficult times. I've done it before and I'm going to do it again
."

Fine words, except they ignore a few uncomfortable home truths:

1 Brown inherited a well run and financially stable economy from the Tories in 1997.

2 World wide economic conditions have, until recently, been relatively benign.

3 There is little that Brown can do about oil and food price shocks.

4 Northern Rock happened on his watch.

5 The 10P tax debacle was entirely of his own making.

6 His tripartite system for City governance is not fit for purpose.

7 His tax policies will drive the wealth creators away from Britain.

8 Capitalist consumer economies rely on confidence to keep running, no one has much confidence in Brown.

9 Brown has spent in years of surplus, and has nothing left in the kitty to help out in years of want.

In short, he is not the man for the job.

Wednesday, May 14, 2008

Flint Flashes Figures

Congratulations to Caroline Flint, the housing minister, who inadvertently (or maybe deliberately) flashed to a waiting press pack a briefing document which showed the expected scenario for property prices for the coming year.

Her department expects house prices to fall by between 5%-10% this year "at best".

The notes, from which she briefed the Cabinet yesterday, stated that "we can't know how bad it [the housing market] will get".

The notes also warned that house building in the UK was "stalling".

All rather embarrassing for government, given their oft repeated claims that they want to accelerate the building of new homes across the country.

The good news is that her notes end:

"It is vital that we show that at this time of uncertainty we show that we are ON PEOPLE'S SIDE."

So that's alright then!

Doesn't that rather imply that the government does not regard itself as normally being "on the people's side"?

Given that this government is now so keen to show that it is on the "people's side" could it and Ms Flint please explain why it introduced HIP's, and precisely how this extra layer of unwanted costly bureaucracy will help unstall the housing market?

Tuesday, May 13, 2008

Mortgage Lending Falls Further

The Council of Mortgage Lenders (CML) report that mortgage lending to first time buyers and existing home owners fell during the first quarter of 2008, to its lowest level for more than 30 years.

Mortgage lending from January to March slumped to 142,000, in Q1 1975 the total was 140,000 and in the recession of 1992 it was 146,000.

Without mortgages, people cannot move; a frozen property market impacts all areas of the British economy.

We need a thaw, and we need it now.

Monday, May 12, 2008

The Royal Mail

The Times reports that "business customers are deserting Royal Mail and most firms do not find the postal group an efficient organisation to work with".

As I private citizen I can attest to the fact that the quality of the mail service has declined. Last week we were without any post for 3 working days, seemingly there were "staff shortages" at our local Royal Mail depot.

Despite this the Royal Mail is asking for more money from the Government to fill its pension black hole, and has given warning that it may not be able to continue to provide a national mail service.

The world has moved on; we have the net, mobile phones and electronic banking. The Royal Mail needs to change if it is to survive.

However, until it is decided as to whether the Royal Mail is a social service or a profit making business it will not be possible for it to change sufficiently to meet the challenges of the 21st century.

Friday, May 09, 2008

Repossessions Rise

Home repossessions, having risen by 16% in the first quarter of this year, are now nearing the levels of the recession of the early 1990s.

The Ministry of Justice states that 38,688 mortgage possession claims were issued from January to March 2008, compared with 33,715 for the first quarter of 2007.

In the third quarter of 1990 repossessions were 37,498.

As the economic conditions worsen (eg rising food and fuel bills, rising taxes and a credit drought etc) so too will the number of repossessions.

The Government, in a lack luster attempt to try to show that they are "in control", have yet again delayed their absurd and costly Hips implementation to the end of the year.

The fact that the government thinks that this will materially help matters shows how completely out of touch and out of the driving seat the government really is.

Alistair Darling, playing King Canute, pleaded with the chief executives of the six biggest UK banks yesterday to do everything that they can to prevent borrowers from losing their homes.

The crisis will pass, but it will not be this government's actions that resolve it.

Thursday, May 08, 2008

Banks Raise Fees

As I predicted, the banks will not accept the possibility of a cap to their overdraft charges.

As such they are raising the the monthly fees on accounts, by up to 20%, before the ruling by the Office of Fair Trading (OFT) that could cap overdraft charges.

The Times estimates that approximately 7 million customers will be adversely affected by this move.

Royal Bank of Scotland, NatWest and Lloyds TSB will all raise their fees on the "packaged" accounts (ie ones that offer "extras" such as insurance).

Needless to say, next in line will be the free current accounts currently offered by the banks.

As I have repeated, time and time again on this site, banks are not charitable institutions. Block their revenue stream in one direction, and they will find a way around that blockage.

However, quite why people sign up to the "packaged" accounts is a mystery to me; they offer no tangible value for money, most certainly not after this round of price increases.

Dump them!

Wednesday, May 07, 2008

Who's In Charge?

Despite the fact that the economy is teetering on the brink of recession, a time when one would have thought that the relevant regulatory authorities had their minds firmly focused on resolving this crisis, it is disheartening to read in The Times that there is a turf war going on between the FSA and The Bank of England.

At question is which organisation should have the power to take control of failing banks.

The FSA (without apparent irony) claims that duplicating the FSA's power would put Britain at risk of another Northern Rock debacle.

However, Mervyn King, the Governor of the Bank of England, told a Treasury Select Committee hearing last week:

"Either ought to have the ability to determine whether or not this trigger should be pulled and the bank goes into a special resolution regime. I do not think that should be left entirely with the supervisor because . . . of the natural reluctance of a supervisor to announce publicly that the supervision regime has not been successful."

I tend to agree with Mervyn King. The FSA has been shown to be asleep at the wheel over its "handling" (mishandling to use the correct term) of the Northern Rock fiasco, and as such should not be given the whip hand.

However, the real issue is the fact that there is no overall body (Bank of England, FSA or Treasury) in charge when things go wrong.

Until Brown and Darling resolve that, the regulatory regime will not be in a position to effectively step into the breach when things go wrong again.

Unfortunately, given Brown's inability to make a decision and the fact that he set the current tripartite system up, he will not give any one body regulatory control over the other two.

Until Brown is removed from office, the economy remains exposed to more Northern Rocks and the mismanagement that followed.

Tuesday, May 06, 2008

Dangerous Territory

As if Gordon Brown does not have enough to worry about, re the recent drubbing in the local and mayoral elections, business leaders have turned on him and have stated that they have lost confidence in him.

Martin Temple, chairman of the EEF manufacturers trade body, told the FT that Gordon Brown has lost the "confidence and trust" of British business.

Brown was also warned about the dangers of an "exodus" of British companies to more favourable tax regimes. Temple is quoted in the FT as saying:

"I wouldn't say it's a major trend yet, but if we don't watch it, we'll get this [exodus].

It's dangerous territory
".

He added:

"There is a point whereby if you lose confidence in the system and it starts to become expensive, you start thinking about this.

We are absolutely on the edge of that
."

Temple's comments were reinforced by a delegation from the Multinational Chairmen's Group, who expressed their concerns at a meeting with Brown and Alistair Darling 12 days ago.

Businesses are feeling what the voters are feeling too, the country is now directionless as the fundamentals that provided the bedrock underpinning the economy are being torn up.

Thursday, May 01, 2008

Broke

The credit crunch is going to severely dent the British economy over the coming year or so.

This news should come as no surprise to those who have followed the ongoing meltdown of the banking system, and the knock on effects on consumer expenditure. However, it would seem to be "news" to the government and Alistair Darling.

The National Institute of Economic and Social Research predicts that there will be a £16BN shortfall of tax revenues over the next two years.

Jim O'Neill, chief economist at Goldman Sachs, who forecast the collapse of the US property market, said that Britain was likely to be the worst hit of the world's economies.

Mr O'Neill is quoted in The Times and said that Britain, with its heavy reliance on financial services, was "in the eye of the storm of a deleveraging world economy".

He added:

"The UK mortgage market is effectively frozen . . . House prices are going to go through negative changes . . . It's going to be a challenge for UK policymakers."

It certainly is going to be a "challenge", the question is are our policymakers and government up to the job?