Loans and Finance

Loans and Finance

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

Monday, June 30, 2008

Credit Untion Rules To Be Relaxed

As the mortgage and credit drought worsens, the government is desperately trying to look as though it is doing something to ease people's burden. The government announced today, via the BBC, that it will unveil an initiative to help people, eg those on low wages, beat the credit crunch by relaxing the rules on credit unions.

Credit unions are community based savings and loans organisations. They act as low-risk savings and loans providers, usually for the less well-off.

It is an ugly fact of financial life that those most in debt, and least able to borrow more, are at the greatest risk from loan sharks.

Currently any area or organisation can form a credit union; however, they have to operate within their own communities (the Common Bond). The Treasury will broaden the Common Bond, allowing the sector to expand.

The government envisages that by this time next year, people will be able to access cheap, secure loans.

All very well, but the need for low cost credit and an easing of cashflow is now; not in one year's time.

The loan sharks are going to feast themselves sick over the coming months, on the rotting corpses left behind by the government's mismanagement of this crisis.

Thursday, June 26, 2008

Loan Sharks

The ongoing drought of cheap loans and mortgages is forcing already heavily indebted people into the arms of loan sharks, who charge interest rates up to a staggering 1000%.

Known as "pay day loans", they are taken out by the hapless debtor to provide short term cover until pay day.

The Times reports that the number of deals taken out in the UK has risen by more than 130% since last August.

Payday UK, Express Finance and Pounds Till Payday offer loans of up to £1,000. Payday UK demands that £125 be repaid for a £100 loan, or £937.50 for a £700 loan. The loan is usually paid off within a couple of days, as soon as the borrower's wages are paid into their account.

Payday UK has a typical APR of 1355%.

Needless to say, by borrowing money at such extortionate rates of interest in this way, the hapless debtor is in fact making his/her situation far worse than it already is.

Wednesday, June 25, 2008

Eurozone Stagnates

The Times reports that the Eurozone is facing the twin nightmares of inflation and stagnant growth, meanwhile the European Central Bank (ECB) signalled earlier this month that Eurozone rates would have to rise further.

How has this situation come about?

1 The world economy is suffering from rising commodity, food and oil prices.

2 The ECB is using a "one size fits" all policy for interest rates, despite the fact that there are clear fault lines between the economies of the North of Europe and South of Europe.

3 The dollar has fallen leaving speculators to pile into the Euro, thus depressing European exports.

The current problems facing the ECB/EU show very clearly why the EU, in its current form with a single currency, will not work.

As the ECB battles to stave off inflationary pressures by raising rates, Southern countries such as Greece, Spain and Italy are in economic freefall. The political fallout from the collapsing economies of the South will destroy the EU in its current form.

Britain has been very wise/lucky not have signed up for the Euro as the currency will collapse.

Tuesday, June 24, 2008

Housing Slump

The British Bankers' Association (BBA) have issued figures today that show that mortgage lending in May has slumped to the lowest level since 1997, as the total value of loans fell by £1.5BN compared to April.

Mortgage approvals fell from 34,752 in April to 27,968 last month.

The remortgaging business, where people have to refinance, is remaining firm.

The effect of the housing market of the mortgage drought is not entirely surprising, sellers now outnumber buyers by 15 to 1.

So, what happened to the government's much vaunted housing shortage?

People are now having to come to terms with living within their means, and that affects their living arrangements (eg stay at home with mum and dad, or live in less salubrious areas).

Monday, June 23, 2008

Oil Prices

The Times reports the following:

"Oil prices headed back towards record levels today after surging by more than $1 in early trading after a pledge from Saudi Arabia, the world's biggest oil exporter, to raise production failed to calm concerns following fresh attacks on a pipeline on Nigeria.

US light crude for August delivery today rose $1.76 to $137.12 a barrel, below the $139.89 record reached on June 13, despite Saudi Arabia stating it will raise daily crude output by 200,000 barrels to 9.7 million barrels next month, and committed to pumping more if needed.

Saudi Arabia was speaking at an emergency meeting of oil producing and consuming countries in Jeddah over the weekend.

Market analysts suggested the rise in production was insufficient, saying production had to rise to at least 500,000 barrels. Saudi Arabian Oil Minister Ali Al-Naimi admitted yesterday that the move was unlikely to tame prices.

'I am convinced that the supply and demand balances and crude oil production levels are not the primary drivers of the current market situation and that markets are already well-supplied.
' ..."

Exactly, as I have already stated on this site, oil prices no longer reflect traditional supply and demand scenarios.

Gordon Brown's emergency dash to the Middle East this weekend, to plead for an increase in production, was a waste of time and shows that he does not "get" the oil market.

This will resolve itself in due course, once the speculators (who are driving the prices higher) get burned. That being said, until that happens, it will be very painful for all of us.

Friday, June 20, 2008

Sainsbury's Site Collapses

Sainsbury's website went down on 17 June and is still down, it has yet to confirm when the site will be back up and running.

Sainsbury's delivers to 90,000 customers a week and their average spend is approximately £80 per transaction. Therefore the glitch is estimated to have cost it already £1M in lost sales, plus the costs of £10 compensation offered to an estimated 20,000 people affected by the problem over Wednesday and Thursday.

This is not the first time that Sainsbury's have had problems with their online delivery service, as I can personally attest to.

Thursday, June 19, 2008

Sir John Gieve Falls on His Sword

Sir John Gieve, the Deputy Governor of the Bank of England, has fallen on his sword and is standing down from his role next year; he is taking the flak for last year's Northern Rock fiasco.

Sir John was responsible for maintaining the stability of financial markets.

Sir John had been accused of being asleep at the wheel during the Northern Rock debacle. He is staying on until next year, until new legislation to deal with a failing bank is in place, at the request of the Chancellor and Mervyn King (the Governor of The Bank of England).

Sir John is stepping down 2.5 years early, after being appointed to the five year role in January 2006.

It is not clear as to whether he has been pushed or jumped from his role. However, it is clear that more than one man was responsible for the failure of governance last year that led to the Northern Rock fiasco. The fundamental failing is that of the tripartite system, set up by Gordon Brown, which does not have a single organisation with overall responsibility for oversight, control and stability.

The size of Sir John's payoff has yet to be revealed, doubtless it will be generous.

Wednesday, June 18, 2008

Fuel Bills To Rocket by 40%

To add further fuel (bad pun isn't it?) to the rising inflation figures (3.3% or 4% depending on which you believe), energy companies are expected to raise their prices by up to 40% this year as a result of the trebling in wholesale gas prices (which are linked to oil prices).

The average UK energy bill is expected to rise from £1048 to £1467 in the next 7 months.

Consumers may be forgiven for thinking that Ofgem the energy regulator will step in to protect them. However, this is a false hope, MPs have accused Ofgem of being a toothless tiger that does not do enough to help consumers.

Lindsay Hoyle, Labour MP for Chorley, attacked Alistair Buchanan, Ofgem's chief executive. Mr Hoyle said that energy companies blamed poor planning laws for not building enough storage facilities to enable Britain to be self-sufficient. However, he said that it was in the companies' interests to maintain a shortage so as to increase their profits.

Mr Hoyle is quoted in The Times as asking Buchanan whether he was prepared to act now to address the issue, adding:

"Or are you the toothless tiger that we imagined?"

The next 12 months will be very tough for all in the UK. The government remains on the sidelines, a bemused observer wringing its hands.

Tuesday, June 17, 2008

Inflation Hits 3.3%

The UK inflation rate hit 3.3% in May, the highest since 1997 when the index began 11 years ago.

Bank of England Governor, Mervyn King, must now write a letter to the government explaining why the rate is more than 1% above the 2% target. This is only the second time that he has had to do this.

The pressure is now on the Bank to raise interest rates to curb inflation, despite the fact that the UK economy is teetering on the brink of recession.

The solution to this dilemma is for the Bank's target limit of inflation to be raised in the short term, to allow a soft landing of the economy.

Monday, June 16, 2008

Adaptability

Alastair Darling will use this Wednesday's Mansion House speech to make clear that Britain's framework for tackling economic and financial stability will have to change to meet the challenges posed by globalisation.

Darling will say that while the current tripartite framework (created by Gordon Brown) is essentially sound, there are ways in which it can be improved.

He wants to strengthen the Bank of England's role in promoting financial stability, by bringing in greater expertise and reforming the central bank's governance structure.

He also wants to give the Bank more powers to help reduce the likelihood of a bank or other financial institutions running into trouble, and wants greater international cooperation between regulators.

This is all very well. However, it ignores the fundamental failing of the tripartite system; namely that there is no one body actually in charge of it. It is this structural weakness that caused the Northern Rock fiasco to drag on much longer than it should have done, and leaves the financial system open to more failures and abuse.

Until one of the member bodies (FSA, Bank of England or Treasury) of the tripartite system is given overall authority over the others, nothing much will change.

Tuesday, June 10, 2008

House Sales Slump

The Times reports that house sales have slumped to a 30 year low last month.

Chartered surveyors reported that an average of 17.4 transactions had been completed each month between March and May, down from 18.5 in the three months to April.

This is the lowest figure since records began in January 1978, according to the Royal Institution of Chartered Surveyors (RICS).

Given that the housing market in Britain has been made, rather unwisely, into the engine of the economy this news is not good for anyone (home owner or not).

One crucial factor that affects house sales is that of interest rates, and these in turn are set by Libor.

Libor is a benchmark supposed to represent the cost of borrowing in the London interbank market. However, Forbes reports that in recent months, empirical evidence and market rumors suggest that banks are manipulating the Libor setting process for their own ends.

Banks manipulating the market?

Surely not!

Ironically the British Bankers' Association (BBA), which represents 230 banks from around 60 countries that operate in Britain, said today that it will increase its scrutiny of banks that contribute to the setting of Libor.

Shutting the stable door firmly after the horse has bolted.

Monday, June 09, 2008

The Great PPI Rip Off

Those of you who have been screwed by your bank or other financial organ into taking out an unnecessary and expensive payment protection insurance (PPI) policy should read this article in The Times, which shows that you can claim back up to £24K.

Quote:

"The insurance, which is bought by one in four people and is supposed to cover your mortgage or loan repayments if you are unable to work, is described as one of the last big rip-offs in the industry after endowment mis-selling and overdraft charges.

Banks often add the cover to your loan automatically, with many borrowers never realising they have it. Even when they do, most consumers are unaware of the extent of overcharging.

Mortgage cover from Halifax, for example, would add £103 a month to the cost of a typical £200,000 home loan, or £2,472 over two years. The cheapest cover on the market can cost two-thirds less
."

However, as I have noted before, banks are not charities. The money that they repay to customers in the form of compensation will be made up for elsewhere, via increased rates on loans and mortgages.

They simply do not care about their reputations, or their customers.

Friday, June 06, 2008

The End of Independence?

It would seem that Gordon Brown's 11 year dalliance with granting the Bank of England "independence" is at an end.

Brown's poor man's eminence grise, Alistair Darling, wants to impose on the Bank an expert panel to advise it on emerging financial dangers and monitor its efforts to prevent crises.

All very nice, but this is a clear reversal of the independence granted to the Bank 11 years ago by Brown.

The rationale for this new "oversight" of the bank is, on the face of it, perfectly reasonable. Brown and Darling want to oversee the Bank of England's policing of the markets, in order to help to prevent a repeat of the Northern Rock fiasco.

However, as I have stated many times before, the failure to act in a timeous and effective manner on the Northern Rock fiasco was as a result of the failure of the tripartite monitoring system of the financial markets.

Who set that up?

Gordon Brown!

The current tripartite arrangement does not work, one organ (Treasury, Bank of England or FSA) needs to be in overall charge of monitoring the markets.

Until Brown makes a decision as to which organ that will be, the UK will be exposed to further Northern Wrecks.

Brown of course will never make that decision!

Thursday, June 05, 2008

PPI Slammed

The Competition Commission has slammed the £5.4BN payment protection insurance (PPI) industry in a report issued this morning.

The Competition Commission states that consumers are paying more than £1.4BN a year too much for PPI; it also noted that banks, mortgage and credit card providers made it difficult for customers to compare PPI policies or switch to change their insurance.

Up to 7.5 million policies are taken out every year, with about 14 million policies active at any one time.

Peter Davis, deputy chairman of the commission, is quoted in The Times:

"We've found serious problems with the PPI market and customers are paying for the lack of competition. The way PPI is sold as an add-on to a loan or other credit product means that distributors escape the pressure they should face from competing suppliers".

Mr Davis has recommended a ban on selling PPI at the same time as a loan, or even within a fixed time after the loan, is taken out.

This is yet another nail in the coffin of the reputation of Britain's beleaguered financial services industry.

Tuesday, June 03, 2008

There's Something Wrong With Our Bloody Banks

Admiral Beatty remarked ruefully at the Battle of Jutland, as he watched 33% of his fleet blow up:

"There's something wrong with our bloody ships"

Today, the same can be said of our banks.

The Northern Rock debacle of 2007 was but a precursor to serious problems ahead for the banking industry in Britain that are manifesting themselves in 2008.

Leading the pack is Bradford & Bigley, whose share price has all but collapsed in the wake of terrible results, the resignation of the CEO and a botched rights issue.

The Times reports that the pricing of the original rights issue was based on March's accounts, for reasons unclear the bank chose not to (or was not able to) use the April figures in the original calculation. Once those were in the directors' hands the reality of the bank's parlous position hit home. So serious was it that the underwriters pointed a gun to the board, and threatened to dump the shares if they were saddled with them. Hence the board was forced to go cap in hand to TPG, and offer up 23% of the company.

Suffice to say the shareholders of B&B are "pissed off", to out it mildly.

To add the the woes of the banking industry, the Office of Fair Trading conducted a series of dawn raids at offices of Barclays and Royal Bank of Scotland (RBS) yesterday, as part of an investigation into price-fixing on loans to lawyers and accountancy firms.

The investigation and raids followed a voluntary approach to the OFT by Barclays, amid concerns that staff in its professional services banking group "had been approached from outside ... in an inappropriate manner".

There's something wrong with our bloody banks!

Monday, June 02, 2008

Bradford and Bingley Collapses

US private equity firm Texas Pacific Group has agreed to take a 23% stake in Bradford & Bingley (B&B).

All shares will be issued at 55p, down from an initially planned 82p underwriting price.

The bank also warned on deteriorating economic conditions, with a decline in net interest margin and increasing arrears. Underlying profits for the first four months halved to 56 million pounds, it said.

B&B CEO, Steven Crawshaw, stepped down this weekend, citing cardiovascular problems.

Shares in B&B plummeted by almost 30% this morning at one point, forcing the FSA to briefly suspend trading as it announced the impact that bad debt has had on the business.

They are currently trading at 67p (down 23% on last week's closing).

Treasury Neglect and Incompetence

In a worrying sign of Treasury incompetence and neglect, that bodes ill for its handling of the economy, it seems that the Treasury has allowed the contracts for three Bank of England Governors to expire.

John McFall, chairman of the Treasury Select Committee, is none too impressed with the slack attitude of the Treasury. He used the polite phrase "surprise and concern" to express his displeasure on hearing the news.

The three year directorships of Arun Sarin, Paul Myners and Geoffrey Wilkinson expired last week, leaving the members of the Bank's court in limbo.

At the eleventh hour the Treasury called each executive to assure them that their contracts would be renewed in due course.

Pretty pathetic, by even this government's standards of incompetence!

To add to the list of Treasury failings, wrt their handling of the Bank of England, they have yet to find a replacement for outgoing deputy governor Rachel Lomax, who leaves at the end of June.

John McFall is quoted in The Telegraph:

"The court is a key part of the Bank. It is the body which provides invaluable advice to the Governor and scrutinises the Monetary Policy Committee.

It is hugely important - and it is essential its members get adequate advance notice of their future and their positions.

This is a cause for surprise and concern, given that the Treasury has said it would be focused in the future on making timely appointments to the Bank
."

One Treasury insider told The Telegraph:

"What is particularly worrying is everyone assumed the problem in previous years had just been that Gordon Brown tended to take a long time taking his decisions, and that things would get better under a new Chancellor.

If anything, things are now worse. There is an element of neglect here
."

This ongoing neglect and incompetence by the Treasury does not bode well for the economic stability/prosperity of the UK.