Loans and Finance

Loans and Finance

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

Friday, November 28, 2008

No Confidence

A Populus poll for The Times shows that two thirds of voters think that the Government's measures to boost the economy will make no positive difference in either the short or long term.

This will become a self fulfilling prophecy; because if people don't have confidence in the future they won't spend any money, and Britain's consumer based economy will remain stuck in recession.

Thursday, November 27, 2008

Woolworths In Administration

As expected, Woolworths is now in administration. Deloittes, who are acting as administrators will keep the stores open and pay staff in the period up to Christmas; there are expressions of interest in the company.

However, this sorry state of affairs could have been avoided if certain lenders had not blocked the company's plans for selling the retail unit to Hilco.

The lenders who blocked the plans included Barclays, and Bank of Ireland subsidiary Burdale Financial.

Wednesday, November 26, 2008

Woolies Suspended

The Times reports that shares in Woolworths have been suspended at 1.22p this morning, as the company attempts to conclude talks to sell its 840 store retail business.

Hilco are understood to be prepared to buy the retail division for £1. However, the banks that Woolies owes money to are less than happy with the possible losses arising on such a deal.

Added to the problems that Woolies faces, in trying to secure a deal, is funding the wage bill and continuing to trade "solvently". The directors are under a legal obligation to trade solvently, in the event that Woolies becomes "insolvent" (ie the banks refuse to provide any more working capital) then the company will be forced into administration thus threatening 30,000 jobs.

In the "good old days" of "privately" owned banks (ie before the banks went cap in hand to the government for a bailout) the banks would have only themselves and their "consciences" to answer to wrt pushing a company in administration.

However, now that they are semi nationalised, for them to force 30,000 people onto the dole queue in this manner would be a tad "politically unwise" to say the least.

That being said the banks are very capable of making a very foolish decision and consigning Woolies to the dustbin of history, were they to do so they would be signing their own death warrants.

Tuesday, November 25, 2008

Rearranging The Deckchairs on The Titanic

Alistair Darling delivered his pre budget report yesterday, which in theory was designed to ease the pain of the recession.

However, at best it can only be described as tinkering with palliatives in the short term with painful costs in the medium/long term.

A cut in VAT from 17.5% to 15% will have little effect on demand, as stores etc are already offering 20% discounts; indeed it is considered likely to cause more administrative hassle than it is worth. Darling needed to cut VAT by more than this, were it to have any significant effect; regrettably the EU has placed a lower limit on VAT of 15%.

Darling made a number of predictions about growth, or rather "shrinkage", he estimated that it would be at worst - 1.25% next year and forecast that the economy would recover in 2010, with growth of 1.5% to 2.0%.

Given the Treasury's wildly inaccurate growth forecasts in the past, quite why anyone would believe these now is beyond me.

Darling offered a number of fiscal stimuli, mainly related to bringing forward government spending on roads etc and putting off planned tax rises until later.

None of these will "stimulate" the economy much, and given the fact that everyone has had due notice that taxes will rise (eg national insurance) they will not loosen their purse strings.

All in all these palliatives will have little real positive effect, and most likely will be more trouble than they are worth as Darling has added more complexity to an already complex tax system.

Monday, November 24, 2008

Paulson Rescues Citigroup

The US government, in the shape of Hank Paulson (the hapless and hopeless US Treasury Secretary), has come to the rescue of Citigroup which has seen its shareprice collapse over the last week.

Paulson has come up with a package, including guarantees against losses on assets, worth $306BN together with a $20BN.

There is irony here.

Those of you with a reasonable memory may recall that when Lehman Brothers faced a similar crisis, Paulson was happy to let it go to the wall. The result being the current banking crisis and the world's worst recession since the 1930's.

The question that the shareholders and employees of Lehman Brothers doubtless wish to ask Paulson is this:

"Why do you consider Citigroup worth saving, but not Lehman Brothers?"

Paulson doubtless must now be wishing that he had rescued Lehman Brothers, thus saving the world from his self inflicted recession and banking crisis.

Bush and his team most assuredly are leaving behind them quite a legacy, whether this is the legacy that they would wish is of course another matter.

Friday, November 21, 2008

Start Lending!

John McFall, the chairman of the Treasury select committee issued a blunt warning to banks last night.

"The banks appear reluctant to launch their recapitalisation lifeboat and start lending again to households and businesses.

They are navel gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty
."

To add to the pressure on the banks, heads of the main high street banks have been summoned to the Treasury today for a final warning.

The cosy world of banking has been turned upside down, yet the bankers don't seem to have grasped that yet.

Thursday, November 20, 2008

The Ultimate Pound Store

Woolworth's has the dubious distinction of turning itself into the ultimate pound store, as it puts its 815 retail stores up for sale for £1.

Woolworths has about £295 million worth of debts, and has entered takeover talks which could see its retail division sold to Hilco.

Wednesday, November 19, 2008

Timid

It seems that the Bank of England's recent 1.5% cut in rates was not as bold as some commentators had first believed.

According to minutes of the Monetary Policy Committee (MPC), members had wanted to cut rates by 2%. However, they were afraid that such a cut would be too much of a shock for the financial markets.

We are facing the worst recession in decades, under these circumstances assertive bold leadership is required; yet the Bank continues to dither.

The upside to the dithering is that clearly another rate cut is on the way.

Tuesday, November 18, 2008

Inflation Falls More Than Expected

The Consumer Price Index has fallen by more than expected, from 5.2% to 4.5%.

The fall in inflation is being attributed to the reduction the price of fuel, food and utility bills.

This is the first fall since July 2007, and opens the way for the Bank of England to cut rates further and faster.

The question remains as to whether the Bank of England will act with courage, and cut rates aggressively in order to stave off the worst effects of the recession.

Monday, November 17, 2008

Icleand Deal Agreed

Some good news for some of the hapless individuals who placed their life savings offshore in an unprotected environment.

Iceland's prime minister, Geir Haarde, said that an agreement had been reached (a 'common understanding') with EU member states that will see it cover savers' deposits in return for financial assistance, including agreeing on a stabilisation package from the International Monetary Fund (IMF).

The government of Iceland will "cover deposits of insured depositors in the Icesave accounts in accordance with EEA law."

I would express some words of caution here, before people start to pop open the champagne, until the money is back in a UK bank account don't bank on this happening.

As per the PM's website:

"talks between Iceland and several other EU member states, led to a common understanding that will form the basis for further negotiations".

This is not a done deal by any means.

Friday, November 14, 2008

The PPI Rip Off

The Competition Commission is finally looking to get its teeth into the con trick of payment protection insurance (PPI), as it issued a statement yesterday calling for a ban on sales of the policies when people take out loans and credit cards.

The Commission wants banks to wait for 14 days before approaching borrowers to sell PPI, and wants to ban financial providers increasing interest paid by charging for the entire cost of a policy at the start of a loan.

Martin Lewis, the personal finance campaigner, estimates that half of the policies in force may have been mis-sold (estimated to be worth £10BN).

Needless to say the Association of British Insurers isn't best pleased, and claimed that the Commission would "kill the PPI market".

So what?

The policies rarely pay out (the Competition Commission said only 14% of premiums are returned to policyholders, compared with 54% for home insurance and 78% for car insurance) so what is the point of them?

Thursday, November 13, 2008

Halifax Profiteers Out Crisis

Halifax decided to ignore government pleas to pass on rate cuts, and instead chose to double the margins on some of its most popular mortgages last night.

Halifax reintroduced two year tracker deals for borrowers with a 25% deposit at a rate of 5.14% (2.14% above base, Halifax's best tracker a month ago was 1.04% above base).

Halifax's five year tracker for borrowers with a 25% now has a rate of 5.39% (2.39%, a month ago Halifax was offering five year trackers at 1.25% above base).

Shades of profiteering?

Halifax, needless to say, blame Libor.

Oddly enough Libor is at it lowest point in four years.

Maybe someone should tell Halifax that?

Wednesday, November 12, 2008

Back on Track

Three mainstream mortgage lenders have relaunched their tracker mortgages, since last week's mass exodus following the 1.5% cut in interest rates.

- Abbey has introduced a two year tracker at 4.99% (1.99% above base, being 0.7% higher above base than its previous tracker)

- Lloyds TSB has introduced a tracker at 4.79% (1.99% above base, being 0.7% higher above base than its previous tracker)

- Alliance & Leicester has introduced a new tracker at 4.89% with a 1% fee.

Strange that they increase their margins, when the rates are falling. However, borrowers should be grateful for small mercies that they are at least offering trackers.

Meanwhile a survey of more than 200 cards by Defaqto, a banking research group, found that the cost of borrowing on credit cards rose to 17.6% cent and rates on store cards rose to 25%, with some companies increasing rates by up to 10% overnight.

How strange!

Surely the credit card companies are not trying to profiteer from this crisis?

Tuesday, November 11, 2008

Sales Collapse To 1978 Levels

The Royal Institution of Chartered Surveyors (RICS) latest survey shows that estate agents in England and Wales have sold an average of 10.9 properties per firm in the 12 weeks to the beginning of November.

That is the lowest level of sales since the survey began in 1978.

The Times reports that, in response to the recession, Gordon Brown is to use this weekend's financial summit in Washington to call for co-ordinated tax cuts across the world's major economies to help reduce the depth of the global downturn.

The most effective for of tax cut will be that of cutting VAT, thus providing a direct stimulus to the consumer based economy. Cutting mainstream taxes will not achieve the same effect, as people will save part or all of the cut.

Monday, November 10, 2008

Bankers' Blacklist

Be warned, according to The Times, bankers are drawing up secret black lists to ban businesses from overnight borrowing.

Seemingly hundreds of clients have been included on the lists, which include international trading and commodities companies that supply the small-to-medium-sized business sector.

Were the banks still private companies, this would be a matter between them and their borrowers. However, now that the government has effective control over a number of them, this is now a matter that directly affects government policy and credibility wrt its attempts to limit the impact of the recession.

The banks will find that, unless they modify their behaviour, Brown and Darling will become very hands on "directors".

Friday, November 07, 2008

Called To See The Headmaster

As predicted, despite the 1.5% cut in rates yesterday, the high street banks have been a tad tardy in passing on the cuts to their hard pressed borrowers.

Needless to say, the government is not best pleased as it will be blamed by the voters for this (not least because it now has effective control of a number of these banks).

Alistair Darling therefore summoned the CEOs of HSBC, Barclays, Lloyds TSB, HBOS and Abbey to Downing Street this morning to demand that they immediately pass on the rate cut to their customers.

Bradford & Bingley (B&B), Lloyds TSB and Abbey have now passed on the rate reduction.

I suspect that before the day is out, we will hear from the other banks that the rate cuts will be passed on.

Thursday, November 06, 2008

Bank Finally Acts

The Bank of England has finally taken bold action to try to ease the pain of the recession, it has cut interest rates by 1.5% to 3%.

Here is the announcement in full: Bank of England

The question is will banks and building societies pass this rate cut on to their borrowers, or merely cut their savings rates?

Wednesday, November 05, 2008

Change

Congratulations and good luck to President elect Obama.

He has one hell of a task on his hands wrt the economy (US and world economy). He at least will hit the ground running, by announcing his treasury team in the next few days, and will not wait until January before implementing a number of initiatives.

This may be the turning point, if other countries and their central banks also do their bit.

Tuesday, November 04, 2008

Mandy Piles on The Pressure

Lord Mandelson, Business Secretary, has put pressure on the banks today, by warning them that their customers will not be best pleased if the interest rate cuts are not passed on.

This warning comes after David Hodgkinson, chief operating officer of HSBC (who travelled with Gordon Brown to the Gulf), warned consumers they might not see any benefits if the Bank of England cuts interest rates this week.

Lord Mandelson, who is also in the Gulf, is quoted in The Times:

"I have to say when official rates are being cut it's not unreasonable for the customers to expect to see some benefits.

People want to feel the benefits of that action. And if it appears the banks are standing in the way of what the government is doing then I think many banking customers are going to be asking difficult questions of the banks.

I must say one of the things that has struck me going round the Gulf is the extent to which our own British PM is now being looked to as someone who will lead the rest of the world out of this mess.

If we can't even have a response in our own country to his moves, to his decisiveness, that will come as a surprise to many
."

When Libor comes down so will interest rates charged by banks to customers, that is the key.