Still In Recession

The UK economy contracted by 0.2% between July and September, this is an improvement on the original ONS figures of a 0.3% contraction.

Proving once again that ONS figures are unreliable, out of date and worthless.

Bleed The World

Are You Mad As Hell?

The Pre Budget Report III

As predicted, Brown's and Darling's plans for a bankers' bonus tax (levied to divert attention from the 1% rise in National Insurance) is rapidly falling apart.

Both HMRC and the Treasury have been forced to admit that that the draft legislation on bank bonuses is poorly written, and will have to be revised in the New Year.

It seems, as ever with Labour's shoddy legislative drafting, that the net for this tax could be drawn very wide indeed (eg more than just "bankers").

HMRC are stressing that asset management firms (including those owned by banks), hedge funds, investment advisers, private equity and family offices would not be hit by the tax.

However, no one believes them!

The Pre Budget Report II

Alistair Darling has been more than a wee bit canny, wrt his tax on banks paying bankers' bonuses.

Whilst it may or may not raise £500M, it has created such a media stir that the real pain of the tax rises (another 0.5% on National Insurance - over and above the 0.5% rise already coming in) has been "forgotten". This tax will raise several billion.

The fact is that taxes have been pushed up, and we are all going to be paying far more to this government.

Darling's bankers' bonus tax is merely a bit of window dressing to distract the voters' attention.

The Pre Budget Report

As Alistair Darling steps up to deliver his "Pre Budget Report", and probably implement an unworkable "bankers' bonus tax" (see below an article from today's HMRC Is Shite), the Office of National Statistics (ONS) reports that Britain's goods trade deficit worsened unexpectedly in October from £6.9BN to £7.1BN (the largest gap since January).

This fall raises uncomfortable questions over the UK's ability to pull itself up out of recession in Q4 this year.

To add to the pressure on Darling, Moody's warned that unless he acts swiftly to reduce the debt the UK's AAA rating will be reduced.

Article from HMRC Is Shite

Good luck to HMRC in trying to levy a "bankers' bonus tax", in the event that Darling implements one in his "Pre Budget Report" today.

Disregarding the fact that taxing one specific "class" of worker is contrary to the concept of taxes being non discriminatory, the tax will be unworkable:

1 There will be a wholesale exodus of banks, other financial institutions and individuals from the UK.

2 What is the definition of a "banker"? Those who currently fall into Darling's definition of "banker" will simply have their employment status/title changed, to eg "admin clerk".

3 Pay rises will be backdated to mop up the bonus pool.

The tax will be shot to pieces, and HMRC will be forced to waste valuable time and resources trying to "pin a tail on the donkey" of the bankers.

Northern Rock Shareholders To Receive Nothing

Andrew Caldwell, the BDO valuations partner, has issued a consultaiton document outlining his provisional views on the Northern Rock valuation, and on the amount of any compensation that may be payable to former shareholders.

Former shareholders, seemingly, can expect to receive nothing.

Shareholders have, since the inception of the valuation exercise, argued that treating Northern Rock as if it were not a going concern (before the government rescue) would quite clearly result in a zero valuation on their shares.

Whilst their anger may be understandable, if Northern Rock were a going concern at that time why did it need government help and would it have survived without it?

Windfall Tax

Governments, much like ravenous dogs, always become very overexcited at the smell of someone else's money. When they find out that there are large sums being paid out, they want a cut of the action as well.

Therefore, it should come as no surprise at all to learn that Alistair Darling is considering imposing a special windfall tax on bankers' bonuses next year.

Taxing the banks themselves would be counterproductive, as it would be taking money back that has only just been pumped in to prop them up.

Will a windfall tax on bonuses achieve very much, in a tangible sense?

That depends on the nature of the tax, and as to whether the recipients of the bonuses find a way to avoid it.

Whilst, as has become the norm with Brown, this may well play "nicely" to the gallery of envy, in the long run it will achieve very little. It will not come close to balancing the books, and will drive away high earners from the UK to other less taxing environs.

Meanwhile the Centre for Economics and Business Research has warned that in a decade, the UK could drop from being number 4, in terms of the economy, in the world to being number 11 by 2015.

heavy taxes and stifling bureaucracy will bring that possibility ever closer.

£850BN Justified

The National Audit Office (NAO) report that the cost of bailing out the banks has so far cost us £850BN. However, the final true cost will not be known for many years.

The NAO state that the bailout was "justified", as there have been no "disorderly failures". However, the NAO then goes on to qualify the report by noting that:

"There is no single measure of success, but a range of indicators have since stabilised and improved."

So that's alright then!

Meanwhile, kudos to Barclays Capital for showing how ridiculous any government cap on bonuses will be. Barclays Capital intend to award certain staff a backdated payrise of up to 150%, thus mopping up the bonus pool.

Labour governments never seem to learn how powerless and impotent they are, when it comes to trying to impose pay policies.

The RBS Bonus Row

The row over the proposed bonus payments for RBS executives and management doesn't look like it's going to go away anytime soon.

RBS, the taxpayer owned (70%) wreck of a once fine bank, wants to pay its senior staff £1.5BN in bonuses this year (they are expecting to make £6BN in profits this year).

The government, playing to the gallery, has insisted that it has a say in how much should be paid and have threatened to veto it. The board, not unreasonably, point out that it is for them to make that judgement and have threatened to resign.

As ever with Brown and his lackeys, whatever they touch simply turns to shit. However, this is not the end of this farce.

Lord Mandelson, the Business Secretary, has come out on the side of the board.

He is quoted in The Times:

"I understand the point of view that RBS directors are expressing. They have to remain competitive in the market in recruiting senior executives.

That is why it's important that all the banks are equally restrained and RBS is not singled out, but nobody is suggesting that that will happen."

In other words, don't shoot yourself in the foot just to play to the gallery.

The trouble is, Brown loves to play to the gallery.

The Yorkshire Chelsea Merger

Those members of Chelsea and Yorkshire building societies (due to merge by next April) who had hoped that they may received a windfall, should keep their champagne on ice for another day.

There will be no windfall for members, but there will be job losses for the 3,200 staff working at the 178 branches.

The merged behemoth, to be named Yorkshire Building Society, will have combined assets of £35BN, and 2.7M members.

In reality this is not a merger but a takeover of Chelsea, which has lost £44M from the Icelandic banking scandal and £41M due to buy to let mortgage fraud.

Given the "in vogue" political hysteria against banking behemoths, it is surprising that this deal is going ahead and is being trumpeted so vocally.

Perhaps, in this instance, the politicians and regulators are relieved that another "Northern Wreck" has been deftly avoided?

House Price Rise Slows

Unsurprisingly the brief and modest rise in house prices, that has been latched on to by the housing industry and the politicians as signs of a recovery, is beginning to slow.

Nationwide Building Society report that the cost of a home rose by 0.5% in November. However, the rolling three-month index dropped to 2.8% from 3.5% in October, and 3.8% in September.

This fall is hardly surprising, much of the "rise" was due to a shortage of property available for sale in the market. Additionally, the number of job losses continues to mount.

Dubai's Dead Cat Bounce

It seems that the fear and panic, that the media would have us believe was going to envelop the world this week (when the Dubai markets opened again) hasn't happened yet.

Markets across Europe and Asia have in fact rebounded today.

The intervention by the Central Bank of the United Arab Emirates, to provide an emergency liquidity facility for local lenders, seems to have calmed everyone's jittery nerves for the time being.

As to whether this is will prove to be only a dead cat bounce, remains to be seen.

Seemingly the authorities in Dubai have been tring to remove newspapers, that discuss the crisis, from newsagents. A heavy handed and idiotic attempt to shore up public sentiment, it will backfire.

Either the economy is in good shape, or it isn't.

You can't eat sand, nor should you waste money buidling houses on it.

Recession Worse Than Thought

Chancellor Alistair Darling will admit in the pre-Budget report that the economy performed worse in 2009 than he first predicted.

Quell surprise!

The prediction for economic shrinkage was 3.5%, the reality was in fact 4.75%.

Given this failure in forecasting, why should anyone believe the Treasury when it says that growth in 2010 will be between 1-1.5%?

Heads Banks Win, Tails You Lose

The banks have had a rather good week, from their perspective, in addition to winning their case at the Supreme Court over bank charges they have also managed to come out of the Walker Review unscathed.

Banks will only have to disclose the existence of all £1M pay packages. However, the recipients can remain anonymous. Additionally, this new requirement only comes into force for the 2010 calendar year.

The 2009 bonuses will have long since been spent on cars and houses by then.

Champagne all round!

Banks Win

One way or the other the banks were going to win the case for charging "excess" fees for overdrafts.

In the event that they had lost their appeal at the Supreme Court, they most certainly would have started charging for all bank accounts (irrespective of whether they were in credit or not).

As it is, millions of bank customers hoping to be refunded overdraft charges have been dealt a major blow by a Supreme Court judgement.

The court has overturned earlier court rulings that allowed the Office of Fair Trading to investigate the fairness of charges for unauthorised overdrafts.

Notwithstanding this result, I guarantee that banks will start to introduce account charges (one way or another).

I would make one other observation, the banks claim that their charges are for the risk and effort taken by them wrt supplying an unauthorised overdraft.

Fair enough!

However, has not the British taxpayer provided the banks with billions in the form of an unauthorised overdraft in order to bailout the banks as a result of their gross mismanagement of their businesses?

Therefore does not the British taxpayer have the right to levy charges (high ones) against the banks?

What goes around comes around!

Did Brown Create a False Market?

When Gordon Brown persuaded Lloyds to take on the wreck of HBOS, he put his "reputation" on the line.

This "reputation" was placed even more on the edge of the precipice, when it became apparent that HBOS was on the verge of collapse.

How surprising then, that at that very moment, the Bank of England bailed HBOS out with a secret (secret to the public and shareholders) loan.

The question is, did Brown create a false market in the shares in order to save his "reputation"?

The Secret Loans

Two of Britain's once respected banks stood on the precipice of collapse last year. Had they collapsed the UK's banking system would have ground to a halt (even cash dispensers would have ceased dispensing cash).

As such the Bank of England stepped in with an emergency loan of £62BN, to Royal Bank of Scotland (RBS) and HBOS during October and November 2008.

Mervyn King, Governor of The Bank of England, revealed the secret loan during a parliamentary hearing today. The money was repaid in full by January 2009.

I wonder if, had the responsibility for issuing the loan rested with Brown, whether such a decision would have been made (given Brown's dithering and inability to make decisions)?

"Ironically", the shareholders of HBOS and Lloyds were not told about this (ie given the full picture of the shocking sate of the banks' finances), when they were offered shares in earlier rights issues by HBOS and LLoyds in January 2009.

Suffice to say, they may well have grounds for "complaint" against the boards of these two banks.

Lloyds Takes More Taxpayer Money

Lloyds Banking Group, the once proud bank that was wrecked by Gordon Brown when he persuaded its board to take over the toxic HBOS, is draining the taxpayer of even more money today.

Lloyds is raising £13.5BN via a rights issue. As such the government will be pumping another £5.7BN of our money into the bank, in order to maintain our current holding of 43%.

Lloyds wants the money so that it can avoid participating in the government insurance scheme for its bad debt.

The scheme would have protected Lloyds against worse than expected losses on its toxic assets. However, the government would have demanded a greater share in the bank in return.

I am sure Lloyds now bitterly regrets ever allowing itself to be persuaded by Brown to takeover HBOS.

Brave New World

Richard Lambert, the Director-General of the CBI, has seen the future and it looks "different".

That will be the thrust of the message that he will deliver today at the CBI's annual conference.

The central theme of his address will be that the recession has forced businesses to undertake a fundamental rethink of how they operate, raise finance and to cut the shackles of their past reliance on banks for providing finance.

Lambert will also say that businesses will work to create a more flexible workforce.

The lecture forms the backdrop to the publication by the CBI of "The Shape of Business — The Next Ten Years".

Lambert argues that the new "norm" will be for a more collaborative, less transactional world. Businesses will work more closely with customers, suppliers, employees and shareholders.

The sharp eyed amongst you will observe that banks and politicians have been left out of the above list.

Hardly surprising, given that the politicians and banks are largely responsible for the current financial quagmire; and have come up with precious few practical initiatives for the future economic well being of this country.

Life Is Taxing

The Times reports that small businesses spent longer doing their taxes in 2008 than in 2007, despite Labour's promise to reduce red tape.

Small and medium-sized businesses in Britain spent on average an extra five hours working on their taxes, mainly because of the temporary cut in VAT in December last year. The total number of hours spent filling in tax returns rose to a record average of 110, up from 105 in September, according to a report by the World Bank and PricewaterhouseCoopers.

Britain slipped from 24th to 25th in the rankings of 183 countries for the least number of hours spent on taxes.

Will the government ease the administrative and tax burden?

No!

The increase in the PSBR means that the government will in fact increase taxes. Unfortunately, given that we are in the middle of a recession, this increase will only make matters worse.

A Mountain of Debt

Brown's Bankrupt Britain has a nasty habit these days of breaking records, not the good ones but the bad ones relating to the size of debt.

Sure enough, as is becoming the norm, another record has been broken. In October the UK Government had to borrow £11.4BN. This is the worst monthly figure since records began in 1946.

Tax receipts fell by £4.1BN, compared with October 2008, and spending increased by £4.5BN.

The total public sector net debt now stands at a staggering £829.7BN (59% of GDP).

Certainly the figures are not good, most certainly if the government does not come up with a credible plan to show how it will rein in the debt external and internal confidence in the UK will evaporate; the situation will become far worse, as Sterling will collapse and high achievers/businesses will uproot and leave the country.

However, the ability of the current government to set up a credible plan is limited by a number of factors:

1 Time, an election has to be held by May 2010.

2 Gordon Brown will need to play to the gallery of public opinion in order to try to win the election, any plan that sets out tax rises and spending cuts will not be aviable to fight an election on (in Gordon Brown's eyes).

3 Gordon Brown doesn't have a credible plan.

Three Way Split

It seems that the Bank of England's Monetary Policy Committee (MPC) has suffered something of a three way split, with regards to what is the best course of action to take re stimulating the economy.

That at least is the inference to be drawn from the minutes from the MPC meeting this month.

Despite finally deciding to increase the level of quantitative easing (QE) by £25BN, the committee was divided three ways.

Spencer Dale wanted to leave it at £175BN, while David Miles wanted to increase it by £40BN.

The other seven members opted for the £25BN.

Time will tell as to which faction is right.

Up, Up and Away!

Inflation is on the rise again, the "reliable" and "up to date" Office for National Statistics (ONS) reports that the Consumer Price Index (CPI) has risen to 1.5% in October.

Analysts expect that it may rise to 3% in the coming months.

The Retail Price Index (RPI), which includes housing costs, rose to -0.8% in October, from -1.4% the previous month.

Whatever rate of inflation is followed, the modest rise should be seen as no threat to the economy. A good dose of inflation (not at the levels seen in Zimbabwe) is what the economy needs to inject some life back into it.

Spat Over Woolworths

One year on from the demise and collapse of Woolworths the former Chairman, Richard North and former chief executive Steve Johnson, publicly criticised Deloitte's handling of the collapse.

They noted that Deloitte's acted as both adviser and administrator to Woolworths, and cited that this was a potential conflict of interest.

North and Jones feel that Deloitte's didn't back an emergency rescue plan by Woolworths' management team, because of its interest in the higher fees it would earn as administrator.

Deloitte's have been quick to fire back, they are quoted on City AM:

"Woolworths failed because it was losing money and had no cash.

It was the directors themselves, not the banks, who appointed Deloitte as administrators, based on the realisation that the company had run out of money and could not continue trading on a solvent basis.

We are never driven by the fees available but simply by the pure economics of the options for the creditors."

They have a point, re who appointed them.

I would ask why the directors, if they were concerned about a conflict of interest, appointed them in the first place and are only raising this issue now?

Europe Out of Recession

Europe, or rather the 16 countries that use the Euro, have officially pulled out of recession (their economies expanded by 0.4% in Q3 of this year).

Germany and France expanded by 0.7% and 0.3%, whilst Spain shrank further.

However, Britain is still stuck in recession (even Italy has pulled out of recession) if the recent figures from the Office of National Statistics are to be believed.

Europe should hold back on celebrations though. The recovery is fragile, and consumer spending actually fell by 0.7% during Q3.

Banks Revert To Bad Old ways

It seems that old habits die hard and, hardly a great surprise, the banks are reverting to their old ways of forcing staff (via sales targets) to sell products to people who don't need then and cannot afford them.

That, at least, is the view of the union Unite.

Unite claims that sales targets for banking staff have not changed since before the credit crunch.

Fair point, maybe. However, the banks do need to set sales targets if they are to remain in business and continue to employ members of Unite.

The question is, are the sales targets reasonable and achievable without recourse to mis-selling and "harassment" of customers via cold calls?

Don't Believe The Hype - Slowing Unemployment

The Office of National Statistics (ONS) released figures today that purport to show that the ongoing rise in unemployment is slowing, climbing by a "mere" 30,000 in Q3 of this year to 2.46M ("experts" had been predicting 2.5M).

Doubtless the government and other organisations may well spin this as signs of a recovery. However, before popping the champagne corks, the following needs to be taken into account:

1 There are still 30,00 more people out of work than there were in Q2.

2 ONS figures are notoriously unreliable.

3 Q3 ended two months ago, the figures are not real time and are irrelevant for decision making.

4 The true number of "unemployed" are hidden by government schemes that hold people off the register (eg work experience schemes, creation of "non" universities etc).

The figures are meaningless.

Lloyds Job Cuts

Lloyds Bank, the 43% taxpayer rescued wreck of a once proud bank, has announced that it will cut a further 5,000 jobs by the end of next year.

Lloyds, at the behest of Gordon Brown, rescued HBOS last year at the height of the banking crisis; it now faces having to "eliminate" a total of 12,500 jobs from a total of 129,000 staff employed in Britain.

Meanwhile HSBC and Barclays both issued positive trading statements, in which they claimed the rise in bad debts has peaked and profits are sustainable.

Prostrate Cows

Those UK citizens who rely on credit cards to fund their day to day living are in for an unpleasant shock, as rates will increase and annual fees will be introduced.

PricewaterhouseCooper says that the increase in rates and imposition of fees is because lenders face extra regulation, difficulties in obtaining cheap funding and significant increases in bad debts (estimated at being around 9%).

That maybe so.

However, given that the rates on many cards are already close to 30% exactly how much of the increase is out of true necessity (in order for the card companies to remain in business) and how much is down to the fact that the card companies view and treat their customers as prostrate milch cows?

RBS Slips Deeper Into The Mire IV

Finishing off what has been a truly appalling week for the wreck of the once proud Royal Bank of Scotland (RBS), it announced losses today of £1.5BN for Q3 of this year.

Bad debt write offs (£10.8BN) are over three times that of the same period last year (when they were a "mere" £2.7BN).

RBS "hope" to return to profit in 2011.

Sir Fred "The Shred" Goodwin has certainly left a legacy, I wonder if this is the one he dreamed of?

Quite why some his acolytes still hold senior positions in RBS, and are to receive bonuses (albeit deferred) remains a mystery.

Financial Prisoners

Keith Morgan, head of wholly owned investments for UKFI, gave evidence to the Treasury Select Committee yesterday. He painted a bleak picture for those hapless 85% of Northern Rock borrowers trapped in the wreck of that once respected bank.

Seemingly they will become financial "prisoners" when they are assigned to Northern Rock's "bad" bank.

Some 476,000 mortgage borrowers (some of whom were foolish enough to borrow up to 125% of their property value) will be transferred to the "bad" bank (hereinafter called Northern Rock Assets Management), because they will be unable to remortgage elsewhere.

Approximately 10% of the loans are in arrears.

Gordon Brown, in rare display of decision making and speed, is rushing to return the "good" part of the bank to the private sector.

For why?

So that the Tories cannot claim credit for doing so, when they win the election next year.

Hardly a noble motivation!

RBS Slips Deeper Into The Mire III

It would seem that, despite being given a further £33.5BN of taxpayers' money yesterday, the Royal Bank of Scotland may in fact sink even further into the mire.

Alistair Darling warned that this wreck of a bank may in fact need more taxpayer funds, estimated at being at least £8BN, at some stage in the not too distant future.

The taxpayer now owns 84% of this wreck.

Why are some of the senior management who destroyed this once proud bank still in situ?

RBS Slips Deeper Into The Mire II

Hot on the heels of the news that the Royal Bank of Scotland (RBS) will have to conduct a forced sale of some of its well known brands (eg Churchill) and that a further 3700 jobs (on top of the 16000 already lost) will have to go, RBS have also announced that it will be deferring the bonuses of higher paid members of staff (over £39K per annum) and board members until 2012.

RBS and Lloyds will defer bonuses in return for an additional £40BN of our money.

Part of the bonus payments will be deferred, and part will be paid in shares; ie there is no "bonus cut" as such, merely an adjustment as to how and when the bonuses will be paid.

Given that these two banks are in a complete mess, I don't fully "grasp" how it is that any senior manager is entitled to receive a bonus.

I would also note that by paying part of the bonuses in shares, the current shareholders will find their holdings diluted, and the management will be incentivised to talk the value of the shares up in future in order to maximise their personal gains.

Is this really an improvement in the corporate governance of these two failed banks?

RBS Slips Deeper Into The Mire

Royal Bank of Scotland (RBS), the wreck of a once fine bank now 70% owned by the taxpayer, saw its shares fall by up to 14% this morning as it announced that it may be forced by the EU to sell more assets than planned.

Quote:

"It remains RBS's goal that any required divestments do not threaten its recovery plan."

Up for possible sale are Churchill, Direct Line and Green Flag insurance operations; along with more than 300 bank branches and its Global Merchant Acquiring card-processing unit. It may also have to downsize its investment banking arm.

Whilst these brands all have value, being part of the forced sale will inevitably reduce much of that value and the price that RBS hopes to be able to extract from any deal.

The forced sale is in order to satisfy EU policy that attempts to ensure that RBS doesn't have an unfair advantage in the market. The EU is also gunning for Lloyds Banking Group, which may have to sell assets and branches, and Northern Rock which is splitting into two.

Alistair Darling tried to spin this positively yesterday, by saying that the creation of three new banks will stimulate competition.

All very well, but if this is such an important issue, why did the government not intervene some years earlier in order to stimulate competition and provide consumers with more choice?

Brown's Clunking Fist Caused The Financial Meltdown

It would appear, from extracts of memoirs published about the dying days of Lehman Brothers, that aside from the US Administration pulling the plug on Lehman (the collapse of which then caused the meltdown of the global financial system) our dithering Prime Minister had a hand in it too.

Seemingly Barclays was on the cusp of sealing the deal, subject to approval from the UK government.

At the eleventh hour, out of the blue, Darling (having spoken to Brown) refused to give permission, despite being warned by the US that Lehman collapsing would cause global financial meltdown.

Is it not ironic that Brown, who claims to have saved the UK from even worse economic turmoil, is in fact more than partially responsible for causing the crisis in the first place?

Eager To Repossess

The Financial Services Authority (FSA) has fined GMAC-RFC, a mortgage lender, £2.8M for mistreating customers who fell into arrears.

GMAC-RFC also has to repay £7.7M, plus interest, to 46,000 borrowers.

The FSA said that the company levied unfair charges on borrowers who fell into arrears with their repayments, and was too eager to repossess their customers' homes.

GMAC-RFC, having been fined, is quoted by the BBC:

"In hindsight, we fully accept that for certain fees our estimates of the costs were not proportionate to the additional administration actually required.

We will be writing to customers who incurred these specific charges when in arrears and will re credit the charges plus interest."

So that's alright then!

Santander's Market Dominance

Santander, the Spanish banking group that owns Abbey, Alliance & Leicester and Bradford & Bingley, has announced a 58% rise in Sterling profits for the first 9 months of this year to £1.2BN.

Abbey's gross lending of £19BN represented 20.5% of the UK market, although it is 37% less than last year.

Santander is the eurozone's largest bank by market capitalisation.

However, Bradford & Bingley is going to split its good and bad assets (its balance sheet being £50BN), and sell the good assets to private buyers, in order to pay off its £18.4BN loan early.

The question is, what exactly is a "good" asset and what is a "bad" asset?

A Gnat's Piss On The Dung Heap of Debt

The government, in attempt to shut the stable door long after the horse has bolted, has come up with some proposals theoretically designed to force credit card companies to help customers reduce their debt.

Card companies will be forced to allow customers to pay off their most expensive debts first, rather than pay off the cheaper debts and allow charges to accrue for higher interest debt.

The minimum monthly repayment level would also be increased, to encourage people to pay off their debt faster.

The government said:

"Around one-third of people who don't pay off their credit card bill in full each month make only the minimum repayment. This can mean consumers take decades to pay off the debt."

Indeed so, but this is most likely due to the fact that they cannot afford to pay off much more than the minimum.

By forcing those already in debt to pay a greater amount, the government is in danger of pushing many hard pressed families over the "financial edge".

The government also proposes to ban the practice of credit card companies automatically increasing credit limits, without specific authorisation from their customers.

Will they also ban card companies from arbitrarily cutting credit limits on those card holders with good credit records, who clear their debts each month?

The government also wants tighter rules imposed on increasing the interest rate on existing debt without "proper explanation".

That will not make not one jot of difference to this rip off practices employed by card companies. They will continue to increase rates based on the "explanation" that they are finding their margins squeezed by "difficult trading conditions".

Until there is a thorough independent investigation of the make up/rationale of companies' charges, and the quasi "price fixing" scheme of arrangement wrt this practice operated by the companies, they will continue to charge what they like, because they know that they can get away with it.

The proposals are open to consultation until January 19 2010.

This particular horse has long since bolted and the British consumer is hopelessly mired in debt, these proposals are little more than a "gnat's piss" on the dung heap of debt that has been created by the Faustian collusion between greedy consumers and lenders.

Banking Bonuses

The Conservative Shadow Chancellor, George Osborne, is calling on the government and the Financial Services Authority to ban large cash bonuses for retail bankers; he wants cash bonuses capped at £2K, with the rest of the bonus paid in the form of shares.

The theory being that the £20BN saved could be lent to consumers and businesses.

Fat chance!

Osborne laid out his views at a Reuters, in Canary Wharf.

The cap would only apply to High Street retail banks, and the investment arms of banks that also lend to consumers.

All very well.

However, the dilution of shareholdings (as a result of the issuance of new shares in lieu of bonuses) will not necessarily please the shareholders.

I would also remind the Tories that one of the route causes of well publicised spectacular frauds, such as Enron, was rewarding executives with shares in the company. This provided them with a massive incentive to talk/manipulate the performance of the company up, in order to increase the value of their shares.

FSA Talking Nonsense

Hector Sants, CEO of the FSA, seems to have been talking nonsense when it comes to self certification mortgages.

Ray Boulger of mortgage broker Charcols noted that Sants said on the BBC Today programme that, in the boom times, self cert mortgages were around half of those offered.

"This claim is complete nonsense and it is very worrying that the FSA is trying to set policy on the basis of such a serious misunderstanding.

It is true that about 50% of mortgages were 'income non-verified' - but only about 10% were self cert."

It seems that Sants is so concerned about trying to save the FSA from being shut down under a forthcoming Tory administration, that he is prepared to ignore the facts in order to garner a media soundbite.

The Longest Recession on Record

Figures released this morning show that GDP fell by 0.4% in Q3, making this the longest recession on record.

Pundits had been expecting, and Gordon "no more boom and bust" Brown had been hoping for, a small increase in GDP. Indeed the BBC "Ceefax" news this morning briefly reported that we had pulled out of recession (so much for reporting real news, real time!).

Undaunted, Alistair Darling claimed that growth will return by the end of the year. However, his prediction was dismissed by others as being nonsense.

Clearly the Bank of England will have to continue with its policy of quantitative easing, having used up its other weapons by reaching near zero interest rates.

Any recovery will be slow and patchy.

The Death of The Royal Mail

As the series of "rolling" strikes starts today, we see the final death throes of the Royal Mail.

An organisation that will most certainly be privatised and aggressively restructured now that the government (led by a ditherer), management and union (led by a man who has delusions of being another Arthur Scargill) have failed in their responsibility to the customers and workforce.

If only there were private courier companies and electronic messaging...oh, wait a minute!

The Governor of the Bank of England, Mervyn King, has lambasted Britain's banks and described the £1TN government support given to them as "breathtaking".

King, who warned that the British people would be paying for the bankers' folly for a generation, went on to call for the banks to be broken up.

"To paraphrase a great wartime leader, never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform. "

By coincidence the Office for National Statistics reported a record deficit of £77BN for the first six months of the fiscal year.

Total net debt rose to £824.8BN at the end of September, 59% of GDP.

Brown Bottles It

Unsurprisingly Gordon Brown has bottled it when it comes to subjecting the banks to a windfall tax to punish them for paying excessive bonuses.

Lawyers have warned the government that any legislation passed would be unworkable. Hardly unexpected advice, given the fact that much of the legalisation passed by Labour since it came to power has been poorly drafted and full of holes; which in itself is rather ironic given the number of layers in the party.

Brown has pulled his normal "McCafferty's cat" act and told the banks that it is up to them to ensure that they were acting appropriately.

The government and taxpayer should not be too peeved at the bonuses, given the 50% rate of tax coming in next year the Treasury is expecting a "bonus" of its own of around £2BN from the tax raised on bankers' bonuses.

Pay caps and pay freezes, as Labour should remember from its previous times in office don't work. Any attempt to impose pay limits on bankers would simply push them offshore, to the detriment of the economy.

Like it or not, the economy needs the bankers.

New Mortgage Rules

The FSA intends to firmly slam the door after the horse has bolted on "risky" lending, and is advocating new rules that will ban self-certified mortgages and impose rigorous new checks on homebuyers applying for mortgages.

Seemingly borrowers may even be asked how much they spend on booze and shoes (how does the FSA think that the banks can check up on that?).

Hector Sants, CEO of the Financial Services Authority (FSA), said that the FSA was going to "get rid of the irresponsible practices that put banks and consumers at risk".

All very well. However, the FSA has been in existence for well over a decade and these "irresponsible" practices have been well reported for many years.

Why, only now, do they seek to reform these practices?

The FSA will make banks and other lenders liable for loans that cannot be repaid.

The trouble is that the economy, during Brown's "no return to boom and bust" years, has been built up on lending made to eg self employed, those with risky credit ratings etc etc. To take lending practices back to the 70's will inevitably take the economy backwards as well.

Like it or not, the genie is out of the bottle and will be very difficult to put it back in without causing further damage to the economy.

Bargain Basement

Lloyds Banking Group has sold the Halifax estate agency business for £1 to LSL Property Services. The 460 staff who currently work there are expected to be made redundant.

The government, or rather the taxpayer, owns 43% of Lloyds; and it is for this very reason that Lloyds has offloaded this lossmaking business.

Were the group to keep it on its books, it would be forced to participate in the Government's Asset Protection Scheme (APS) which would cost Lloyds £15.6BN and an increase in public ownership to 63%, in exchange for the government underwriting £260BN of assets.

It is not clear as to whether it will be Lloyds or LSL that picks up the bill for the redundancy costs.

Let The Good Times Roll!

It is heartening to know that the green shoots of recovery are sprouting in the world of investment banking.

A mere 12 months after the near collapse of the global financial system (the UK came close to people not being able to draw cash from their own bank accounts), investment bankers are about to enjoy a record bonus season.

Stock markets in London and New York are enjoying one of the strongest bull runs in decades, and investment banks are preparing to announce huge profits.

The Times reports, for example, that the average London worker at Goldman Sachs will receive approximately £467K in salary and bonuses (a 13% rise compared with 2007 and double the average in 2008).

So that's good news then!

Postman Prat

It seems likely that there will be a post strike on or after 22 October.

Whether or not one occurs, the damage to Royal Mail's brand and the long term job prospects of those who claim to be striking for an "improved" postal service has already been done.

Royal Mail customers are already seeking alternatives to the increasingly erratic service, and will never return to the Royal Mail.

Mail volumes are already falling at around 10% a year.

Business Post says it anticipates a 10% rise, while Parcel2Go says a strike will lead to a 20% increase in turnover.

The strikers will soon be looking for alternative employment. They have not seemingly understood the precariousness of their situation.

Inflation Falls

Inflation has hit a five year low, as it fell from 1.6% to 1.1% in September, mainly as a result of falling energy prices.

Brown's Bargain Basement Clearance Sale

Gordon Brown, desperate for cash, has announced a £16BN programme of asset sales in order to bring down the massive state debt built up during the recession.

£3BN of assets are planned to be sold off over the next two years including; the Tote, the Dartford crossing, the Channel Tunnel rail link, and the Student Loan book.

Much like when he sold Britain's reserves of gold at the bottom of the market, his timing is lousy.

The Curate's Egg

The World Economic Forum has ranked the UK as the world's number one financial centre, overtaking the US.

However, it has also ranked the UK as 37th out of 55 for financial stability, placing us behind Panama, Bangladesh, Nigeria, Poland and Colombia.

The number one ranking will doubtless give the government an excuse to use it for their own political ends. However, the poor showing wrt financial stability means that this "success" may well be very fleeting.

Postal Strike

It looks likely that we are going to be lumbered with a post strike this Christmas.

The Communication Workers Union (CWU) claims that it is confident that its 120,000 members voting on the ballot will support industrial action, the results are expected at 12:30 today.

Billy Hayes, the CWU's general secretary, said that workers had little choice.

Nonsense!

No one is forcing them to go on strike.

As I have noted before, there are many alternatives to the Royal Mail. This action will result in future job losses for those who strike, as they push the Royal Mail into oblivion.

Ripping Off The Over Fifties

The Times reports that building societies are ripping off the over fifties wrt interest rates offered on ISA accounts.

As from yesterday anyone over 50 will be able to invest an extra £1,500 into their cash Isas, as their allowance will rise from £3,600 to £5,100.

However, "institutions have launched a wealth of accounts to attract older savers' cash — but some are offering poorer rates than their 'mainstream' deals".

Fair comment.

However, as we know, the financial services industry does not discriminate when it comes to ripping people off. The British consumer has been, and continues to be, ripped off by the financial services industry viz:

- bank charges
- PPI
- endowment mortgages
- interest rates
- mortgage charges etc etc

In the eyes of the financial services industry we are all "prostrate cows" ready for slaughter.

House Prices Rise

The Halifax report that there was a 1.6% increase in house prices for September, this being the third consecutive month in which prices rose.

However, before champagne corks are popped, it should be noted that prices are still down by 7.4% year-on-year.

It is likely that the value of property will be subject to some unnerving bounces over the coming months. Anyone hoping for return to the unfettered rises of the boom years will be sorely disappointed.

As I have noted before, houses are for living in; those who try to use them as an investment vehicle, to fund their lifestyles/retirement, may be sorely disappointed.

Growth

It seems that the green shoots of economic recovery, at least in the service sector, are returning. Q3 2009 saw the first period of growth in the financial sector in two years.

PricewaterhouseCoopers and the Confederation of British Industry (CBI) report that the number of firms reporting rising business volumes outweighed fallers by 31% to 24% (a positive skew of 7%).

However, the report predicts that up to 60,000 financial services jobs could be lost this year.

Advice To The Co-operative Bank III

Despite sending the Co-operative Bank several emails and going through the tortuous phone menu to try to remove my number from their database, it would seem that the Co-operative Bank is either asleep or remarkably incompetent.

I am still being plagued by calls from their computerised call centre, asking for a woman who is unknown for me.

Today I have emailed them again, this time using the email addresses of several members of their PR department.

Suffice to say, my experience of this bank leads me to conclude that it is very poorly run.

Here are few emails addresses for their "PR" people. Those of you are also experiencing harassment from the Co-operative Bank may find them useful:

cfsinvestorrelations@cfs.coop
public.relations@britannia.co.uk
duncan.bowker@cfs.coop
catherine.laycock@cfs.coop
andy.hammerton@cfs.coop
russell.brady@cfs.coop

Here is the email of David Anderson, the CEO of Co-op Financial Services david.anderson@cfs.coop

UPDATE

Third call received today from these idiots.

The Great British Fire Sale

Labour, in a dash to halve the country's debt, plan sweeping spending cuts and asset sales of up to £75BN.

In theory, according to Labour (the election is looming), this will negate the need to increase taxes.

Labour are conducting an inventory of assets that could be sold off at rock bottom "recession" prices, including Ordnance Survey.

It is ironic that we will see a return to the heady days of Tory privatisation, under a Labour administration. However, the key difference being this time that the assets are being sold at rock bottom prices and under duress.

Advice To The Co-operative Bank II

Despite forwarding the Co-operative Bank with a copy of my piece the other day about being bombarded with calls from their automated dialler, and despite pressing the correct buttons on my phone to remove my number from their database, they persist in calling me and asking for an unknown female.

Are these people completely incompetent?

I am very glad that I do not have an account with them, but wonder what it will take to get them to stop ringing me?

Shutting Stable Doors

Listen very carefully and you will hear the sound of a stable door being slammed shut by Darling and Mandelson.

Ahead of Alistair Darling's Labour conference speech outlining new rules to curb bankers' bonuses, Lord Mandelson spoke on BBC's Radio 4 programme.

He noted that Gordon Brown, as Chancellor, had introduced new legislation that "sorted out a ragbag of different regulatory processes" in financial services to make them "much leaner, meaner and more efficient".

Aside from the obvious point that the Tripartite system was hardly "leaner, meaner and more efficient", it is clear that if Darling is now having to introduce further regulations, it is clear that Brown's regulations weren't up to the job.

Mandelson will say later today that we rely too much on the financial services industry.

Fair comment, except this has been known for many years.

What exactly will he replace it with?

Later today Darling will outline plans to:

-End automatic bank bonuses year after year.
-End immediate payouts for top management.
-Defer any bonuses over time so they can be clawed back if they are not warranted by long term performance.

All very well.

However, as can be seen with the change of HQ for the CEO of HSBC, bankers will simply up sticks and leave.

The stable door may now be slammed, regrettably the horses have long since bolted!

HSBC Moves CEO

HSBC is relocating Michael Geoghegan, its chief executive, from London to Hong Kong as from February next year.

HSBC state that there are no plans to move the company's domicile from the UK.

However, as the G20 ponder what they intend to do to punish bankers for their hand in the economic mess and as the UK 50% tax rate kicks in, doubtless the fact that Hong Kong has a 16% tax rate may well have a bearing on future plans for the location of HSBC.

Advice To The Co-operative Bank

Yesterday I was plagued by calls from this number 08453550305.

An automated system kept calling with a pre recorded message, allegedly from the Co-operative Bank, asking for an unknown lady (not myself or anyone known to me) to press a button in order to speak to an operator.

Not unreasonably I hung up each time, as it bore all the hallmarks of a scam.

However, on conducting some research into the matter I see that in fact this is the preferred means of contact that the Co-operative Bank employs when chasing its customers (I am not a customer of the bank).

The fact that many people have complained to the bank (see this site for examples), telling them that it sounds like a scam, and as such they hang up, appears to matter not one jot to the bank.

They continue to use this system; plaguing their customers and non customers (such as myself) morning, noon and night.

My advice to the Co-operative Bank is simple:

1 Do not use automated systems to contact your customers.

2 Listen to the complaints for your customers, and innocent third parties.

3 Take my phone number off your database.

In the event that you are plagued by calls from the Co-operative Bank, call 0161 837 8769 and ask for the Chief Executive's Office.

Turner Gets Heavy

Lord Turner, chairman of the Financial Services Authority, last night at the Mansion House launched another attack on the banking industry.

Turner said that bankers faced a future stripped of profitable businesses:

"British citizens will be burdened for many years with either higher taxes or cuts in public services because of an economic crisis ... cooked up in trading rooms where many people earned annual bonuses equal to a lifetime's earnings of some of those suffering the consequences."

He added:

"Top management, in particular of banks involved both in complex trading and retail banking, needs ... to be willing to recognise that there are some profitable activities so unlikely to have a social benefit they should voluntarily walk away from them."

I would make a number of observations:

1 The higher taxes, needed to plug the fiscal black hole, are in part due to the fact that Brown failed to "put something away for a rainy day" during the "years of plenty". Instead he chose to "spend, spend, spend".

2 Where was the FSA during the period of "reckless" lending, when banks "cooked up" these failed schemes?

3 The financial catastrophe is in no small part down to the failure of regulation, emanating from the "bugger's muddle" of the tripartite regulatory system created by Brown.

4 Labour was happy to "schmooze" with the City during years of plenty, and had its fingers in the till earning billions in tax from the profits and pay of the banks/bankers.

5 The country did well out of the years of plenty, we are a far wealthier and more advanced nation than we were 30-40 years ago. This is a direct result of globalisation and freeing of currency flows. The current financial crisis has not set us back 30-40 years; ie we are still better off.

There will always be financial crises, each one different from the other. Turner and the G20 are unlikely to find a panacea that will prevent the next.

A Slap On The Wrists

The Office of Fair Trading (OFT), having spent four years investigating public sector construction tender rigging, have fined the construction industry a trifling £129.5M.

This fine represents no more that 2% of each business's turnover.

Seemingly the OFT was worried that a larger fine would push the construction industry further into recession.

Maybe so, but what about the millions of pounds of public money that has been wasted because of this tender rigging?

A Dose of The Clampis

The Times warns that there is a highly sophisticated Trojan virus, Clampi, on the loose that steals online banking log-in details from infected computers.

The Clampi virus is spreading rapidly across hundreds of thousands of computers in Britain and the US.

The virus captures log-in and password information wrt financial sites, and sends it to a server run by the cyber criminals. They can then tell the compromised computer to send money to accounts that they control, or they can buy goods with the stolen credit card details.

The virus has a list of more than 4,500 finance-related websites that it monitors, including British high street banks.

Security experts warned that it was one of the stealthiest and most pervasive threats to computers using the Microsoft Windows operating systems.

Monitor your accounts closely.

Tax Relief on Lap Dancing

I see that Harriet Harman is trying to abolish tax relief on lap dancing, whereby she claims that the VAT etc expended on corporate entertaining in a lap dancing club can be reclaimed as a legitimate business expense.

Since when was she made Chancellor of the Exchequer?

Will this proposed tax change apply to only female lap dancers or males as well?

Will it apply to establishments classed at restaurants where there is a cabaret performance that may, or may not, include a lapdance/striptease?

Oh, one other small point, client entertaining is not an allowable deduction when calculating corporation tax.

Maybe she could find something else to apply her "talents" and energy to?

The Final Nail in The Coffin

It would appear that the unions and management of the Royal Mail "service" are determined to destroy the business as it now stands.

The Communication Workers Union (CWU), representing 120,000 Royal Mail staff, has said that it would distribute ballot papers for a vote on a national strike.

The Royal Mail service has already been severely disrupted over the last few months, as a result of wildcat strikes across the country over complaints about pay, job security and services.

Needless to say these strikes cause numerous problems for individuals and businesses who rely on the mail.

The result will be that people simply look for alternatives eg; email, BACS, direct debit, phones, private delivery services etc etc.

Thus the Royal Mail will implode, and the remaining rump will be bagged up into neat portions for privatisation.

Given the fact that there is a recession, it is quite remarkable how pig headed both the unions and management are being over resolving their "issues" in a sensible manner.

Let us be rid of this 19th century anachronism once and for all!

Lloyds May Give Up Halifax

The European Commission, in the guise of Neelie Kroes (the Competition Commissioner), has warned that Lloyds Banking Group may have to split off Halifax as punishment for the state aid that it received in 2008.

Gordon Brown waived competition rules in September 2008 in order to allow Lloyds to take over HBOS in a rescue deal. Although this will be deemed yet another personal blow to this deal that he orchestrated (ie he twisted arms to save his political skin), splitting off Halifax will increase competition within the banking sector.

Doubtless Sir Victor Blank, ex Chairman of Lloyds, who was conned by Brown into merging with HSBC and also paid a price as he was forced to stand down as chairman, will not be shedding any tears for Brown's hurt "pride" if the EU get their way.

Named and Shamed

The Financial Ombudsman Service (FOS) has finally had the guts to name and shame the worst offending financial services companies in the UK, being those companies that have logged the highest number of customer complaints.

Congratulations to the five major high street banks, which account for the majority of the complaints.

The big five have managed to notch up a staggering 38,286 complaints, out of a total of nearly 70,000 received by the ombudsman in the six months to 30 June 2009.

- Lloyds (which includes HBOS) came top to the league of shame with 15,233 complaints.

- The Royal Bank of Scotland group scored 5,533 of the complaints received by the ombudsman.

- Barclays scored 8,283.

- Abbey scored 2,493 complaints.

- HSBC group scored 2,363 complaints.

- Alliance & Leicester scored 1,786.

The chairman of the FOS, Sir Christopher Kelly, was more than unimpressed. He is quoted:

"I will now be writing to the chairmen of the financial businesses that generate the largest proportion of our complaints workload, to ask them to consider very carefully both their own complaints performance – as reflected in the data we are publishing today – and the complaints performance of their competitors."

As I have noted many times before, the financial services sector in the UK treats its customers appallingly.

Why does it use the word "services" in its moniker, given that "service" is the one thing that it doesn't provide?

The False Dawn

The Ernst & Young Item Club has warned that the recent rise in house prices may in fact be a false dawn, they go on to say that property values will not return to their 2007 peak for at least another five years.

However, The Council of Mortgage Lenders (CML) report that the number of loans granted for house purchase in July was 19% higher than in July last year.

Seemingly, in the eyes of CML, this is the "first material annual growth" since early 2007.

The CML do admit that banks are still rationing the amount that they lend:

"The scarcity of mortgage supply and tough lending criteria is making it particularly difficult for first time buyers to enter the market.

Given that they typically purchase cheaper properties, this will have significant implications for those looking to trade up, clogging up the market and limiting the number of transactions taking place."

The banks, as they have always done, will only ever look after their own interests. Only if it is in their interests to kick start the property market, by loosening their lending conditions, will they do so.

Snouts In The Trough

It would seem that it is not just bankers and politicians who can't resist putting their snouts into the trough, seemingly the ex directors of MG Rover could not resist taking a dip either.

A report into the collapse of MG Rover, which cost 6,500 people their jobs, stated that the four directors (aka "The Phoenix Four") and CEO (Kevin Howe) awarded themselves "unreasonably large" payouts.

Their self indulgent largess "earned" them pay and pensions worth £42M which, needless to say, was "out of all proportion".

The Phoenix Four and CEO have reacted by calling the report a "witchhunt" and a "whitewash for the government".

Quote:

"Our remuneration was not the reason for the collapse. The real reason is the government bungled the last chance to save MG Rover."

That may well be the case. However, the size of the remuneration (given that the company did collapse, and that it was beyond the norm in the industry and the mens' previous lives) is clearly beyond what was deserved.

Lord Mandelson criticised the men for not showing "an ounce of humility".

The 830-page report took four years to produce and cost about £16M. It does not contain much in the way of criticism directed at the government.

The directors would do well to remember that their excessive rewards may have been justified had the business succeeded, but were most certainly not justified in the face of failure.

RBS Cuts Charges

RBS (the taxpayer funded bank) and its NatWest subsidiary have, admittedly by implication, admitted what everyone knew all along, namely that bank charges for bounced cheques etc are simple profiteering.

RBS and Natwest have announced that they are cutting the fees they charge customers who go overdrawn without agreement, or exceed their overdraft limit.

As from 1 October, charges for a "bounced" cheque, direct debit or standing order will fall to £5, down from £38.

Other charges such as maintenance charges for overdrawn accounts and the paid referral fee will also be reduced.

Clearly, were the administration costs to the banks really that high then these cuts would never have been made.

Currently eight lenders are challenging the right of the Office of Fair Trading to decide if overdraft charges are fair or not, in the face of a million claims by hapless bank customers for the return of their unauthorised overdraft charges.

As to whether other banks follow suit remains to be seen.

Boom and Bust Are Inevitable

I am amused to see that Alan Greenspan, the former US Federal Reserve chairman, is quoted in The Times thus wrt the recent/ongoing financial crisis:

"It's human nature, unless somebody can find a way to change human nature, we will have more crises and none of them will look like this because no two crises have anything in common, except human nature."

I agree, humans always delude themselves into thinking that boom times can be perpetual; they never are.

Even our "respected" and "decisive" prime minister was deluded, being on the record as saying that he had put an end to "boom and bust".

I wonder what other delusions he holds?

Barclays Incompetence

Barclays, the bank that once boasted of its record breaking size, has been fined a record breaking (the eighth largest ever) £2.45M by the Financial Services Authority (FSA) for "serious" breaches in its reporting of trades.

Barclays managed to fail to report/incompletely report a staggering 57.5 million transactions.

From 1 November 2007 to 31 October 2008, 100% of Barclays' reportable transactions from every 'core asset class', except cash equities, were either reported inaccurately or not reported at all (84% of cash equity transactions were affected).

A staggering display of incompetence by Barclays.

Truly Dismal

Should anyone need convincing as to how badly served the people of Britain are by the financial services industry then all they have to do is to look at the figures covering complaints made to the Financial Services Authority (FSA).

During the period 2006 to 2008 the overall number of complaints increased by 5.7%, from 1.4 million to 1.48 million (8,000 per day!).

The worrying aspect being that these are just the complaints that have been registered by consumers, there are many more.

The British consumer is ill served by the financial services industry.

In Denial

Alistair Darling has rejected claims from the Organisation for Economic Cooperation and Development (OECD) that the UK economy will not pull out of recession until 2010.

The OECD claim that the UK economy will record zero growth in the final quarter of this year, while the eurozone and the US will score two quarters of growth.

Darling, on Radio 4, said:

"The OECD has made predictions in the past ... Some have turned out not to be spot on

My prediction in the budget was that this country would come out of recession around the turn of the year. I hold to that view."

The trouble is that this government has been remarkably inept in "predicting" this crisis, in reacting to this crisis in a timely manner and in ensuring that there were sufficient reserves to manage this crisis.

Why should their predictions be any better than the OECD?

Why should we believe them?

Gerson Lehrman News

I write articles covering business issues for Gerson Lehrman News, and am an Accounting & Financial Analysis Council Member (AFA Council Members include CFOs, former top regulatory body officials, partners from the world's leading accounting firms, academics, forensic accountants, and other financial executives).

The news articles can be accessed via this link Gerson Lehrman News.

Lagging Behind

It should come as no surprise to learn that the Organisation for Economic Co-operation and Development (OECD) has predicted that Britain will lag the other leading industrialised countries as they come out of recession.

The OECD expects the UK economy to contract by 4.7% this year, compared with a predicted Euronzone contraction of 3.9%.

The OECD predict that Canada will contract by 2.5%, and the US by 2.8%.

The OECD predicts that the US and eurozone will return to economic growth during the third quarter of 2009. However, the laggardly UK will not return to economic growth until 2010 next year.

This poor performance is somewhat "embarrassing" for Grodon Brown in the run up to an election.

Amber Alert

Full credit to John Browett, chief executive of DGS (owners of Curry's and PC World), for offering to take a 25% cut in pay.

Shareholders will vote on the plan today.

However, they may not be so pleased with the other part of the plan whereby Browett receives share options which apparently are not related to the performance of the company.

The Times reports that the Association of British Insurers has issued an "amber top" alert, seemingly the proposal may breach its guidelines on best corporate governance practice.

Board members' remuneration should in part (eg bonuses/options) be linked to the performance of the company as measured by key performance indicators (KPI's), as agreed upon by the shareholders and an independent remuneration committee.

The Last Gasp

In the last gasp of a dying government, Gordon Brown attempted to play to the gallery and divert attention from the fallout of his 50% tax rate, by calling for an international debate on a possible cap on bonuses in the financial sector.

Debate there may well be.

However, there isn't a cat's chance in hell of their being a unified international agreement on a cap.

This ploy by Brown is designed to take people's eyes off the flight of capital and skilled resources from London, in response to his 50% tax rate and higher NI contributions.

Brown has bankrupted Britain, and is crippling London's role as the centre of the global financial services industry.

Shrinkage Less Than Expected

Britain's economy shrank by 0.7% in Q2 2009, confounding the "experts" who had predicted a shrinkage of 0.8%.

However, whatever the "experts" feel about this, the reality for those who are unemployed/due to become unemployed is that the recovery is still a very long way off.

FSA Plays Politics

Fearful of being shut down by the incoming Tory government, the FSA has indulged in popular policies and made some suggestions wrt taxing bankers' bonuses.

Lord Turner, the chairman of the FSA, has stated in a discussion in Prospect magazine that he would be happy to consider the use of a new tax on banks to prevent excessive bonus payments.

He was quick to point out that the FSA was "not setting out any new policy", a that of course is a matter for the chancellor.

Lord Turner wants a tax on financial transactions that would cut banks' profits, thus reducing the funds available for bonuses.

Lord Turner's, and the FSA's conversion to cutting bankers' bonuses, may well play well to the gallery. However, it was during the watch of the FSA that the banking crisis (allegedly a result of greed and high bonus payments) occurred.

Where were the FSA then?

Unless there is a unified worldwide tax on banks, all that will happen (in the event that such a tax is introduced in the UK) is that the banks will move elsewhere.

This suggestion is a non starter, as Britain (like it or not) needs a robust financial services industry, given that we have no manufacturing base to speak of.

Reality Bites

The government and councils are finally waking up to the burden that they have imposed on the taxpayer, wrt the burgeoning public sector and its defined benefit pension schemes.

It seems that millions of public sector workers will face having their pensions reduced, as politicians battle to save the public sector from financial meltdown and avoid a middle class tax revolt.

The Times reports that John Denham, the Communities Secretary, is drawing up plans to downsize the public sector pensions which face a shortfall of at least £60BN.

The Department for Communities and Local Government, keen to avoid a winter of strife, have said that it would ensure that council pensions were fair, solvent and affordable.

The reality is that whatever the promises made, the current level of pension benefits for the public sector is unsustainable and cuts will be made.

The public sector workers will not react well to the cuts, and the country will be in for a very rocky ride as the industrial action taken will doubtless mirror that of the dying days of the last Labour government in 1979.

Funny how history repeats itself!

Mortgage Approvals Rise

The British Bankers's Association (BBA) has released figures that show that overall mortgage lending has declined month on month in July, in spite of the fact that there has been an increase in the number of mortgage approvals.

Mortgage approvals for house purchases in July have hit a 17-month high of 38,181, up from 35,564 in June.

BBA figures also show that net consumer borrowing fell by an annual amount of £0.2BN. However, outstanding balances rose by 8.7% (to £24.7BN) as a result of interest debt.

The sword hanging over the "economic recovery" is the level of consumer debt, not the strength or otherwise of the housing market.

The BBA may do well to remind its members that by profiteering from excess charges and extortionate rates of interest, the banks are threatening the economic recovery.

FSA Award Themselves Payrise

The Financial Services Authority (FSA) has awarded itself, or rather 20% of its staff, a 10% pay rise.

Despite the fact that its expenditure exceeds its income, by around £23M, the FSA justifies this largess as "necessary" compensation for the closure of its final salary scheme to existing members.

This is the same FSA that, as an organ of the state, presided over the collapse of Northern Rock and the near collapse of the entire banking system.

This is also the same FSA that lectures banks etc against bonuses and unrealistic pay awards.

Given that they have less than two years before they are abolished by the Conservatives, they appear to be trying to make the most of their remaining time on earth.

The Banking Rip Off

As I have noted before, the financial services industry in the UK has an unfailing knack for digging itself deeper into its own shit.

Not content with foisting endowment mortgages, PPI, excess credit card rates, bank charges and other insults on its hapless customers it now seeks to milk them further by "imaginative" and outrageous profiteering charges on mortgage arrears.

Many thousands of homebuyers, many of whom are unemployed, face profiteering penalty charges on top of their regular monthly mortgage repayments.

The Council of Mortgage Lenders (CML) report that the number of mortgages in arrears by three months or more has reached 270,400 (compared with 152,700 at the end of the second quarter of 2008).

Moneysupermarket.com report that Lloyds Group is charging £206 for repayments three months or more in arrears.

GMAC and Abbey charge penalties of £50 and £40, respectively, when the borrower is only one month in arrears.

Halifax charges £35 for every call/letter wrt mortgage arrears, and then has the barefaced cheek to charge £100 for debt advice.

The FSA has a Code of Conduct that requires that lenders treat customers fairly sympathetically.

Evidently the banks haven't read that code, or simply do not care about it.

The Treasury Select Committee is not impressed with either the banks, or the hapless and hopeless FSA. It has attacked the FSA for sitting on its hands.

Britain's financial services industry is rotten to its core.

Until the FSA is expunged from history, and replaced with a more pro active assertive regulatory body, the hapless British consumer can only expect more of the same and continue to be ripped off.

Those who currently are enjoying the fruits of their profiteering should bear in mind the wise adage:

"What goes around, comes around".

Brown's Bankrupt Britain

True to form, under Brown's "leadership" and Chancellorship, Labour have managed to bankrupt Britain again.

The Times reports that public sector net borrowing was £8BN in July.

This is the highest level of borrowing in July since records began, the irony being that July usually reaps a good harvest of tax receipts.

Net debt hit £800BN (57% of GDP).

So called "experts" had predicted a mere £500M PSBR.

Quite how the government (be it Tory or Labour) can balance the books, without dragging the economy further into the mire remains to be seen.

Brown has bankrupted Britain, what legacy!

King Outvoted

Mervyn King, Governor of the Bank of England, wss outvoted (6-3) by fellow members of the Monetary Policy Committee on 6 August when he and two others argued for a £75BN injection of cash into the economy via quantitative easing.

Instead the Committee settled for £50BN.

Given that the injection in itself came as a surprise to many, it is clear that the Bank has greater concerns about the economy than it may be stating in public.

Inflation Steady

Analysts were surprised to day to learn that the Consumer Price Index (CPI) measure of inflation for July has remained steady at 1.8%.

The "experts" had predicted a further fall, indeed the Bank of England are expecting it to fall below 1% at some stage.

However, reality is a cruel mistress and the figure remains stuck at 1.8%.

The Retail Price Index (RPI) measure of inflation (which includes housing costs) rose from -1.6% to -1.4%.

RBS Under Investigation

The beleaguered Royal Bank of Scotland (RBS), having been destroyed by its previous board, now faces further humiliation and potential value destruction.

The Financial Services Authority (FSA) is investigating RBS's ill fated acquisition of ABN Amro, and the subsequent £12BN rights issue.

The FSA are looking at whether the management of RBS knew that the rights issue would not be enough to cover its debts.

Following the rights issue, RBS received a further £20BN injection courtesy of the hapless British taxpayers (who have been saddled with bailing out Brown's bankrupt Britain).

Sir Fred "The Shred" then left, in the mode of Ronnie Biggs, the company and the country having secured himself a hefty £16M pension pot.

Given the passive nature of the FSA, in the event they find fault with the management of RBS, we cannot expect much more than a fine to be levied on RBS; there most certainly won't be any jail sentences.

I would note that the timing of the FSA investigation is "interesting", to say the least, coming as it does hot on the heels of a class action by local government pension funds who are trying to sue RBS.

The case focuses on two key issues:

– whether RBS misrepresented its financial status, specifically its mortgage book

- the effectiveness of RBS's due diligence process when it bought ABN Amro.

Could it be that the FSA investigation is a whitewash?

Germany and France Return to Growth

Germany and France have surprised the markets and have returned to growth in Q2 this year, whilst the UK remains stuck in recession.

How has this come about?

1 The UK economy is far more closely tied to the fate of the financial markets than France and Germany.

2 France and Germany have spent far more money propping up their domestic economies via "cash for clunker" payments and job support schemes.

However, before the champagne corks are popped in Berlin and Paris, a word of caution. The government support schemes are coming to a close, both Germany and France will need to increase their exports if the upturn is to be maintained.

One positive quarter does not necessarily make a trend.

Sants Fights His Corner

The embattled CEO of the Financial Services Authority (FSA), Hector Sants, fought his corner on BBC radio this morning.

In response to criticisms that the FSA's new remuneration code is too soft on bankers, he stated that politicians have "ducked" the issue and have passed "the buck to the FSA".

He quite correctly noted that the FSA was not set up to take a "moral view" on the scale of payouts. However, its role is to ensure that pay packages did not encourage inappropriate risk-taking.

He also, rather wisely, noted that it was "reasonable" for the government, as a shareholder in some institutions (ie Royal Bank of Scotland and Lloyds) to set parameters on how the companies were run. Thereby neatly reminding the government that, at least in those two cases, they really are in charge and do have a say.

Doubtless that suggestion will fall on deaf ears, as the government would very much like to pretend that it has no control over these two institutions; to admit that it does would mean that it would be blamed for the poor results.

Demonising bankers is all very well. However, like it or not, the country needs banks and bankers in order to function.

Short of returning to a primitive barter society, we will have to continue to endure seeing a handful of people making large sums of money for apparently doing very little.

Young Jobless Close To 1M

Official data shows that youth unemployment has risen, over 700,000 18-24 year-olds and 206,000 16-17-year-olds are now jobless.

These of course are the official figures.

Given that the government has long been "hiding" youth unemployment via numerous schemes (such as pushing youths into long term quasi "eduction" which has no real benefit to the youth), it can safely be assumed that the reality is much worse.

Mortgage Approvals Up 23%

The Council of Mortgage Lenders (CML) report that the number of mortgages for homebuyers granted in June was 45,000, and increase of 23% compared with May.

CML are of the view that the mortgage market had stabilised. However, they correctly caution that this is not the beginning of a new housing boom.

Squeezing The Balloon

As the tide of public opinion turns against mega bonuses, Citywire reports that the City has come up with a "novel" wheeze for ensuring that their "star" players are not inconvenienced by having to cut back on their lifestyles.

Salaries are being increased to sop up the shortfall on bonuses.

Those of you with even a rudimentary intelligence will have probably guessed that would have happened anyway, you squeeze a balloon at one end it will expand at another.

The FSA have tried to direct people's attention to their "pro active" (albeit many years a coming) actions wrt bonuses. Hector Sants claims that the FSA would not allow any "new" multi-year guaranteed bonus payments to be made.

However, as the article points out:

"The FSA fears that if base salaries were low, it would make it difficult for a bank to eliminate or cut bonuses in a poor financial year."

In other words, in order for the FSA to show that it has actually done something (ie cut bonuses) it has to allow (nay force) companies to increase base salaries.

The FSA truly is a creation of Brown!

I look forward to its demise in the next 18 months.

The Last Post

I see that there is more trouble for the beleaguered Royal Mail, as over 25,000 postal workers strike this this weekend in an ongoing row over pay and jobs.

The Times notes that in 2007, 60% of days lost in the whole UK economy through industrial action were accounted for by Royal Mail strike action.

Doubtless "the brothers" feel suitably empowered at being able to exercise their right to strike. However, they may care to consider this during their days of self imposed leisure:

1 The Royal Mail is in financial difficulties, and cannot be maintained for much longer in its present shape and form (whatever the Queen may wish).

2 There are many ways to communicate these days, outwith sending a letter (eg, email, phone, fax etc). The strike will simply push customers to seek alternatives to "snail mail".

3 There are other companies that provide a fast reliable delivery service for parcels, packages and letters. Customers will simply use these, if the Royal Mail workers continue to act up.

4 Britain is facing its worst recession for decades. Striking now is idiotic, to say the least.

The Royal Mail will be a shadow of its former self within the next 3 years, helped on its way by its own staff.

Lloyds Loses £4BN

Gordon Brown's state sponsored merger of Lloyds and HBOS has shown that he has the direct opposite of the "Midas Touch", as today the semi nationalised bank reported pre tax losses of £4BN for the first half of this year.

Sir Victor Blank, ex Chairman of Lloyds, who was conned by Brown into merging with HSBC has also paid a price as he was forced to stand down as chairman.

The lesson here is never trust Brown, and always perform a thorough due diligence before taking on anything offered by Brown/Labour.

Northern Wreck - A Monument To The Failure of The FSA

Northern Rock (the 100% state owned bank) announced a 24% increase in half year losses to £724M today.

Seemingly the number of bad loans tripled in six months. Maybe enticing people into borrowing 125% of a property's value wasn't such a good idea?

It reported that 3.92% of its mortgages are in arrears. The national average of mortgages in arrears is 2.39%.

Quite where the FSA was, and what it was doing, whilst the then board of Northern Rock were destroying value is anyone's guess.

Northern Rock remains a monument to the failure of the FSA and the tripartite regulatory system created by Brown.

Welcome To Boom Times

It would seem that the financial crisis is over, that at least is the conclusion one might be tempted to draw from the fact that both HSBC and Barclays (not government owned) posted multi-billion pound profits today for the first six months of the year.

Barclays and HSBC both posted pre-tax first half profits of £2.98BN.

As a result, Barclays Capital's 23,000 staff will see their average pay and bonuses double to almost £200K for the full year, if results remain on track.

The Centre for Economic and Business Research, predicts that bonus payments by all banks could rise to £4BN this year, up from £3.3BN last year.

Whilst the government and others may moan about the banks that are state controlled increasing their bonuses, they have no right to comment on HSBC or Barclays; as these two banks did not go cap in hand the to the taxpayer asking to be bailed out.

Good management deserves good rewards!

Toothless and Muddled

The Treasury Select Committee put the boot into the Government's white paper on financial regulation, and called it "toothless" and "muddled" as it has failed to address the key weaknesses in Brown's failed and derided tripartite system.

As ever, the fundamental weakness of the tripartite system is that there is no one actually in charge of it.

The Treasury's "solution" is to create a fourth body to oversee the the tripartite (named the "Council for Financial Stability")

An absurd idea which would only add to the muddle, confusion and buck passing.

However, all of this is but fanciful dreams akin to rearranging the lifeboats on the Titanic, the Tory Party will abolish the FSA once it is elected and the responsibility for supervision will be returned to the Bank of England.

How Embarrassing

In a supreme twist of irony, the Office of Fair Trading (OFT), the government body set up to warn consumers against unfair trading practices and fraud, has itself become victim to a £250K internal accounting fraud.

£97K went awol in 2007/08, whilst the remaining £153K went missing in 2008/09.

It seems, according to the OFT accounts, the fraud was made possible "by a control weakness in the Accounts Payable process".

The case is now subject to legal proceedings.

As an experienced forensic investigator, and internal auditor, it never ceases to amaze me how many times the purchasing function is overlooked when it come to the risk of fraud.

Kick backs from suppliers, and inflated purchase invoices are one of the many myriad of ways in which a fraudster can skim the system.

I am surprised that the internal audit department of the OFT (assuming there is one) had not identified the systems weakness.

BAA Losses Mount

BAA, has seen its losses on operating its airports (such as Heathrow - the scourge of the travelling classes - and Gatwick) mount.

Pre-tax losses (as per its half year report) at BAA's London airports trebled to £545.7M, primarily as a result of a drop in air passengers of over 4M.

Despite being burdened by debts of over £12BN (of which £9.5BN are secured against its London airports) BAA tried to reassure creditors that it was able to withstand the downturn.

Talks about selling Gatwick are still ongoing, BAA want more than the current £1.4BN offered by Manchester Airports Group. However, given the recession and decline in air travel as a result of increased taxes, BAA should consider itself lucky to have an offer at all.

Digital Britain

The government's oft repeated promises of creating a "digital Britain", fit for business in the 21st century, seem to have fallen a little flat if the findings of the report issued by Ofcom are anything to go by.

Over 50% of broadband users in Britain are receiving less than half the speed promised by their providers. At least half of users of services that offer "up to 8 Mbps" receive a typical speed of 3.9Mbps.

The further away a customer lives from the telephone exchange, or if they use the service between 8pm and 10pm, the slower the speed.

Copper wire, instead of cable broadband, also kills the speed of download.

Needless to say, being a British regulator, Ofcom couldn't quite bring itself to accuse the "service providers" of mis-selling their service.

The Advertising Standards Agency is also happy to play "sleepy old watchdog", and claims that marketing which gives an "up to" figure is not misleading.

Doubtless Britain will, one day, have a digital service fit for the 21st century. Unfortunately that day will probably dawn in the 22nd century. Much like the trains, the plans and money allocated to implement "modernisation/service improvement" plans will only ever produce a third rate service.

Grill Party

Alistair Darling will be holding a "grill party" today, to which the CEOs of Britain's leading banks are invited.

Darling will use the "grill party" as an opportunity to express government "concerns" over the lamentable level of bank lending that is holding back the possibility of pulling out of the recession.

Lloyds Banking, RBS, HSBC and Barclays will all attend the meeting.

Darling is quoted:

"That is why we will be going through with each individual bank asking them why is it, at a time when the cost of borrowing is coming down, it would appear that the cost to small business appears to have gone up?

We're playing our part, the banks have got to understand that the public will not understand it if they do not play their part to the full."

Quite what Darling thinks he will be able to do to persuade the banks to lend more is not clear.

Additionally, as Vince Cable notes, why has it taken Darling this long to realise that there is still a problem wrt bank lending?

Economy On The Skids

As Labour try to divert the public's attention with its headline grabbing "swine flu hotline", the economy continues to slide.

GDP fell by 0.8% in the second quarter of this year, this is the fifth consecutive quarter fall.

"Experts" had been expecting a fall of around 0.3%.

GDP has already fallen by 3.16% this year, realists expect it to fall by 4.5% by December (the Treasury has been predicting a maximum fall of 3.75%).

So much for "green shoots"!

Every Cloud...

Whilst Britain bunkers down in preparation for the so called Swine Flu "pandemic", GlaxoSmithKline hopes to reap the benefit of 18 years of preparation by generating £600M from its Relenza treatment this year.

The British Government has ordered 132 million doses from GSK and Baxter, an American company.

Quite what the profit margin GSK makes on a dose of Relenza is unclear. The company have dismissed rumours that it plans to sell it at £6 a dose, compared to £1 a dose manufacturing cost.

Doubtless our "economically astute" government has negotiated a "good" price!

Careless HSBC

HSBC has been fined over £3M by the FSA, for the "careless" handling of confidential details of tens of thousands of its customers.

HSBC's data security failed, causing the bank to send "large" quantities of unencrypted private details via courier to third parties and leave information lying on open shelves and in unlocked cabinets where it could have been lost or stolen.

In two episodes, similar to the datagate fiasco at HMRC,
unencrytped CDs holding thousands of private customers details were lost in the post.

Ironically, one of the lapses occurred after HSBC had received a warning about its security procedures.

The FSA stated that it was shocked that HSBC had acted so carelessly despite warnings.

HSBC, having been hit where it hurts (in the pocket), said that it has taken a "number of remedial actions" including contacting the customers involved, improving staff training and demanding that all electronic data in transit is encrypted.

Stable doors and bolting horses spring to mind!

A Massive Fraud on The Taxpayer

Fresh embarrassment for the government, as its economic "credentials" and "honesty" have been once again found wanting. This time the shortfall between government spin and reality has been highlighted by The National Audit Office (NAO), which has refused to sign off part of the Treasury's annual accounts.

For why?

Seemingly there are some quite serious problems relating to the government's insurance scheme, which was designed to help banks with bad loans.

The scheme was announced in February, and was designed to provide banks with protection against future credit losses on certain assets in exchange for a fee, its ultimate goal was to kick start the lending process.

However, the NAO states:

"In 2008-09, HM Treasury incurred some £23.8BN more resources than Parliament had authorised in the Supply Estimate. This represents an 'excess' for which further Parliamentary authority is required."

In other words the government and Treasury attempted to act "ultra vires" (outwith its authority), its promises vastly exceeded its powers/reality.

Vince Cable, Liberal Democrat Shadow Chancellor, used a more picturesque language and described the scheme as "quite simply a massive fraud on the taxpayer".

Quite how many "frauds" of this nature the government has tried to foist upon the taxpayer is unclear.

However, yesterday's much trumpeted Nissan deal, re electric batteries and the possibility of producing an electric car in the UK, may yet be blocked by the EU.

I fear, wrt the workers who have been told their jobs are safe, it may still be too early to pop the champagne corks.

Dead Man Walking

The Tories have promised to abolish the hapless and hopeless Financial Services Authority (FSA) when, as seems likely, they win the next election.

The FSA was set up by Gordon Brown in 1997, as part of his much derided and failed tripartite regulatory scheme. It has had many "triumphs" since inception, eg:

- standing up for the life assurance industry against the hapless consumers who were conned into buying worthless endowment mortgages

- allowing the board of Northern Rock to destroy the company

- allowing RBS to come to edge of ruin

- allowing banks and credit card companies to charge extortionate rates of interest

- allowing banks, credit card companies and loan companies to sell ineffective and over priced PPI

- standing by as the banks operated the world's largest Ponzi scheme (bundling and selling worthless debt in a frenzy of greed)

- allowing the banks and mortgage companies to push Britain into an unsupportable level of consumer debt

More generally asleep at the wheel, and lacking any real pro active energy, the FSA will not be missed by the consumer; but may well be by its paymasters in the financial services industry (whom the FSA stood up for on numerous occasions).

Responsibility for regulation of the financial markets will be given to the Bank of England, and a new consumer protection agency will be created with the necessary "clout" to make sure the public were treated fairly.

Not before time!

Strike

Barclays' 25,000 staff are to be balloted on strike action in response to the bank's plans to close its final salary pension scheme.

The staff union, Unite, claims that members are "incensed" at the plan to close the scheme and move members to a defined contribution scheme.

The ballot will be held in August, with any strike action taking place in September.

It is likely that the results of the ballot will be scrutinised by other unions and companies, as many are considering plans similar to Barclays.

Indeed, British Airways announced today that it will take back £300M pledged to its pension fund to pay retirement benefits if the company goes bust as part of a plan to boost its liquidity by £600M. BA's pension fund is estimated to have a deficit of around £3BN.

Greater Transparency for Banks

Sir David Walker has published an initial 140 page report on banking governance that calls on banks to disclose more details about their highest paid employees, and to impose strict rules wrt deferring bonus payouts for at least three years.

Sir David calls on executive board members, whose pay is above the median, to maintain a shareholding equal to their total historic compensation.

Sir David also calls for a far greater role for non-executive directors and large shareholders to oversee companies, and challenge them about their strategy.

Risk committees should have a greater role, including the power to block large transactions.

The final report will be published in November.