Loans and Finance

Loans and Finance

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

Friday, July 31, 2009

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.

Thursday, July 30, 2009

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.

Wednesday, July 29, 2009

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.

Tuesday, July 28, 2009

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.

Monday, July 27, 2009

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?

Friday, July 24, 2009

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"!

Thursday, July 23, 2009

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!

Wednesday, July 22, 2009

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!

Tuesday, July 21, 2009

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.

Monday, July 20, 2009

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!

Friday, July 17, 2009

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.

Thursday, July 16, 2009

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.

Wednesday, July 15, 2009

Unemployment Up

Following on from yesterday's inflation figures, that showed a fall, the unemployment figures published today show an unexpectedly large rise of 281K to 2.38M.

The level of unemployment is expected to peak next year at around 3M, as the government's cuts in the public sector start to bite.

Tuesday, July 14, 2009

Inflation Falls

The Consumer Price Index (CPI) has fallen below the Bank of England's 2% target, for the first time since September 2007, to 1.8%.

The alternative Retail Price Index (RPI) measure, which includes housing costs, fell from -1.1% to -1.6% as a result of falls in mortgage costs.

RPI is used to determine some pay deals.

When CPI falls to below 1% (as it is expected to do) Mervyn King (Governor of the Bank of England) will have to write to the Chancellor to explain the fall.

However, before the champagne corks start popping, people should realise that by next year the downward pressure on these measures (as a result of lower mortgage deals and cheaper oil) will have abated and the measures will start to rise again.

Monday, July 13, 2009

Paper Losses

UK Financial Instruments (UKFI), the body that manages the Government's shares in Britain's semi nationalised banks (RBS and Lloyds), is sitting on paper losses of £10.9BN.

The UKFI says that every household in Britain has over £3K invested in Lloyds and RBS shares

It is likely, given the shambolic state of the banks' finances, that Britain's households will hold their £3K "investment" for many years to come.

Friday, July 10, 2009

Warning These Products Can Seriously Damage Your Wealth

Alistair Darling has announced proposals for the use of cigarette type health warnings on mortgages and other financial products. These would be highly visible, and would be appended to all financial products.

However, much like the warnings on cigarette packets, whether anyone will take the slightest bit of notice of them is open to debate.

Thursday, July 09, 2009

The Return of The 125% Mortgage

Hot on the heels of a warning from Barratt Developments and Redrow, that stability in the UK housing market were being undermined by banks' reluctance to provide mortgage finance to borrowers, comes a new product from Nationwide.

Nationwide are bringing back the 125% mortgage, for homeowners facing negative equity.

The product will only be available to existing customers wanting to move house, whose homes are now worth less than their mortgage.

Borrowers in negative equity can get a new mortgage worth 95% of the value of the new property. They have to fund the remaining 5% in the form of a deposit, but then they can also carry over negative equity in their original home. The negative equity carry over can be worth up to 25% of the total cost of the new property.

However, Nationwide caution:

"We're certainly not relaxing our lending criteria."

Others will now be forced to follow suit.

Wednesday, July 08, 2009

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Tuesday, July 07, 2009

FSA To Increase Fines

The Financial Services Authority (FSA), in an attempt to cast off its sleepy old watchdog image, is attempting to look tough by upping the level of its fines.

In a consultation paper it proposes a new tariff system, for rule breaches committed after February 2010. The new tariffs will fine insider dealers a minimum of £100K, and companies could be hit with penalties of up to £50M.

Margaret Cole, the head of enforcement for the FSA, is quoted in The Times:

"By hitting companies and individuals in the pocket where it hurts, the fines will be a stark warning to others on what they can expect to pay for flouting our rules."

All very well, but the FSA will still need to be able to prove misconduct before it can levy these fines.

Monday, July 06, 2009

Recession To Get Worse

The Times reports that, in a departure from his usual "sunny" disposition, Gordon Brown is telling people that the recession will worsen.

This, coupled with Alistair Darling's suggestion that there will be a public sector pay freeze, means that history will most assuredly be repeating itself this winter as Labour "leads" us into another winter of discontent.

Friday, July 03, 2009

Pension Age Should Be Raised

Lord Adair Turner (Chairman of the FSA) has called for the state pension age to be raised to 70.

In 2005 he wrote a report on pensions that has led to the incremental rise in the pension age from 65 to 68 by 2044.

Turner now, belatedly, realises that this is too little too late.

Politically this will be rather "difficult" to push through. However, if one were to take the emotion out of the argument, given that the UK state pension is absolutely pathetic there is little money being given up by deferring retirement by a few years.

Aon reports that British pensioners are being paid just 17% of their average earnings as pension, compared to the European average of 57%.

Unsurprisingly the unions state that they will oppose this suggestion.

What precisely then is their solution to Britain's pension black hole?

Thursday, July 02, 2009

Credit Card Companies Given a Slap

The Consumer White Paper, published today, proposes a number of measures that will change how credit card firms interact with their customers:

- they will be banned from raising credit limits without asking the customer first

- unsolicited credit card cheques will be banned

- they will not be able to raise interest rates on existing debts

- repayments will have to be put towards paying off the most expensive debt, rather than the cheapest as most now do.

However, there is of a course downside, monthly payments will have to rise. Which ironically will hit hardest that section of the community (ie the poor and debt burdened) which the White Paper allegedly was meant to help.

Have they really thought this through?

Surely a better course of action would have been to pressurise the companies to reduce their extortionate interest rates (17% or more), in the face of base rates that are 0.5%?

Wednesday, July 01, 2009

Government Takes With Its Right Hand What It Gives With Its Left

It seems that Tesco may well be interested in bidding for the government's holding in Northern Rock, as the government is desperate to offload its stake before the next general election.

Ironically, the Treasury claim that politics has nothing do with the hasty private sale.

That being the case, why not float it?

Answer, because it would take too long!

Meanwhile, Britain's most profitable rail franchise (the East Coast Main Line - run by National Express) is set to be nationalised.

Talks between the Government and National Express over the franchise broke down last week. The company will hand back the service to the Department of Transport, when its funding runs out later this year.

National Express runs two other rail franchises and it is now entirely possible, under the terms of the contract re defaults, that they will be nationalised too.

Lord Adonis, the Transport Secretary, said that there would be no limit placed on the amount of taxpayers' money that would be allocated to the nationalised service to ensure it continued to run as normal.

Hardly true surely, given that Britain is bankrupt?