Loans and Finance

Loans and Finance

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

Monday, November 30, 2009

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.

Friday, November 27, 2009

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%?

Thursday, November 26, 2009

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!

Wednesday, November 25, 2009

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"?

Tuesday, November 24, 2009

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.

Monday, November 23, 2009

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.

Friday, November 20, 2009

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.

Thursday, November 19, 2009

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.

Wednesday, November 18, 2009

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.

Tuesday, November 17, 2009

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.

Monday, November 16, 2009

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?

Friday, November 13, 2009

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.

Thursday, November 12, 2009

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?

Wednesday, November 11, 2009

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.

Tuesday, November 10, 2009

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.

Monday, November 09, 2009

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?

Friday, November 06, 2009

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.

Thursday, November 05, 2009

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!

Wednesday, November 04, 2009

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?

Tuesday, November 03, 2009

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?

Monday, November 02, 2009

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?