Loans and Finance

Loans and Finance

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

Friday, January 29, 2010

Don't Feel Sorry For Yourselves

I cannot but help chuckle at Alistair Darling's comments directed to the bankers (ex "Masters of The Universe"), where he told them "don't feel sorry for yourselves".

Before he went into a meeting at Davos, with eight UK and foreign-owned banks, he held a press conference at which he said:

"My message to the banks is that it is in their interests to get off the front pages.

The banks should do what they are supposed to do, provide credit to the economy. They must know that changes are necessary. They can all see that the regulatory regime needs to be more robust and more intrusive.

Don't feel sorry for yourselves. Work with the government to see how you can improve the situation
."

That almost is an admission that the tripartite system set up by Brown hasn't worked!

Regarding the banks, he is to some extent correct. Wallowing in self pity is not a pleasant spectacle to behold, not least when the "wallowers" are universally despised (rightly or wrongly).

The banks, like it or not, need to address their lamentable reputations if they are to have any hope of trying to set the agenda for regulatory changes etc.

It seems, for the moment, that the banks haven't quite realised that yet. They exclude themselves from being taken seriously at the discussions at their own peril.

Thursday, January 28, 2010

"Secret" Meeting

Hush whisper it softly, The Times reports that Alistair Darling will meet the heads of top British and American banks (including HSBC, Barclays, Standard Chartered, JP Morgan and Morgan Stanley) at a secret meeting in Davos tomorrow.

How can this meeting be described as "secret", if it is publicised a day in advance in a national newspaper?

The purpose of the "secret" meeting is for the bankers to express their feelings to Darling about the possibility of new sanctions against the banking sector.

The banks, quite rightly, are concerned that attempts to curtail their activities may well negatively impact the global economy.

However, be that as it may, the bankers need to recognise that on some occasions politics (even if it is emotionally charged) outweighs economics. Were Darling, and indeed any other politician, to ignore the wave of public hostility and revulsion towards bankers they would be signing their own political death warrants.

Like it or not we live in a democracy and, on occasions, the will of the people (no matter how misguided that may be) has to count more than the will of the "Master of The Universe".

That being said the near failure of the banking system took place on Darling's watch, under the tripartite system created by Brown. Blaming the bankers has provided useful cover for Brown and Darling.

True political leaders would step forward and highlight the failures of both the banks and regulations, and come up with a route map for the future whilst explaining to the electorate that the bankers were not entirely to blame.

We await the coming of these "true political leaders" with baited breath.

Wednesday, January 27, 2010

Unite Tries To Hold Back The Tide

Unite, the union that represents Cadbury employees, is rightly worried that the proposed leveraged takeover of Cadbury by Kraft may lead to job losses in the UK.

Aside from organising a rather futile employee protest in Bournville, the home of Cadbury, today the union says that Kraft must give assurances that the interests of the workforce will not be swept aside in the deal, and that the quality of the products will be safeguarded.

Or what?

What exactly will Unite do, or be able to do, if Kraft doesn't give these assurances?

It is powerless to stop this, and its "demands" as empty and as meaningless as Gordon Brown's promise last week to do everything possible to protect Cadbury jobs.

At best, all that will happen will be that Kraft issue some form of nicely worded soothing message that will not be worth the paper it is printed on.

The only way to stop this is if the shareholders vote it down, which they won't do. As I noted last week, hedge funds snapped up a large number of shares in Cadbury in Q4 2009 when news of the possible takeover came out. They have no loyalty to either the company or the workforce.

Tuesday, January 26, 2010

Recession Over?

Official statistics, as had been widely predicted, now show that Britain finally left recession in Q4 2009.

The last major economy to do so.

The Office for National Statistics (ONS) released figures today that show that GDP grew by 0.1% in the last three months of 2009.

However, there are a number of caveats:

1 The figures are only preliminary, and could be revised up or down. Given that the ONS has a record of inaccuracy, not too much should be read into the figures.

2 0.1% is not exactly "stellar performance", and indeed the UK is the last major economy to move out of recession.

3 People in the UK will not notice any change to their lives (whether they are unemployed or well off) from this alleged 0.1% growth.

This is most certainly not the time for celebration, or trying to take credit (as the government is doing). The UK is heavily in debt, and the effects of the recession (higher taxes and high levels of unemployment) will be felt for many years to come.

Monday, January 25, 2010

The Plans of Bankers and Men

The world's finance ministers from the G7 are meeting in Downing Street today, to discuss how best to avoid a repeat of the 2008 financial crisis.

The meeting has been given added impetus by President Obama's proposals last week to rein in the power and size of the banks.

Lord Myners, the UK's City Minister, wants banks to cover any future bailout costs and favours an insurance levy. A global bank transaction tax is also being considered.

Doubtless every effort will be made to prepare plans against possible future contingencies. However, markets will always rise/fall and economic crises will return no matter what rules and safeguards are in place.

Goldman Sachs, sensing that the political tide is currently not in their favour, have announced that they will cap the pay of their top 100 executives in London to £1M.

That of course leaves their non "top 100" executives free to be paid more than £1M.

Friday, January 22, 2010

Obama Takes On Banks

President Obama has threatened banks with new regulatory proposals that would limit financial risk taking.

President Obama proposes preventing banks from investing in, owning or sponsoring a hedge fund or private equity fund. He also wants to limit the size of banks.

President Obama said:

"We have to get this done. If these folks want a fight, it's a fight I'm ready to have."

Unsurprisingly shares in banks, both in the US and UK, have taken a tumble.

Obama's proposals have brought further uncertainty to the banking sector, this uncertainty will last for months whilst the proposals are actually being fleshed out. It is likely that whatever finally comes to fruition in the US will, to some extent, be copied in Europe. US officials are reportedly coming to the UK next week, to persuade Brown and Darling to enact similar measures.

Doubtless this will play well to the Democrat voters in the all important midterms. However, as to whether this actually comes to fruition in the form suggested by the headlines, and positively contributes to an improvement in the global economy, remains to be seen.

Thursday, January 21, 2010

Skipton Changes The Rules

The Skipton Building Society has shown its true colours by announcing plans to raise its standard variable loan rate from 3.5% to 4.95% effective from 1 March.

Doubtless Skipton's 100,000 borrowers, who had up until now been guaranteed that the variable rate would not rise while Bank of England base rate stayed at 0.5%, will be crying "foul".

Skipton doesn't care, because it refers all such "wingers" to the small print in it loans' agreements.

What does the small print say?

The magic phrase (that can be used by any bank/lender to change to rules as they go along) "exceptional circumstances".

Skipton claim that they are suffering from competition, such as that provided by National Savings & Investments (NS&I).

A lousy excuse from a lousy industry.

The financial services industry in Britain truly stinks, and should be thoroughly disinfected. No one should trust any financial institution that they have dealings with.

This all but makes the Bank of England's base rate irrelevant.

Wednesday, January 20, 2010

There Are Dark Days Just Around The Corner

Mervyn King, Governor of The Bank of England, has given a gloomy forecast for the future that will impact all British households.

In summary, he believes that we will spend many years suffering the painful fallout from the financial crisis.

He referred to the worldwide stimulus package as nothing more than "sticking plaster".

The four horseman of the economic apocalypse will be represented by:

- ongoing high unemployment
- stagnant real wages
- stagnant standard of living
- stagnant growth

The governor also reminded the government of the appalling levels of debt that they have saddled the British taxpayers with, and told the government to announce concrete measures to reduce the budget deficit.

Enjoy the present, the future will be appalling!

Tuesday, January 19, 2010

Cadbury Kowtow To Kraft

The board of Cadbury have accepted Kraft's 840p offer.

Cadbury chairman, Roger Carr, is quoted on Citywire:

"We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world."

Doubtless the board would not have given in if they did not believe that they had the support of key shareholders. It should be noted that, when details of an initial offer were made public in September, hedge funds were more than keen to snap up shares in Cadbury.

However, whether all the shareholders are as happy with the deal remains to be seen.

The board were also advised by the banks that they would not achieve a better deal. It should also be noted that, on the assumption that the deal goes ahead, the banking advisers to Cadbury and Kraft will reap a windfall of £150M.

However, the support of the workforce is not guaranteed, given what Kraft's plans may actually be for the future of Cadbury.

Gordon Brown, fearful of his re-election prospects, made a grab for the headlines by saying:

"We are determined that the levels of investment that take place in Cadbury in the United Kingdom are maintained and we are determined that, at a time when people are worried about their jobs, that jobs in Cadbury can be secure."

All very nice and voter friendly, but there is nothing that he can do to stop Kraft doing whatever they wish with the company once they take ownership of it.

Monday, January 18, 2010

Going For Broke

The Times reports that there is anger and confusion in the world of broking, over the government's "bonus tax".

Brokerages are still unclear as to whether they will be hit by the tax. It seems that one firm is considering not paying it, whilst others are preparing a joint approach to the Government, arguing that they should not be caught by the tax as they did not receive any bailout money.

This confusion is hardly surprising, the heart of government is known to be confused and directionless; therefore any policy announcements made are themselves confused and directionless.

Friday, January 15, 2010

President Obama's $10BN Banking Bill

Royal Bank of Scotland (RBS), Barclay's and HSBC may find their US operations having to pay up around $10BN to US authorities, as they fall under the net of President Obama's proposed tax on financial institutions bailed out by taxpayers.

The tax ("financial crisis responsibility fee") needs to be approved by Congress, if approved it will net the US administration $90BN over 10 years.

The British banks may also find themselves facing extra taxes, as The White House will lobby G20 nations to introduce their own version of the tax.

Wednesday, January 13, 2010

The Joy of Mince

Congratulations to Greggs, the bakers, who enjoyed a bumper Christmas thanks to their mince pies.

Customers were chomping through a million a week during the Christmas period, a 6% rise on the previous year.

Overall sales for 2009 were 5% higher than 2008.

Tuesday, January 12, 2010

Overpaid But Currently Worthless

Stephen Hester, the CEO of Royal Bank of Scotland (RBS), has told the Treasury Select Committee today that his parents believed that he was overpaid.

However, in his first year of tenure he has agreed to take no salary and his bonus is linked to the RBS share price (theoretically it might be worth £10M over 3 years). This means, at the moment, his package is technically worth zero.

Monday, January 11, 2010

Credit Cards Funding Mortgage Payments?

The housing charity "Shelter" claims that over a million people have used a credit card to make a mortgage payment in the last 12 months.

Shelter go on to warn that people who have used credit cards to pay their mortgages risked losing their homes, as credit card companies have to recover their debts and are not subject to the same rules as mortgage lenders.

There are a number of anomalies in Shelter's analysis:

1 Credit cards cannot be used directly to pay mortgage companies. Credit card cheques could be used, or credit cards used on other purchases thereby freeing up cash to pay the mortgage.

2 Credit card companies have no charge over the property. They are unsecured, and as such would have to apply CCJ's and other debt recovery methods to recover their debt. The end result may be the loss of a home. However, the implication that the card companies have a charge over the home is alarmist.

Friday, January 08, 2010

Virgin Enters Retail Banking

Virgin Money today acquired Church House Trust (a regional bank) for just over £12M, with a plan to inject a further £37M.

This acquisition offers Virgin the opportunity to expand into retail banking, enabling it to offer mortgages and deposit accounts.

It is expected that Virgin Money will change its name to Virgin Bank during 2010.

However, this is not the first time the Virgin have been involved in the mortgage business. Virgin once had a JV with the Royal Bank of Scotland (RBS), and offered the "Virgin One Account" mortgage. In due course RBS took 100% ownership of this.

Thursday, January 07, 2010

House Prices Rose in 2009

The Halifax claim that the average values for houses in the UK rose by £10K in 2009, to £169,042.

Halifax predict that house prices will be flat this year.

However, the economy and its "recovery" rests on very shaky economic and political ground. Quite what will actually happen to the economy during 2010 is beyond anyone's predictive capabilities.

Wednesday, January 06, 2010

Cretins

Were the ordinary voter ever to require proof that we are being governed by cretins, the leaks from the Treasury about the "success" or otherwise of the 50% tax on bonuses makes for interesting reading.

It would seem that the 50% "one off" (if you believe that this is a "one off", then I put you in the same boat as our illustrious government) on bankers' bonuses is not having the effect that the government wanted it to have.

Our "leaders" wanted the tax to discourage banks from paying high bonuses to their staff.

Anyone with the slightest understanding of human nature will understand that when it comes to money, and governments trying to forbid people from making money, human beings can be remarkably stubborn and creative in the methods used to avoid government interference.

Therefore, as predicted, in the short term the banks will be paying out the bonuses (in one form or another) and either absorbing the increased tax themselves or finding ways to avoid it.

Needless to say they are also looking for ways to transfer their operations out of the UK, in order to avoid the unfavourable tax regime being implemented by the government.

Does this matter to you and I?

Of course it does!

The City, like it or not, provides a large chunk of tax revenue for our "illustrious" political masters to spend on their pet projects. Once the government starts hacking away at the money supplied by the City, there is precious little left to do but increase the tax burden on the rest of us.

The fact that the government is disappointed that bonuses have not been curtailed, indicates just how cretinous they are. The higher the bonuses, the greater the tax take.

The Treasury will do very nicely out of this bonus season, raking in around £4BN.

Such a pity that during times of plenty Brown overspent the surplus, and left us with a massive debt to pay off.

As said, we are being governed by cretins!

Tuesday, January 05, 2010

President Blocks Compensation

Olafur Grimsson, the President of Iceland, has thrown a spanner into the works re the Icelandic government's promise to pay £3.4BN of compensation to Britain and the Netherlands for the collapse of the Icesave bank in 2008.

President Grimsson has declared that a national referendum must be held to determine whether or not the legislation is passed.

Given that a petition urging him not to sign the bill had attracted 62,000 signatures (25% of Iceland's population) by last night, it is clear which way the result of the referendum may go.

Monday, January 04, 2010

Double Dip

Deloittes has released the results of its survey of chief financial officers of the UK's leading companies. In summary, the CFOs are optimistic that there will be an economic recovery this year.

However, that recovery will be weak and 48% of those surveyed believe that there will be a double dip recession.

The "good news" is that, in the event of a double dip, the balance sheets of these companies are strong enough to withstand it.