Loans and Finance

Loans and Finance

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

Monday, January 31, 2011

Let The Good Times Role!

As David Cameron sheds tears today for the average British householder, who will face a "difficult and tough" year ahead, it is reassuring to know that the banking sector is booming again.

The Telegraph reports that four HSBC, Barclays, Lloyds and Standard Chartered will announce combined profits of £24.2BN (a rise of over 10% compared with the £21.5BN they reported last year).

To some extent these profits (and associated bonuses) will be recouped by taxes. However, the key to the banks' "reassimilation" into "polite" society will be whether they show that they are willing to lend more to businesses and homebuyers than they have been doing of late.

Seemingly, as discussions between George Osborne and the banks over lending levels (aka project "Merlin") have become deadlocked, it may be a while before banks (by their actions) are "reassimilated".

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Thursday, January 27, 2011

Soros Warns About Cuts

George Soros has issued a warning at the Davos financial summit that Britain's austerity programme may push the country into recession again.

Whilst it should not be forgotten that Soros made money out of betting against the UK in 1992, when the UK was pursuing the folly of the exchange rate mechanism, he may well have a point.

Cutting public expenditure, and hoping that the private sector will take up the slack will only work if there is room to significantly loosen monetary policy.

Interest rates are near zero, there is no further room to loosen monetary policy. Additionally, banks are steadfastly refusing to lend money at rates even vaguely comparable to the Bank of England rate.

It seems that Osborne's austerity programme was a leap in the dark, based on hope that the brief surge in the economy last summer was sustainable.

Plan B, as and when Osborne creates one, will doubtless have to be unveiled before this coming summer.

Wednesday, January 26, 2011

Dark Days Coming

Yesterday's lousy "growth" figures (a fall of 0.5% in GDP) have heralded further bad news. Minutes from January's MPC meeting show that two members voted for an increase in rates, they must be mad.

The mood of gloom surrounding the economy was further depressed by a speech made last night by Mervyn King (Governor of the Bank of England), in which he said that wages will have to fall and that we are facing the worst economic conditions for 90 years.

I wonder if George Osborne has actually factored all of this into his economic plans?

Tuesday, January 25, 2011

Economy Shrinks 0.5%

The Office for National Statistics (ONS) has released figures for Q4 2010 that show that the UK economy contracted by 0.5% in this period. "Experts" had been predicting a rise of 0.5%.

Needless to say, the weather is being blamed for some of this fall.

However, cold snap or not (even allowing for the fact that the ONS invariably has to revise its figures), it is clear that any rush to raise rates (as being mooted by some "experts") would be folly indeed when the economy is so very clearly "fragile".

Monday, January 24, 2011

Irish Woes

Ireland stands on the brink of political and economic chaos, and will drag the Euro down with it.

The resignation from the government of the Green Party, over the resignation of Brian Cowen as leader of Fianna Fail (but not as Prime Minister), means that the government will have to bring forward the date of the general election (originally planned for March 11.

However, the finance bill (scheduled to be debated this Friday) has yet to be passed. The bailout agreed with the IMF/EU is contingent on that bill passing. In the event that it does not pass, the bailout deal will unravel and the Euro will be under renewed pressure as Ireland teeters on the brink of being forced to leave the Eurozone.

Thursday, January 20, 2011

The Telegraph reports that the National Audit Office (NAO) has identified that the UK has paid £0.4BN in fines to the EU, and that there is a further £0.6BN that has been set aside for future fines.

These fines are the cost to the taxpayer of implementing EU schemes in the UK. It seems that when the EU decides that the financial management of a scheme is inadequate it withholds future funds (a form of fine), the shortfall for which the UK government is forced to make up from its own (ie taxpayers') funds.

Whether or not the UK should really be "fined" in this manner is open to question, given that the EU is hardly an example of financial probity, honesty or financial transparency and budgetary control.

Only when the EU receives an unqualified audit report, and implements effective and proactive financial controls that prevent the ongoing and widely documented financial abuse by member states and MEPs, can it be in a position to dictate to the UK what constitutes effective financial control.

Tuesday, January 18, 2011

Inflation

The Office for National Statistics (ONS) reports that the annual rate of CPI (inflation) has risen from 3.3% in November to 3.7% in December.

These figures will be used by some to push the MPC into raising interest rates.

However, given the shaky state of the economy, any rise in rates should not take place until a commitment from banks and lending institutions (who already charge significant rates on loans/debts) that they will not use a rise in rates to extort further money from people already heavily in debt.

Monday, January 17, 2011

Running On Empty

According to the Daily Telegraph, Irish banks appear to be running out of money and have already borrowed Euro51BN from the Irish central bank as at the end of December.

The loans are euphemistically titled "other assets" on the central bank's balance sheet. It should be noted that these banks have already borrowed Euro132BN from the ECB.

The result of this year's Irish general election will be interesting, as it will not only reflect the voters' views on their own government but also their views on the EU/Euro.

Friday, January 14, 2011

Having One's Cake and Eating It

It would seem that, according to the Telegraph, the EU (despite wanting to shore up the fragile Euro) fears Chinese investment in the currency/bond markets.

For why?

The EU fears that this is an "evil" plot by the Chinese to weaken their own currency (as the USA has done with quantitative easing).

Additionally, the EU fears that this may be a ploy by the Chinese to garner political influence and possibly push for a relaxation of the arms embargo.

All very well, but if the EU expects to operate in the real world it will have to accept that this is the norm in the real world free market economy.

Thursday, January 13, 2011

Financial Power List 2011

My thanks to Accountancy Age for placing me (at 42) on their Financial Power List for 2011. I also appeared in the list in 2006.

The list identifies the top 50 who will wield the most influence over the future direction of accounting.

Wednesday, January 12, 2011

The Time For Remorse

Bob Diamond, the new CEO of Barclays, lamented to the Treasury Select Committee that the time for remorse by the banks (wrt the financial crisis) is over.

Fair enough, maybe (not that I have noticed that much remorse so far).

However, that plea may receive greater sympathy from people if banks were a little less reluctant to lend money, and were to charge interest rates on loans granted that actually reflected the current low rate of interest set by the MPC.

Tuesday, January 11, 2011

Eurozone Cracks Appear

The cracks in the Eurozone are emerging again as the European Central Bank (ECB) was forced to intervene in bond markets in order to push down yields on Greek, Irish and Portuguese bonds.

The purchasing on bonds to prop up Eurozone countries is not universally supported, Germany fears that this is a sign of "policy creep" (ie backdoor rescues for failed states). The result of German pressure on the ECB to limit intervention has been the displacement of market jitters (or, for want of a better word, "predators") to Belgium, which is now experiencing a significant increase in bond yields. Belgium's economic woes are compounded by the fact that its political system has been in stasis for seven months since the election left it without a government.

As the crisis continues and, by definition, the size and number of bailouts so other states (once deemed strong) will be dragged down.

Like it or not the EU will have to change its policy, and give an unlimited guarantee of funding to failed states, if it wishes to maintain a single currency. Failing that, in my opinion before mid year, it is likely there will be a two tier Euro (or exit of the Euro by several member states).

Monday, January 10, 2011

Political Nowse

The much derided review into RBS by the FSA, which the FSA is struggling to keep from the prying eyes of the taxpayer apparently earned PricewaterhouseCoopers £7.6M for their work on the review. The taxpayers did not foot the entire bill, as the FSA charged RBS a special levy of £4.7M.

That being said, the fact that the FSA wants to keep the taxpayers from seeing what they paid £2.9M shows a remarkable arrogance and lack of political nowse.

RBS, wrt political nowse, are clearly singing from the same song sheet as the FSA as they have happily awarded their CEO (Stephen Hester) a bonus of £2.5M.

Friday, January 07, 2011

The Road To Dictatorship

The EU, hardly an example of financial probity, intends to give itself more powers to intervene when it perceives a bank to be failing and overrule national governments in the process.

Among the powers that the EU intends to award itself are powers for regulators to seize failing EU banks, sack board members, and impose haircuts on senior bank debt.

Thursday, January 06, 2011

Lloyds Ends 2010 On A "High"

Lloyds ended 2010 in much the same "spirit" as it besported itself during the year, by mistakenly double charging some 200,000 of its credit/debit card customers for transactions effectuated on New Year's Eve.

Well done lads!

Wednesday, January 05, 2011

Bank of America Prepares For War

Bank of America has gone onto a war footing in anticipation of the publication of insider information on the WikiLeaks site.

The bank has put chief risk officer Bruce Thompson in charge of a "war room" of 20 people, who are preparing its defence against anything that may become public.

Seemingly all documents, emails etc are being reviewed and an investigation is underway to determine how and what information may have been passed to WikiLeaks.

The bank has even bought up disparaging domain names, lest they be used in any campaign mounted post publication.

Tuesday, January 04, 2011

VAT Increase

As the VAT increase of 2.5% kicks in today, George Osborne is spinning the tale that this is necessary in order to tackle the budget deficit.

I would agree that the budget deficit needs to be tackled. However, I make the following observations:

1 The debt of the UK stands at £4.8 Trillion, it will take much more than a 2.5% increase in VAT to tackle that.

2 As with decimalisation in the early 1970's, retailers will use this VAT rise as an excuse to round up prices. The result will be, as in the 70's, an inflationary bubble.