Loans and Finance

Loans and Finance

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

Monday, February 28, 2011

Bright Future For Ex Farepak Director?

William Rollason has joined Bright Futures (a holding company focussed on providing specialist contract catering services within the corporate business, local authority and independent schools sectors) as a non-executive director.

However, his tenure as NED may be short lived, Rollason was chief executive of European Home Retail, the parent company of Farepak (the Christmas hamper business that went bust in 2006) and moves are afoot in the High Court by the Insolvency Service to disqualify the 9 directors of Farepak and its parent from holding a directorship again.

Friday, February 25, 2011

LSE Suspends Trading

Share trading in London has been suspended all morning as a result of ongoing technical problems with the London Stock Exchange's prices data (initially, and incorrectly, described by the LSE as a "glitch").

The LSE had to close its Italian stock exchange operation close earlier in this week, because of technology problems.

LSE went live on Monday with a new technology platform called Millennium (a Sri Lankan design).

It would seem that more work needs to be done on the system, and that the LSE needs to explain as to why it went live without evidently being thoroughly tested in parallel with the old system.

Thursday, February 24, 2011

Barclays

Congratulations to Barclays for hitting a new reputational low.

They have chosen (based on a "commercial decision") to close my accounts, and end a banking relationship that I have had with them that is over 30 years old.

A remarkably inept policy!

Wednesday, February 23, 2011

The Miguided Hawks of The MPC

The Telegraph reports that according to the latest MPC minutes, released today, the Bank of England chief economist Spencer Dale has joined Martin Weale and Andrew Sentance in calling for an interest rate rise.

The "hawks" deem inflation to be a significant threat to the economy.

They are wrong:

1 The impact of the austerity budget has yet to be felt, once that kicks in there will be a significant deflationary pressure on the economy.

2 The economy is teetering on the edge of another recession, any upward increase in interest rates will push the economy over the edge.

3 An inflation rate of 4%-5% is bearable for a year or so.

4 The "inflation" that the MPC hawks fear is largely down to the rise in VAT in January, and the ONS (as per usual) erroneously under reporting inflation (clothing) for several years.

In short, rate should be kept where they are for the time being.

Tuesday, February 22, 2011

Brown's Legacy

I have written many times on this site about the failure or Gordon Brown's tripartite regulatory system (imposed on the City in 1997).

It is interesting to see that others have also now realised that this system was a failure, and played a large part in the recent banking crisis in the UK.

The Telegraph reports that US treasury secretary Timothy Geithner said:

"Remember your colleagues in the UK ran a strategy for a long time called light touch approach to financial regulation that was designed consciously to pull financial activity from New York and Frankfurt and Paris to London. That was a deeply costly strategy for financial regulation."

Monday, February 21, 2011

Self Fulfilling Prophecy

It would seem that, if this report in the Telegraph is accurate, we are in danger of talking ourselves into another recession:

"Concerns about the economic outlook, job losses and consumer spending saw 34 per cent of households seeing a worsening of their finances, the lowest level since March 2009."

Friday, February 18, 2011

The Farepak Debacle IV

Those of you with long memories may recall that I wrote several articles about the demise of Farepak (the Christmas hamper business) in 2006.

The wheels of justice in Britain grind slowly and, over fours years later, moves are afoot in the High Court by the Insolvency Service to disqualify the 9 directors of Farepak and its parent from holding a directorship again.

The ex directors intend to fight this action against them.

Farepak had more than 100,000 who (unusually for many British people) actually tried to plan ahead for their Christmas, and put some money away to cover the cost. When Farepak collapsed they lost on their money (on average £400 each).

The Insolvency Service said "the conduct of each director in relation to the relevant company or companies makes him or her unfit to be a director".

Farepak was not regulated by the Financial Services Authority at the time, it was quite outrageous that it acted as a saving bank yet was outwith the control of the FSA!

Its victims received only about 17.5p in the pound from a government-backed response fund set up after the company's collapse.

Last year they heard they would receive a further 15p in the pound after Farepak's joint liquidators, BDO Stoy Hayward, announced that an action against the directors of Farepak had been settled for £4M, with no admission of liability by the directors.

Post Farepak the government finally took action and announced that payments to Christmas Hamper schemes would be ring-fenced, so that savers will be protected from suffering the same fate as the victims of the Farepak collapse.

Thursday, February 17, 2011

Inflation

Andrew Sentance, a member of the Bank of England's Monetary Policy Committee (MPC), has broken ranks and publicly accused (at a speech at the Institute for Economic Affairs) Mervyn King and fellow members of the MPC of "selling Britain by the pound".

Sentance is of the view that King and the Bank are far too optimistic about how quickly inflation will fall back to its 2% target, and believes that the MPC has delayed for too long raising interest rates.

He is to my view wrong, any rise in interest rates now before the effects of Osborne's austerity budget kicks in will risk pushing the British economy "over the edge" into another recession. The economy can withstand a short term inflation rate of between 4%-5%, most certainly as there will be strong downward pressure brought to bear on it by the austerity budget.

The MPC should hold its nerve, and keep interest rates as they are for the foreseeable future.

Wednesday, February 16, 2011

King Hints At Rate Rises

Mervyn King, Governor of the Bank of England, has hinted in his letter to the Chancellor that there will be interest rate rises (in line with market expectations) during the course of the year.

On the assumption that the "goat's entrails" have been correctly read, then "experts" are predicting three rate rises during the year bringing rates to 1.5%.

We shall see.

Tuesday, February 15, 2011

Inflation Up

Depending on whether you follow the Consumer Price Index (CPI) or Retail Price Index (RPI) as a measure of inflation, the ONS reports that inflation in January was 4% and 5.1% respectively.

The Bank of England's target for CPI is 2%, as such there is increased pressure from some quarters on the Bank to raise interest rates in order to tackle the inflationary bubble that appears to be forming in the economy.

However, the reality is that if the Bank ups interest rates the economy (which has yet to be hit by the austerity budget) will be sent into free fall.

The Bank should hold its nerve, and wait for the effects of the austerity budget to kick in.

Monday, February 14, 2011

Shockingly Bad Value

The OFT have issued a scathing report about the business practices of various cash for gold companies, that buy people's gold jewelry at below market price and smelt it down.

CashMyGold, Cash4Gold and Postal Gold have all agreed to change their business practices as the OFT was concerned that people were being "locked into" accepting offers for their gold.

The firms state that customers can reject their cash offer. However, failure to contact the firm in the short time frame offered was taken as consent.

People who are desperate enough to use these firms are being given a very poor deal, as the prices that they can obtain from even pawn brokers are higher than offered by the cash for gold firms.

Which? found that these firms offered an average of 6% of the retail price of the gold, compared with an average of 25% offered by pawnbrokers and high street jewellers.

As Which? noted, this is "shockingly bad value"; it quite correctly warned people not to use them.

Thursday, February 10, 2011

Project Merlin - Epilogue

Now that Project Merlin (the agreement between the government and the banks that, in theory, will regulate their behaviour) has been finally agreed and formally announced, the theory spun by the government is that we can move on from bank bashing.

Fair enough, maybe, if the banks actually make good on their promises.

However, the reality is that lending and the terms and conditions attached to that lending is unlikely to improve much (from the perspective of the corporate/individual borrower).

Even though interest rates remain fixed (no change today by the MPC) at historically rock bottom levels, the banks are making a nice "turn" on the difference between base rate and the rate that they charge borrowers and the spread between lending and savings rates.

The question that Osborne has not answered is, if the banks do not honour the agreement both in terms of substance and form what will he do then?

Don't tell me the answer to that though, tell him because I don't think that he knows the answer.

Wednesday, February 09, 2011

Project Merlin

George Osborne will in the next hour announce details of the agreement reached between him and the banks wrt bonuses, lending, behaviour etc (aka Project Merlin).

It is predicted that the top five banks will increase available loans to businesses by around £190BN.

The banks will also pay lower bonuses in 2010, and disclose the pay of their respective top five executives.

Doubtless the bonuses will be lower, but will there be compensation for lower bonuses in the shape of other incentives eg options?

Reality and politicians promises are often far apart.

Tuesday, February 08, 2011

Osborne Increases Bank Levy

George Osborne has increased the levy on banks by £800M to £2.5BN.

He claims that he wants to make sure that "banks make a fair contribution to closing the deficit".

The reality is that he wants banks to increase lending.

Project Merlin, the ongoing talks between the government and banks over their behaviour and lending policies, is still dragging on. Osborne, by upping the ante over the bank levy, is showing the banks that he wants to see progress from their side in the discussions.

Monday, February 07, 2011

King Under Fire In USA

The New York Times has launched an extraordinary personal attack on Mervyn King (Governor of The Bank of England).

"A central banker need not be loved, but at the least he should command respect — and in Britain these days Mervyn King cannot count on either."

"... His January speech, while carrying all the quirky earmarks of a King address — he began and ended with quotes from “Anna Karenina” — came across to many analysts as unusually prickly rather than as a measured analysis of the British economy...
"

One has to ask, who in the New York Times has Mr King upset and what is the "game being played" here?

There is more to this than meets the eye.

Friday, February 04, 2011

Plan B

Much has been made in the media and political circles about George Osborne's apparent lack of a "Plan B", in the event that his austerity plan goes awry.

Realistically these calls for a public declaration of a Plan B are absurd.

Were Osborne to publicly admit to there being a Plan B, it would be tantamount to admitting that he doesn't have faith in his preferred course of action. Given that economies and markets work on the basis of fear, emotion and greed such an admission would send the economy into a tailspin.

That being said, it would be extremely advisable for Osborne to have a Plan B (albeit a secret one) waiting in the wings.

Thursday, February 03, 2011

Data released by the Irish central bank shows that depositors are withdrawing their money from Irish banks at an alarming rate.

The Telegraph reports that outflows in December 2010 were Euro40BN, compared with Euro27BN in November. The total outflow for 2010 was Euro110BN (60% of GNP).

To add to Ireland's woes, Standard & Poor cut Ireland's sovereign rating one notch to A- yesterday and downgraded Bank of Ireland, Allied Irish, Anglo Irish and Irish Life.

This indicates that the Eurozone "rescue" of the Irish economy has all but failed.

Further aid from the Eurozone may be unlikely, as Germany is in no mood to throw more good money after bad.

Tuesday, February 01, 2011

Mortgage Malaise

The Bank of England reports that net mortgage lending (sans redemptions and repayments) was £8.15BN for 2010 (a fall from £11.33BN in 2009), the lowest level since records began in 1987.

The cause of this mortgaging malaise can be attributed to the fall in economic optimism, coupled with the reluctance of banks to lend on affordable terms.

Neither of the above two issues are to be resolved in the near future.