Loans and Finance

Loans and Finance

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

Thursday, March 31, 2011

The £300 EU Fee Per Head

The Office for National Statistics (ONS) claims that the British contribution to the EU increased from £5.3BN in 2009, to £9.2BN in 2010.

Every British taxpayer now pays the EU £300 per head per annum.

 The EU budget will rise by 2.9% this year, despite the fact that member states are having to make massive cut backs in their own budgets.

This dichotomy cannot contiue for much longer without there being a Europewide backlash against the EU.

Wednesday, March 30, 2011

Real Incomes Fall

The Office for National Statistics (ONS) reports that "real" incomes fell by 0.8% in 2010, from £14,181 per person to £13,980.

This is the first drop since 1981.

The fall, according to "experts", is due to salaries being eroded by inflation (something that the man in the street could have told the "experts" months ago).

The fall will add to the sense of gloom amongst consumers, and will inevitably hamper any possible growth in the economy.

However, as with all statistics provided by the ONS, these figures should be taken with a pinch of salt. Statistics from the ONS are always late, and invariably have to be adjusted some months after publication.

Tuesday, March 29, 2011

The Eurozone Crisis - Spain Is Next

All eyes have been focused on Portugal, Ireland and Greece as the Eurozone slowly unravels. However, spare a thought for the next in line for financial chaos namely Spain.

Banco Base (Spain's 3rd largest savings bank) has asked for Euro 1.45BN in state funds to meet "new local capital requirements".

The Euro, as it currently stands, is destined to fail. At best there may be a two speed Euro (split along a North South axis). At worst, the Euro will cease to exist.

Monday, March 28, 2011

EU Pressures Portugal

The EU is putting pressure on Portugal to come cap in hand to the EU for a bailout.

Ewald Nowotny, a governing council member of the European Central Bank, is quoted in the Telegraph:

"From a purely economic point of view one could probably recommend it. The domestic political situation in Portugal has clearly worsened ... the head of the government has stepped down."

Why such advice?

Philanthropy?

No, this is purely self interest based on fear of the Eurozone unravelling as a result of economic chaos in Portugal. Were Portugal to accept a bailout, the people of Portugal would end up having to sacrifice their economic well being for the future of the Euro.

Is this something that they really want?

It is not just Portugal that threatens the Euro, Ireland will need further refinancing and Spain is looking decidedly unstable as well.

Friday, March 25, 2011

Crisis? What Crisis?

Unsurprisingly, given the resignation of the Prime Minister (Jose Socrates) and the ongoing budget turmoil, Portugal has had its credit rating downgraded by Standard & Poor's to BBB and by Fitch to A-.

Despite the turmoil and the downgrade, the EU have delayed making a decision as to providing a "comprehensive package" to tackle the eurozone debt crisis.

Instead the EU has adopted the ostrich policy of sticking its head in the sand. Jean-Claude Trichet, President of the European Central Bank, said that Portugal must implement the fiscal austerity measures that Mr Socrates had proposed.

All very well, but it is precisely those austerity measures that were rejected along with Mr Socrates!

As ever, the EU displays a remarkable talent for being out of touch with reality.

Thursday, March 24, 2011

The Wisdom of Socrates

Jose Socrates the Prime Minister of Portugal has "fallen on his sword", as a result of his austerity budget being voted down by all the opposition parties.

Socrates had stated, prior to the vote, that if the budget was defeated he would resign.

The result of this defeat is that the country probably has to stage a general election and, because it has no budget, will have to be propped up by the EU in order to prevent the financial collapse of Portugal and the unravelling of the Euro.

Socrates is a canny man, and has probably saved his country from an austerity package that would have cause chaos domestically.

Wednesday, March 23, 2011

The Budget

Today is Budget Day.

Unlike most budgets, the details of this one have been pretty well leaked or can be reasonably guessed.

The BBC has a list of guesses/leaks here Budget 2011: What we already know.

As to whether this budget really does stimulate growth, depends very much on people's "optimism/pessimism" about the future.

Given that many expect interest rates to go up, George Osborne may well have a difficult task kick starting growth no matter how much he tinkers with personal allowances.

Tuesday, March 22, 2011

Inflation Own Goal

On the eve of the Budget, allegedly one designed for "growth", George Osborne has been hit by the unwelcome news that CPI inflation has risen to 4.4% in February and RPI has risen to 5.5%.

This of course, as I have noted before on this site, is not unexpected given that VAT was raised to 20% in January.

As such this inflation is an own goal scored by Osborne.

Monday, March 21, 2011

The Budget and The £8BN "Windfall"

The ITEM club has estimated that public sector net borrowing will be around £140.2BN for 2010-11, £8.3BN less than the £148.5BN deficit forecast by the Office for Budget Responsibility (OBR).

Some sections of the media have foolishly referred to this as a "windfall", which the Chancellor can use to oil tomorrow's budget with.

This is of course nonsense, the Chancellor does not suddenly have access to an extra £8BN with which to "play":

1 This is merely a downward estimation of the level of increased debt that we are being saddled with each year.

2 The UK's total debt stands at £4.8 Trillion.

3 Our insane venture into Libya will put further holes in our country's finances.

Friday, March 18, 2011

The "People's" Bank

Congratulations to the Royal Bank of Scotland (RBS), the 83% taxpayer owned bank, for once again proving that they are the "people's" bank.

Not only do they reward their CEO, Stephen Hester, with a "low" (his words, not mine) package of £7.7M but they also rewarded their top five non-board executives with £21M in total last year.

However, that is not an end to their largess, they also paid £375M to 323 key staff.

Proving that, so long as you are considered by RBS to be "key", that RBS is indeed the "people's" bank!

Thursday, March 17, 2011

Hester Puts The Boot In

Stephen Hester, CEO of RBS, whilst defending his "low" (his words not mine) £7.7M pay package to the Public Accounts Committee took the opportunity to divert attention and put the boot into the Bank of England.

Hester criticised the Bank of England's assessment of the value of taxpayer support for the UK's banks in 2009 (£100BN).

The Telegraph quotes his response to a question about the accuracy of the figure:

"No, I do not accept the Bank of England [figure]...

...The figures from research that we have seen, which I think will be published in the coming weeks, comes up with a dramatically smaller figure...
".

£7.7M may well be "low" in the world of international banking. However, most people are not top flight international bankers and will not agree with his assessment.

Wednesday, March 16, 2011

Don't Panic! III - The Japanese Ministry of Reconstruction

As I have noted, the ongoing media hype over the possible damage done to the Japanese and world economy is overdone and simply wrong.

Once the situation on the ground has stabilised the Japanese will pump billions into rebuilding the infrastructure, which in itself will give the moribund construction industry a much needed boost.

Chief Cabinet secretary Yukio Edano has already announced that Japan will establish a Ministry of Reconstruction.

It is estimated that Japan will take around five years to reconstruct the shattered infrastructure, a level of reconstruction not seen since the end of World war II.

Preliminary estimates, which will be revised, put the cost of reconstruction at around $180BN.

Whilst the shorters currently have the "upper hand", the medium and long term prospects for the markets are favourable. Do not panic, and do not get suckered in by the media hyperbole of crashing markets and nuclear "meltdowns".

Tuesday, March 15, 2011

Don't Panic! II

Yesterday I noted the following wrt the crisis in Japan:

"Whilst in the short term there will be a negative impact on the economy.. the medium term prospects are far rosier."

Unsurprisingly, as the situation on the ground in Japan continues to develop (especially wrt the nuclear reactor), there has been a downturn in the markets. The Nikkei shed 1000 points, and the FTSE is currently down by approximately 3%.

As long as the current situation remains volatile and unclear there will be some significant fluctuations in the markets as investors take fright, and shorters make a killing.

However, once the situation has stabilised I stand by the point that I made yesterday that the "..medium term prospects are far rosier..":

"The stimulation package announced by the central bank, and general economic boost provided by capital refurbishment projects will in fact do the Japanese economy (and world economy) a power of good."

Do not panic, and do not get suckered in by the media hyperbole of crashing markets and nuclear "meltdowns".

Monday, March 14, 2011

Don't Panic!

Aside from focusing on the loss of human life and humanitarian issues relating to the ongoing crisis in Japan, many media organisations are also hyping the potential economic downside of this disaster.

Whilst in the short term there will be a negative impact on the economy, the medium term prospects are far rosier. The stimulation package announced by the central bank, and general economic boost provided by capital refurbishment projects will in fact do the Japanese economy (and world economy) a power of good.

Friday, March 11, 2011

ROFLOL!

John Hemming MP is quoted by the Telegraph:

"In a secret hearing, Fred Goodwin has obtained a super-injunction, preventing him being identified, [even] as a banker."

Super injunctions prevent the press from reporting that an injunction has been obtained.

Thursday, March 10, 2011

Bust

Lord Hutton's proposals that public sector workers should be stripped of their final salary pensions and have schemes linked to average earnings, while paying more and working longer have unsurprisingly touched a raw nerve with the unions.

The GMB have warned of co-ordinated strike action.

Bringing the country to a halt will achieve nothing. Like it or not the country is broke (we have a debt of £4.8 Trillion), we cannot continue to pay ourselves salaries with money that we do not have.

These reforms have been needed for many years, it is only to be hoped that they are enacted and that they are not too late.

Wednesday, March 09, 2011

Tchenguiz Brothers Arrested

The FT reports that Vincent and Robert Tchenguiz, the high profile property entrepreneurs, have been arrested as part of an investigation into the collapse of Kaupthing, the Icelandic investment bank.

Enforcement officers from the Serious Fraud Office and the City of London police made the arrests in the early hours of this morning. It is reported that a raid has also been carried out on the offices of Rotch Property, the investment vehicle that controls the brothers' property portfolio.

Additionally eight residential addresses in London were searched (seven men were arrested), and two residential properties in Reykjavik were searched (two men were arrested).

Robert Tchenguiz lost £1BN in one day when the UK subsidiary of Kaupthing collapsed.

Tuesday, March 08, 2011

Moody's Downgrade Greece

Moody's have downgraded Greece's credit rating from B1 from Ba1. This has caused a spike in yields on the country's bonds and will of course add to pressure on the Euro, as the risk of Greek default grows.

Add in the fact that the Irish economy is on the verge of collapse and that the ECB (for reasons that are unclear to any sane person) have raised interest rates, and it is clear that the Euro's days are looking increasingly numbered.

Monday, March 07, 2011

FSA Dithers and Delays

The publication of the long awaited whitewash report by the FSA into RBS, originally intended to be published this March, has been delayed until at least April.

Unsurprisingly no one is happy with this delay, as it clearly makes the report look like even more of a whitewash and the FSA all but complicit in that whitewash.

The Sunday Telegraph adds weight to the increasing clamour for the FSA to come clean about this whitewash, by reporting that many current and former RBS managers have not been contacted by the FSA as part of its "investigation", despite their intimate knowledge of how the bank had been run.

Why would that be?

Does the FSA not know how to conduct an investigation, or was it trying to "investigate lite"?

Even more damning is the the Sunday Telegraph's assertion that Sir Fred "The Shred" Goodwin was only interviewed once by FSA officials, and even then only on broad issues and not the specifics of the bank's failure.

It seems that the FSA did not have "proper processes", according to one former senior Treasury adviser interviewed by the Telegraph.

The beleaguered and failed regulatory body, the FSA, has managed through further ineptitude to dig itself (as if that could be possible) deeper into the mire.

Having steadfastly refused to publish its report into RBS (the report that exonerated the directors and company of any wrongdoing), it then agreed (under intense pressure) to publish a heavily redacted version of the report.

Good enough?

Not really:

1 The report will be heavily redacted.

2 It won't be published until at least April.

The FSA really doesn't get it, and is demonstrating why it has become an irrelevancy.

Impressed so far?

I'm not!

However, this litany of incompetence does not not end here. The FSA exoneration of the RBS board may in fact be nonsense, and that the investigation nothing more than an incompetent whitewash.

For why?

WikiLeaks have published a cable that summaries a meeting between Sir Philip Hampton, the new chairman of RBS, and 3 US politicians.

During the meeting Sir Philip allegedly noted that he thought that the previous RBS had failed to live up to their "fiduciary duties", and did not conduct adequate due diligence before buying part of ABN Amro in 2007.

That hardly fits in with the FSA whitewash that exonerates the previous board.

Could someone please tell me why the FSA is still in existence?

Friday, March 04, 2011

Don't Believe The Hype

Political spin doctors are hyping the story that the state pension will rise dramatically in the next budget.

Where, I wonder, will this money come from during a time of austerity and cuts?

Don't fall for the hype, and only believe it when you see the money going into the bank accounts of the elderly.

Wednesday, March 02, 2011

Sony Experience Ratner's Moment

Sony, who one would have thought paid vast sums to its media "professionals" to avoid brand damaging publicity, has managed to emulate Gerald Ratner's infamous "we sell crap" comment by being associated with a pop group under its management that wore Nazi style uniforms in an MTV broadcast.

Unsurprisingly, the Simon Wiesenthal Center in Los Angeles had voiced its "shock and dismay" at the appearance of the six-member J-Pop band Kishidan.

Brands are hard to build, but very easy to destroy.

Tuesday, March 01, 2011

UBS Shoot Themselves In The Foot

UBS claim that supermarkets have been increasing their prices by 6%-6.5%, despite the fact that commodity price inflation indicates that rises should only be around 3%3%-3.5%.

The Telegraph quotes Paul Donovan, a UBS economist:

"That suggests there may be margin expansion in the supermarket sector… Prices are rising in excess of justifiable cost increases."

However, UBS then go to shoot themselves in the foot by noting that only 20%-25% of the price reflects the "commodity input".

A British Retail Consortium spokesman put the boot into the UBS report, by noting:

"There is no question that in the UK, customers pay less for their food than is the case in most other European countries. Food prices have not risen at anything like the same rate as commodity prices. It is clear that supermarkets are shielding customers from the full impact."

It would seem that UBS have tried to use the report to garner themselves some headlines. Unfortunately for UBS, the headlines that they have garnered are not particularly favourable to them.