Loans and Finance

Loans and Finance

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

Monday, December 29, 2014

Greece Election Failure

Greece's political gamble has failed, as it has has failed to elect a new president.

As such a general election will have to be held, thus creating massive uncertainty over a new bailout and its membership for the Euro. Suffice to say this is the worst possible outcome for the Eurozone.

Wednesday, December 17, 2014

Rouble Freefall

As I predicted sometime ago, Russia would end up raising rates (as it did yesterday to 17%) in order to try to fend off the reality of the market.

As I also predicted, raising rates would not work (as the UK learned to its cost when it raised rates to try to prevent it being thrown out of the ERM in 1992). The rouble is in freefall and Russia now faces imposing capital controls, further wrecking the economy.

The question that the West needs to ask itself is this, is pushing Russia to the brink of economic collapse really a sensible policy both economically and geopolitically?

Monday, December 15, 2014

The Great Amazon 1p Giveaway

The dangers of relying on software and algorithms was brought home on Friday when a software error on Friday has led to hundreds of items being sold for just 1p on Amazon, and now businesses say they risk going bankrupt if they are forced to follow through with the sales.

The glitch occurred between 7pm and 8pm on Friday, and affected firms that use the tool RepricerExpress.

RepricerExpress software automatically reprices items of stock if a cheaper version becomes available elsewhere online and is designed to keep businesses competitive.

A Facebook group for those traders who last money from this has been set up.

Traders both online sellers and those who deal with billions of dollars of share trades etc should take heed from this!


Tuesday, December 09, 2014

Greece Knobbles Its Economy

Greece has been granted a two month bailout extension by the EU, and in light of this Greece has decided to knobble its economy by holding presidential elections two months early. Thus ensuring that Greece is at the top of everyone's mind in the coming weeks.

Friday, December 05, 2014

Premier Foods' Nice Little Earner

In a sure sign that it is in financial difficulties, Premier Foods (owner of brands that include Mr Kipling, Ambrosia, Bisto and Oxo) has been asking its suppliers for payments to continue doing business with the firm. 

The official term for this practice is "pay and stay". However, one supplier quoted by the BBC referred to it as "blackmail".

Premier Foods is of the view that the scheme did not break any rules under competition law. However, the government said it was "concerned by recent reports".

Newsnight has seen a letter sent by chief executive Gavin Darby, dated 18 November.
"We are aiming to work with a smaller number of strategic suppliers in the future that can better support and invest in our growth ideas.

We will now require you to make an investment payment to support our growth.

I understand that this approach may lead to some questions.

However, it is important that we take the right steps now to support our future growth."
All very well and seemingly "polite". However, the reality is that if a supplier doesn't cough up, they are "de-listed". As per the BBC, when a supplier raised questions in an email about the annual payments, a member of Premier's staff replied:
"We are looking to obtain an investment payment from our entire supply base and unfortunately those who do not participate will be nominated for de-list."
As to whether Premier can legally get away with this, is a question for legal experts.

However, what its suppliers needs to ask Premier is given Premier's financial problems, what happens to the "pay and stay investments" already handed over by suppliers if Premier goes bust?

Thursday, December 04, 2014

Putin Issues SOS

In a sign that the Russian economy is in dire straits, President Putin has offered an amnesty on capital returning to Russia.
This is all very well. However, if people were to heed the call to return their capital they would never be able to get it out of the country again.

Wednesday, December 03, 2014

Chancellor's Autumn Statement Live

Tuesday, December 02, 2014

Russian Economy Going Down The Toilet

The Russian economy, as a result of sanctions, is going down the toilet; the rouble is falling and inflation is kicking in.

Thusfar the Russian Central Bank has staved off using capital/currency controls. However, there is growing internal political pressure within Russia to stave off the decline in the rouble.

It is of course only a short term solution to artificially prop up a failing currency, in the end market forces (or in this case, closed market forces) will have their way.

As to whether it is wise to destroy the Russian economy via sanctions, is of course another question. Whilst the West thinks that this will persuade Moscow to pull back from its Ukrainian adventure, the policy in the Kremlin is geared to a long term (ten year) siege. This is a very dangerous situation for both the global economy and global peace.

Let us hope that the policy makers in the West and in the Kremlin know have plans to pull back from the abyss.

Monday, December 01, 2014

Barclays Introduce Bank Cam Technology

Barclays, in an effort to reduce people's dependency on branches (so that it can close them), intends to introduce a “Skype-like” video calling system to enable staff and customers to communicate with each other.

The Telegraph understands that the service will be introduced in the coming weeks.
The system will be available outside usual bank opening times.

The idea has merits, for those customers with the technology capable of video conferencing. However, it does pose security issues (eg there most certainly will be a risk of hacking).

Thursday, November 27, 2014

The £259BN EU Black Hole

The European Court of Auditors has identified a £259BN black hole in the EU budget that will cost Britain £34BN over the next six years to fund.

Is there another way that this hole can be filled?

Yes, governments can decommit from spending programmes that they have already committed to.

However, in the Lah Lah Land of the EU that will never happen.

Like it or not we are screwed by our membership of the EU, and most likely screwed if we leave it.

Tuesday, November 25, 2014

Turning Japanese


Andrew Roberts, RBS's credit strategist, is quoted by the Telegraph:
We are seeing `Japanification’ setting in across Europe.

We expect 10-year Bund yields to cross the 10-year Japanese government bond and we are amply positioned for such an outcome.” 
In theory, as economic predictions are always "theoretical", either the ECB launches massive QE in which case it will buy bonds, or it won't in which case bond yields will collapse further.

Either way, in theory, bond prices will rise.

Theory and reality have, of course, a nasty habit of becoming disconnected!

Monday, November 24, 2014

Yorkshire Bank £2BN Float

Yorkshire Bank will be floated for £2BN by its current owners, National Australia Bank as part of their strategy to exit the UK market after making significant losses here.

Yorkshire and Clydesdale, both of which are owned by National Australia Bank and both of which will be floated, have (according to the Telegraph) 2.7m customers and 330 branches. As with many other banks, they have had to write off billions of pounds of bad debts and compensate customers mis-sold payment protection insurance and complex interest rate derivatives.

Tuesday, November 18, 2014

Greece's Bailout Negotiations Stall

As I noted a couple of weeks ago, Greece is looking for another bailout in order for it to be able to exit its current bailout cleanly when it matures on 31 December.

Unfortunately, the negotiations between Greece and its international creditors have become deadlocked over a final round of measures required to release the last tranche of the country’s bailout.

According to Bloomberg the Greek government is resisting pressure from the troika for additional budget savings in 2015 of about 2.5BN euros.

Seemingly Greece now risks missing the 8 December deadline to reach agreement on the steps required to unlock the aid and what comes after. Dutch Finance Minister Jeroen Dijsselbloem said:
It’s crucial that Greek authorities work with the troika to complete the current review and the program so we have a clear cut between the finishing of the program and any instruments that will follow up on that from Jan. 1.
As I have noted many time before, Greece's best path to economic stability and growth lies outwith the Eurozone.

Monday, November 17, 2014

Japan Slides Back Into Recession

Japan has slid back into recession after reporting a third quarter fall in GDP of 0.4%.

Apparently this has "shocked" analysts and those who claim to be experts in economics.

Why?

Japan introduced a sales tax earlier this year which, quite obviously, would have (and indeed did) negatively impact consumer spending.

For reasons that only Prime Minister Shinzo Abe can know, the sales tax hikes (another is planned) were meant to bring the economy out of its decades long slump.

Quite why increases in consumer taxes were meant to stimulate the economy is beyond me, even more so why "experts" didn't see the increase in taxes as a threat to any form of nascent economic recovery!

Friday, November 14, 2014

Twitter Bonds Junk

Apparently Twitter bonds are "junk".

Who would have thought that!

Thursday, November 13, 2014

We're Going To Crush Greece!

As per The Telegraph's quote of Tim Geithner:
"'We’re going to teach the Greeks a lesson. They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.' [That] was their basic attitude, all of them."
The Greeks knew this at the time, and it was indeed self evident to anyone who took more than a passing interest in the death throws of the Eurozone.

However, seeing it in black and white four and half years on is still shocking!

Wednesday, November 12, 2014

The Banking List of Shame

UK, US and Swiss authorities have fined five banks more than £2BN over failings that led to manipulation of the foreign exchange markets.

For good measure The Bank of England dismissed its chief currencies dealer following an investigation, for "breaching internal policies".

As per the Telegraph:

Total Fines

Financial Conduct Authority
Citibank: £225,575,000
HSBC: £216,363,000
JPMorgan: £222,166,000
RBS: £217,000,000
UBS: £233,814,000
Commodities and Futures Trading Commission
Citibank: $310m
JPMorgan: $310m
RBS: $290m
UBS: $290m
HSBC: $275m
Finma
UBS: 134m Swiss francs

Well done lads, you are a "credit" to the "profession"!

In case anyone is wondering why Barclays isn't mentioned, it is still being investigated.

Inflation Too "Low"

The Bank of England is of the view that inflation will remain at around 1% for most of next year. Seemingly the Governor may have to write to the Chancellor to explain why inflation is so "low".



Thus underscoring what I have said many times before on this site, namely that interest rates will not go up anytime soon!

Tuesday, November 11, 2014

Juncker - The Rotten Core at the Heart of The EU

The EU is rotten to the core, as exemplified by its president Jean-Claude Juncker.

As per Bloomberg:
"Jean-Claude Juncker, the new president of the European Commission, was always a bad choice for the job, foisted on the bloc's 28 national governments by a European Parliament eager to expand its powers. It's becoming clear now just how poor a decision that appointment was.

Juncker was the prime minister of Luxembourg, a tiny nation with a population 1/17th the size of London's, for almost two decades. In that time, he oversaw the growth of a financial industry that became a tax center for at least 340 major global companies, not to mention investment funds with almost 3 trillion euros ($3.7 trillion) in net assets -- second only to the U.S.

Partly as a result of the Swiss-style bank secrecy rules and government-blessed tax avoidance schemes that helped draw so much capital, the people of Luxembourg have become the world's richest after Qatar. The tax arrangements, described in leaked documents provided by the International Consortium of Investigative Journalists, allegedly enabled multinationals, from Apple to Deutsche Bank, to reduce their tax liabilities on profits earned in other countries: The effective Luxembourg tax rates that resulted were as little as 0.25 percent. The countries where the money was made received nothing.

It's telling that these arrangements have long been shrouded in secrecy. (Only last month did Luxembourg's government drop its opposition to new EU rules on banking transparency.) Juncker, you could say, made his country rich by picking the pockets of other countries, including those of the European Union he is now mandated to serve.

The commission was already conducting an investigation of Luxembourg's tax arrangements. Juncker says he won't interfere -- but he won't recuse himself, either. Indeed, his spokesman says he is "serene" in the face of the revelations. He shouldn't be. At this point, he could best serve the European project by resigning.
Juncker's position as the head of the body investigating the tax practices he oversaw as prime minister is a clear conflict of interest. It's possible the commission will find nothing improper about Luxembourg's tax-avoidance paradise: The EU allows member governments wide latitude in taxing companies, so long as they don't favor some over others. But with Juncker in charge of the commission, any such exoneration will fail to command public confidence.

Just now, the importance of restoring trust in the EU would be hard to overstate. The union is struggling to emerge from the financial crisis and is increasingly seen as elitist, meddling and incapable of producing either fairness or growth. It cannot help this effort to have it overseen by a man who spent his career as a quintessential backroom dealer while building and running an international tax haven at other European countries' expense.

Granted, most of this was known -- or should have been -- before the appointment was made, and the European Parliament is much at fault for insisting on Juncker's appointment in the first place. But the tax revelations have put the issues before the public in a way that tests the EU's credibility afresh. Juncker has done nothing illegal and is in no immediate danger of being removed. Even so, the EU would be best served if he stepped down. "
Juncker is but a symptom, not the cause of the stench that emanates from the EU. Until the EU, its systems, commissioners and MEPs are radically overhauled/cut out, the EU will never recover.

Monday, November 10, 2014

Banks' Creditors To Take The Hit

Mark Carney, the Governor of the Bank of England, wants creditors to be bare banks' losses (rather than the taxpayer).

He is quoted by the Telegraph:
"Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system."
The proposals are set to be agreed on by the G20 next year, and must be implement by banks by 2019.

This is all very well and dandy. However, it will mean higher costs for the customers of the banks; as the creditors will expect a greater return for the risks that they bare.

Wednesday, November 05, 2014

The Stench of Corruption at The Heart of The EU

According to the annual report of the European Court of Auditors, as per the Telegraph, £5.5BN of the EU budget last year was misspent because of controls on spending that were deemed to be only “partially effective”.
The audit report highlights that £109BN out of a total of £117BN spent by the EU in 2013 was "affected by material error”.

This means that the EU's accounts have been qualified 19 years running.

Any business that produced such a dismal set of audit results would be torn to shreds by its shareholders, and subjected to a thorough fraud investigation. Unfortunately the EU is, by its own reckoning, above the law and hence will not change its ways unless forced to.

Given the stench of corruption that emanates from Brussels, it is surprising that its MEPs and Commissioners aren't wearing gas masks!

Tuesday, November 04, 2014

The EU £1.7BN Surcharge

The government has woken up to the fact that the voters know that the EU isn't working. As such Cameron boldly stated the other week that he would not pay the £1.7BN surcharge.

He has, however, modified this now saying that he won't pay "all" of it.

Now comes the tricky question of interest payments (of £2M per week), if the bill is not steeled in full by the 1 December deadline.

Cue behind the scenes wrangling and negotiations.

The reality will be that Britain will pay the bill, probably late in order not to upset the Rochester by election, but not the interest.

Monday, November 03, 2014

EU Fiddles Whilst Athens Burns

Greece is hitting the financial headlines yet again.

Unsurprisingly, the EU has just woken up to the fact that it is "highly unlikely" that Greece will be able to end its bailout programme without some new form of assistance. In other words Greece will need another bailout in order to meet the conditions of existing bailouts!

A senior EU official is quoted by Reuters:
"A completely clean exit is highly unlikely.

We will have to explore what other options there are. Whatever options we may be adopting, it will be a contractual relationship between the euro area institutions and the Greek authorities."
In other words the EU doesn't know yet what form the new bailout will take.

They will have to hurry, the current bailout package expires 31 December this year.

Whatever the deal, if one is forthcoming, it will be in effect throwing good money after bad.

It is "ironic" that the EU busts a gut to try to keep Greece (a financial basket case) onboard, yet barely flinches at the very real prospect of Britain (a strong contributing economy) leaving!

Thursday, October 30, 2014

The £50K Family Building Society Prize Draw

Kudos to the Family Building Society (launched in July) for admitting what everyone knows, namely that returns on savings deposits are "fairly awful".

By way of compensation the building society is offering savers the chance to win a £50,000 tax-free cash prize, each time they deposit £10,000 into a "Windfall bond" (which will earn 0.5%).

Wednesday, October 29, 2014

Other Companies Sucked Into Tesco Black Hole

The fallout from Tesco's £263M continues unabated, as some of the world’s largest consumer goods companies have woken up to the fact that it may impact their results and integrity. As such, companies such as Unilever, Proctor & Gamble and Coca-Cola have brought in auditors to check their UK operations.

The Telegraph notes that a source close to the probe said that Tesco had booked supplier contributions that were conditional on hitting sales targets that it was not going to reach.

They claimed that a “small group” of employees, realising these sales targets would not be hit, struck deals with suppliers to still make these payments by offering benefits in the next financial period. These benefits were then kept secret.

That would count as fraud both within Tesco and the supplier that agreed to the arrangement.

Tuesday, October 28, 2014

Private Jet For Sale - One Extravagent Owner

Tesco has begun to sell off its fleet of luxury private jets. First on the market is its 14 seat Gulfstream G550, purchased in 2008.

Yours for £22M.

I dare say Aldi will do one cheaper though!

Monday, October 27, 2014

Deluded Call For Increase In Interest rates

Ian McCafferty, who sits on the MPC, has called for the Bank of England to begin raising interest rates. He is of the view that Britain will run out of spare capacity by the middle of next year.

He is quoted by the Telegraph:
Starting to raise the Bank rate now makes it more likely that the increase required over coming years to deliver our inflation target can be kept gradual and limited.” 
Whilst this is all very well in theory, in the sterile world of an economist's textbook, the reality is somewhat different:

- There is no build up of inflationary pressure
- People are saddled with debts that they can ill afford
- Our economy is consumer driven, people with debts need to be encouraged to spend/borrow more
- There is a general election in May 2015, there is no way a rise in interest rates will occur before then!

All in all McCafferty's call for a rise in rates is deluded.

Friday, October 24, 2014

The EU on Crack!

I noted earlier in the year that GDP figures will be revised upwards to include money spent on illegal/semi legal activities, such as drugs.

This boost the UK economy has, unsurprisingly, sent the EU round with a begging bowl for more money. The BBC reports that the EU is demanding £1.7BN extra.

How "ironic" that this demand has been issued at the self same time that Cameron is trying to stand up for Britain. This is a gift for UKIP, and one that the EU may well regret as it will most likely speed up our exit.


Thursday, October 23, 2014

Tesco Reports 92% Profit Collapse

The omnishambles of Tesco's profit forecast overstatement has at last claimed the head of the chairman (Sir Richard Broadbent). He will stand down as Tesco today has reported 92% fall in pre-tax profits.

In fact the £250M black hole was £263M!
Sir Richard will stand down once new chief executive Dave Lewis has established his strategy for the company, which is likely to be next year.

Monday, October 20, 2014

RTGS Back Online

The Bank of England says that the Real Time Gross Settlement Payment System (RTGS) system is back online, and that RTGS will remain open until 8pm today (four hours later than usual) to process the backlog of orders.

Friday, October 17, 2014

No Rate Rises Yet

I have been bucking against the perceived "wisdom" of the press and financial "experts" for sometime now, wrt when interest rates will rise.

Contrary to the perceived "wisdom" I have repeatedly stated that rates will not rise anytime soon, least of all before next May's election.

I am amused to see that Andy Haldane, who sits on the Monetary Policy Committee, also now agrees with my view.

He cites global growth fears, rising geo-political risks and a "weak pipeline" of inflationary pressures as the rational for the Bank of England keeping rates lower for longer.

Thursday, October 16, 2014

Markets Falling - So What?

The Telegraph reports that more than £46 billion was wiped off the stock market on Wednesday, as the FTSE 100 fell 181 points (2.8%) to 6212.

Other markets around the world are also falling, indeed at one point the Dow Jones fell by 3% overnight.

For why are the market falling?

Fear, greed, profit taking mixed with (according to the Telegraph) the following:

- fears over the stability of the Greek government and its bail-out plans. Hardly new news, and one that would have been factored into the markets many months ago.
- poor retail figures and a slowdown in manufacturing from the US.

- ebola

- the ongoing eurozone crisis

etc.

Basically fear and greed as per usual!

The markets will rise again, volatility and market upswings/downswings are how people make money.


Wednesday, October 15, 2014

Tesco Suspends Three More Directors

The fallout from the £250M profit forecast overstatement continues, as Tesco has suspended three more senior employees.

Tesco is quoted in The Guardian:
We have asked three employees to step aside to facilitate the investigation into the potential overstatement of profits in UK food for the first half of the year.” 
Although the staff are not named, they are understood to be category directors in charge of procuring whole sections of goods for Tesco stores. As per Sky News they are Dan Jago, Tesco’s UK and group wine director, Sean McCurley, director of convenience foods, and William Linnane, director of impulse purchases.

Their Twitter and LinkedIn accounts were deactivated on Tuesday.

Earlier this week Tesco’s company secretary, Jonathan Lloyd, said he would leave next March after serving his notice period. Audit committee chairman and non-executive director Ken Hanna is also expected to stand down when his six-year term ends later this year.

This is certainly one way to revamp the board. However, whilst these staff are suspended one might be forgiven for asking who exactly is/are covering their roles?

Tuesday, October 14, 2014

Sainsbury's Halves Nectar Points

The Grocer reports that Sainsbury's intends to halve the number of its Nectar points it awards on purchases as from April next year. Currently customers can earn 2 points for every £1 spent, as from April it will be 1 point for every £1 spent.

In an attempt to ameliorate vexed Nectar card holders, Sainsbury's claim that there will be bonus points schemes enabling people to earn more points in other ways.

Despite the PR hype, which included the much overused word "exciting", this is of course a means of Sainsbury's saving money; as it clearly would not do this otherwise.

Friday, October 10, 2014

The State Pension Ponzi Scheme

At last someone has spotted that the state pension is nothing more than a glorified Ponzi Scheme; wherein monies paid in by taxpayers are syphoned off for other purposes, and that pensions can only be paid if more people pay in ever increasing contributions year on year.

The Centre for Policy Studies has concluded that younger generations will receive a "derisory" state pension in retirement, because the cash reserves that fund payouts to the elderly will run dry next year.

It seems that there is a "serious flaw" in the national accounts that within 12 months will leave the Government short of money to pay pensioners.

Michael Johnson, an academic at the think tank, claimed in the Telegraph that senior Westminster sources had privately admitted that state pension funding was in a perilous state, having viewed his research.

Millions of taxpayers under the age of 45 faced steep tax increases and would have to wait longer to collect a state retirement income, he claimed, while the under-35s should prepare for the state pension to be scrapped.
"It doesn't matter which government is elected next year, the state pension age will have to go up much faster and sooner than anyone expects to cover the funding deficit.

For Generation Y, aged between 25 and 34, the message from the Government ought to be that the state pension is not viable full stop. But, of course, no politician can say this publicly."

Mr Johnson said the amount of money in the National Insurance Fund was rapidly running out, as too little was flowing in.

As noted, the state pension scheme is nothing more than a Ponzi Scheme!

Wednesday, October 08, 2014

War On ISIS Boosts Defence Shares

As ever with markets, one person's misery is another's fat profit.

As such it should come as no surprise at all to learn that the war (that we now appear to be fighting) against ISIS, and the mess in Ukraine has boosted defence shares in the USA.

Bloomberg reports that Lockheed Martin and other U.S. defence companies are trading at record prices, as shareholders reap rewards from escalating military conflicts around the world. Cynics might wonder if it is in the interests of the military/industrial complex to push for conflict.

Therefore, despite the fact that many people are dying and are going to die, some people somewhere are doing very nicely out if this!

I dare say Ebola is making money for those in the relevant pharmaceutical and protective clothing industries as well.

Let us trust that those who are doing well out of this live long enough to enjoy the spoils of war, and never have the misfortune to be killed in a terrorist atrocity or via an Ebola outbreak.


Tuesday, October 07, 2014

Tesco Chairman Considers Resigning

The Wall Street Journal reports that Tesco Chairman Richard Broadbent, in the light of the profit and corporate jet debacle, is considering resigning after the investigation into company's accounting practices is complete.

Should that action not take place before the investigation is complete?


Monday, October 06, 2014

New £1 Coin

In an effort to reduce forgeries, the Royal Mint will be introducing a new £1 coin in 2017.

The coin, which the Mint claims will be the "most secure coin in the world", is based on the design of the old threepenny bit, a 12-sided coin in circulation between 1937 and 1971. This is ironic, as given that due to the ravages of inflation £1 can now buy not much more that 3d used to be able to.

A competition will be held to decide what image to put on the "tails" side of the coin.

Suffice to say, the introduction will give rise to costs eg machines that accept coins will have to be altered.

Saturday, October 04, 2014

Tesco Doesn't Give a Flying Fuck



Kudos to the board of Tesco for buying a $50M corporate jet.

I trust and assume the long suffering shareholders with have a few words to say about this!

Thursday, October 02, 2014

Wonga Writes Off 330K Debtors

Wonga has written off debts of £220M owed by more than 300,000 customers (in arrears by more than 30 days), the hit to the P&L account is £35M (as it already had provisions covering a large portion of the £220M).

Unsurprisingly, Wonga now intends to increase checks on potential debtors to make sure that they can pay back the money borrowed.

Andy Haste, who became executive chairman in the summer, is quoted by the Telegraph:

"During my review, it became clear to me that this has unfortunately not always been the case. I agreed with the concerns expressed by the FCA and as a consequence of our discussions we have committed to taking these actions.

It’s clear to me that the need for change at Wonga is real and urgent. Our regulator is determined to improve standards in consumer credit and I share that determination. There is much to do in order to make Wonga a sustainable and accepted business, and today’s announcement is a significant step forward in that process.” 
Wonga is aiming to transform itself into a respectable financial company. This is but one step forward in the long process, another in my view will be to change its name to something less "streetwise".

Wednesday, October 01, 2014

FCA To Investigate Tesco

Unsurprisingly Tesco is to be investigated by the Financial Conduct Authority (FCA) over the £250M profit shortfall in its accounts.

Additionally, the Serious Fraud Office has said it is also prepared to intervene if necessary.

Tesco is quoted by the Telegraph:
"Tesco will continue to co-operate fully with the FCA and other relevant authorities considering this matter."

Tuesday, September 30, 2014

Wonga Profts Fall 53%

Wonga has posted pre-tax profits of £39.7M for 2013, a fall of 53% from the previous year's profits of £84.5M.

The figures contain £19M of "remediation" costs, relating to systems issues and growing its overseas business. The results are chronologically before Wonga's £2.6M fine for sending thousands of letters to customers in arrears from fictional law companies.

Andy Haste, chairman, is quoted by the Telegraph:
"Wonga has the ability to be great once again.

We need to repair the reputation, regain trust and get an accepted seat at the table of financial services."
This will be an uphill struggle, as the FCA has proposed a.o. capping the fees and rates charged on payday loans at 0.8% a day.

Monday, September 29, 2014

Tesco Whistleblower Ignored For Months

According to the International Business Times, the Tesco whistleblower who alerted senior executives to the £250M shortfall in profits was allegedly ignored for months.

Seemingly the whistleblower alerted senior directors at Tesco in July of concerns but "failed to get traction".

Friday, September 26, 2014

Interest Rates To Rise, But Not Yet

Mark Carney, Governor of The Bank of England, said strong growth and rapid job creation meant the judgement about when to start raising interest rates had become “more balanced”.

He is quoted by the Telegraph:
Relative to the recent past, the economic outlook is much improved.

While there is always uncertainty about the future, you can expect interest rates to begin to increase.” 
Rest assured, as I have noted many times before, there will be no increase in rates until after the general election in May 2015.

Thursday, September 25, 2014

The Tesco Clusterfuck

On Tuesday I asked:
"Given that the auditors warned about this in May, does this mean that the previous year's profits were overstated?"
It seems that I am not the only one who thinks this. The Telegraph reports that the Financial Reporting Council is “monitoring the situation” and could force Tesco to restate past accounts.

To rub salt into the wounds, it seems that Tesco have been "winging it" without a Finance Director since April; as its outgoing finance director Laurie McIlwee had “has not been involved or had any input to any financial matters” since he resigned on April 4.

This appears to be but the tip of a very large iceberg.

Wednesday, September 24, 2014

The Mansion Tax

Labour's mansion tax proposal will, even it it fails the NHS, most definitely create jobs and prosperity (for some):

- property valuation "experts".
- lawyers and "specialists" involved in the inevitable disputes over valuations that will arise when the first mansion tax bills hit the doormats.

It is a tax that will fall at the first hurdle, and the proposal indicates how little Labour understands how the real world works.

Tuesday, September 23, 2014

The Tesco Clusterfuck Live

Tesco Warned By PwC

The Telegraph reports that PwC, Tesco’s auditor, warned in the company’s annual report in May that it was concerned about how income from commercial deals with suppliers was recognised. It listed the issue as its primary area of focus “because of the judgement required in accounting for the commercial income deals and the risk of manipulation of these balances”.

In response, Ken Hanna, chairman of Tesco’s audit committee, wrote:
The committee notes that commercial income was an area of focus for the external auditors based on their assessment of gross risks. It is the committee’s view that while commercial income is a significant income for the group and involves an element of judgement, management operates an appropriate control environment which minimises risks in this area. As a result, the committee does not consider that this is a significant issue for disclosure in its report.”
Given that the auditors warned about this in May, does this mean that the previous year's profits were overstated?

Barclays Fined For Co-mingling

Barclays, the bank that likes to stay in the headlines, is to be fined £38M for breaching City rules requiring clients’ funds to be kept separate from its own assets (ie it was co-mingling).

The size of the fine is but small change for the bank, and does not inflict any pain on it whatsoever!

Monday, September 22, 2014

Tesco Overstates Profit Forecast By £250M

Tesco has stated that it overstated a six month profit forecast by £250M.

It has appointed Deloitte to independently investigate the issue.

Dave Lewis, CEO, is quoted by the BBC:
"We have uncovered a serious issue and responded accordingly."
Tesco said the overstatement was "principally due to the accelerated recognition of commercial income and delayed accrual of costs". It also said some of the error was due to "in-year timing differences".

Unsurprisingly the markets are unimpressed, and shares in Tesco nosedived by 10% this morning.


Tuesday, September 16, 2014

The True Costs of Independence

As the consequences of a "yes" vote finally dawn, Britain’s banks have been laying plans lest there be a run on the banks' ATMs in Scotland on Friday after a "Yes" vote.

As such they have, according to the Independent, been moving millions of banknotes to Scotland.
Sources at major banks said they had been issuing clear instructions to their Scottish branches to reassure customers there was no reason to panic.

Aside from bank runs, and losses of corporate headquarters another cost (that has yet to be openly factored in/discussed) is the rebranding of Britain. The loss of the Union Jack will be more than just the flag flying above public buildings, but also its removal from all products currently sporting the image.

Add into that the duplication of bureaucracy and paperwork caused by a divorce of a 300 year old marriage, and you have some very large costs indeed.

I wonder if people really have woken up to the costs of this divorce?

Monday, September 15, 2014

Phones 4u In Administration

Phones 4u has gone into administration, after EE decided not to renew its contract (which has until September 2015 to run) with Phones 4u.

Vodafone also recently terminated its contract with the firm, as had O2 some months ago.

Phones 4u employs 5,596 staff across 550 stores in the UK. The company has a turnover of £1BN and made a profit of over £100M.

Sadly, even though the business in itself is successful, without network operators it cannot exist.

Why have the network operators pulled the plug?

Money, they are facing reduced profits as result of caps on roaming charges etc; as such they are seeking to eliminate the middle man.

Two days ago John Caudwell, the founder of Phones 4U, saw the writing on the wall, and launched a scathing attack on Vodafone.

Mr Caudwell, who sold Phones 4u for £1.46BN, is quoted by the Telegraph:
I believe they really acted very, very ruthlessly. I get the feeling it came as a shock to the whole organisation of Phones 4u and potentially gave them no time to try and find a solution. 
I feel desperately worried for the future of Phones 4u. It’s in a really, really grim place. 
As far I can see it’s a well operated business that in a fair world has every right to exist. But we don’t live in a fair world, we live in a world where you make what you can for yourself and it’s a bit dog eat dog. I think that’s what’s happening here.

There’s a lot of ruthlessness being applied and if the public actually felt strongly enough they know what they could do, they could vote with their feet and move their business to other networks.

I don’t believe it can be rescued without one of the networks coming back to the table. Unless the government steps in we’ll be witnessing what was a phenomenal business destroyed by very ruthless behaviour. 

It seems a shame that a business I spent 20 years of my life growing looks like it could come to such a sticky end.

I fully respect Vodafone’s right to act whichever way they want to for their own best commercial interests, which is fully in line with free enterprise and trying to maximise their shareholder value. 

But I don’t think I could have ever behaved like that in Vodafone’s place. Business should have a bit of a heart. It isn’t just the bottom line at all costs.” 
Whilst Mr Caudwell may well be right in his sentiments about business having a "bit of a heart", I wonder if he applied those sentiments 100% when he sold Phones 4u?

Friday, September 12, 2014

Will Ye No Come Back Again?



Royal Bank of Scotland, Lloyds Banking Group, TSB, Clydesdale, Tesco Bank and Aegon will all leave Scotland if it votes for independence.

The economic costs of such a move cannot be dismissed by Salmond as merely the "removal of a brass plaque". The fact that Salmond does not want to discuss this issue indicates that he has not factored in the costs, or does not want to admit that he has factored in the costs of independence.

Don't do it Scotland, you will regret it!

Thursday, September 11, 2014

RBS To Leave Independent Scotland

In the event that Scotland votes "Yes", it has emerged that RBS (without any sense of irony) and Lloyds will leave Scotland and decamp to England setting up their HQ's in London.

With a week to go until the vote, markets are reacting to the daily poll results (they rise when "No" leads, and fall when "Yes" is in the ascendancy). As I have noted before traders are doing very nicely out of the politically induced volatility, let us trust that none of them have foresight of the polls before they are published!

Tuesday, September 09, 2014

Diamonds Are Forever - Well Done Petra

The Telegraph reports that Petra Diamonds has said that it has recovered an "exceptional" 232 carat white diamond at its Cullinan mine in South Africa.

Petra said that it expected the diamond (which has no measurable nitrogen impurities) will be sold in the second quarter of its current fiscal year ending June 30 2015. 
 
Well done!

Monday, September 08, 2014

Traders Love Volatility

Unsurprisingly, since the publication of a poll that shows that Scotland is sitting on a knife-edge over independence, the pound has fallen.

The Telegraph reports that Sterling suffered its biggest intra-day loss in over a year, sliding to $1.6150 against the dollar, its lowest point since November. This follows last week’s decline of 0.7% as support for the “Yes” campaign continued to rise.

Kit Juckes, head of foreign exchange research at Societe Generale, said:
If the ‘Yes’ vote wins, I wouldn’t be surprised to see a 3pc to 5pc fall in sterling.
So what?

A fall in the value of Sterling will be good for exports, and good for England (in the event Scotland leaves the Union).

That being said, there are ten days left before the poll; during this time the FX traders will be making some serious money playing around with the value of Sterling, as newspaper headlines become ever more shrill wrt "saving the Union".

Traders love volatility!

Friday, September 05, 2014

Nosferatu The Banker

Taking a hint from Nosferatu, Barclays has taken an interest in its customers' blood. Specifically the veins that carry the blood.

Barclays is launching a finger scanner for corporate clients, as it steps up use of biometric recognition technology to combat banking fraud.

Barclays has teamed up with Hitachi to develop a biometric reader that scans a finger and identifies unique vein patterns to access accounts, instead of using a password or PIN.

Ashok Vaswani, chief executive of Barclays personal and corporate banking, is quoted by Reuters:
"Biometrics is the way to go in the future. We have no doubt about that, we are committed to it.

You can't let these guys create a breach in the dam. You've got to constantly stay ahead of the game.
Let us trust that the criminals don't resort to chopping people's fingers off in order to try to "breach the dam"!

Thursday, September 04, 2014

FTSE Hits Level Last Seen In 2000

The Telegraph reports that FTSE 100 jumped as much as 1% to 6898.62, on Wednesday, the highest level since the dotcom bubble burst at the start of 2000.

As I have noted many times before money is made out of volatility, never assume that momentum (in whatever direction) is the new norm.

Wednesday, September 03, 2014

ONS Revises 2012 Statistics

As loyal readers know, I am not a fan of the ONS and have noted many times that the statistics published by the ONS are out of date and inaccurate.

However, even by ONS standards their latest revision of figures takes the biscuit.

The ONS has revised upwards the GDP figures for 2012 (yes, 2012!) by quite a significant margin.


This again shows that for governments and businesses to rely in any way on the statistics provided by the ONS is foolhardy indeed, and will inevitably lead to costly errors of policy and strategy.


Tuesday, September 02, 2014

The Greed and Stupidity of Our Financial Institutions

As I have noted many times before, Britain's financial service industry has hardly covered itself in glory during the past few decades.

Sadly there is now another example of greed and stupidity that is coming to light.

According to the Telegraph middle-aged home owners are being denied cheaper mortgage deals because lenders claim that customers would be unable to afford the lower repayments after they retire. As a result, borrowers in their 40s and 50s are being trapped in loans with higher interest rates, leaving them on course for unnecessarily large bills in old age.

To add insult to injury, banks also refuse to cut borrowers' loan terms so that debt can be repaid sooner.

Mayur Vadhia, 49, was told by Halifax, Britain's biggest mortgage lender, that he did not qualify for a cheaper deal because he had no proof of his retirement income. Yet his existing loan with the bank was scheduled to last past retirement age at a higher rate.

Now that's just stupid!

It also seems that lenders are incorrectly applying new affordability criteria, which are designed for new borrowers.

Not only are the financial institutions stupid, they are greedy and incompetent as well!
 

Monday, September 01, 2014

The Joy of Volatility

The Telegraph notes that the level of margin debt that traders are using to buy shares in the stock market reached the highest levels on record, according the latest data from the New York stock exchange.

US traders borrowed $460bn from banks and financial institutions to back shares, and once cash and credit balances held in margin accounts of $278bn is subtracted this left net margin debt of $182bn in July

Traders are now more exposed to a fall in share prices than at the height of the dot-com bubble at the turn of the century, and just before the financial crisis during the 2007 peak.

The Telegraph's article goes on to almost push for a collapse in the market. However, even if the media gets its way (disasters do make great headlines), the world will survive and move on. Markets have crashed many times before, and they will continue to do so.

Money is made from volatility.

Friday, August 29, 2014

Pussy Galore - Free Cat With Every Mortgage


Emulating UK financial institutions that offer stuffed toys/meerkats etc as gimmicks, if you buy their products, Sberbank a Russian bank is giving free cats to people who take out a mortgage.

Sberbank is offering customers a choice of 10 cats, which will be delivered to their home.

However, homeowners are only allowed to keep the cat for two hours. They must also sign an agreement promising they will not harm the cat.

Brilliant!

Thursday, August 28, 2014

60% Market Crash? Keep Calm and Carry On!

Abigail Doolittle, founder of Peak Theories Research, has said the Federal Reserve's reluctance to raise interest rates from record lows could spark a market correction to rival the slump seen in 2007, during the global recession.

She told CNBC
"Unfortunately, I think it could come on a crash similar to what happened in 2007.

You can see that the entire bull market trend over the past five years has started to reverse. 
When you see that kind of gyration around the trend, typically it suggests you're going to see some severe volatility. As scary as it is, I think that we could see possibly a 50% or 60% correction - an equal and opposite reaction to all these unusual policy moves." 
Maybe so, maybe not.

However, markets go up and markets go down. The world has survived previous crashes and will do so again, because the only way that people make money out of markets is for there to be volatility (both upwards and downwards).

Wednesday, August 27, 2014

IMF's Lagarde Under Formal Police Investigation



As yet though, she is insisting that she won't resign as head of the IMF.

RBS Fined £15M

The Royal Bank of Scotland has received yet another fine, this time it has been fined £14.5M by the Financial Conduct Authority (FCA) for failing to ensure that advice given to mortgage customers was suitable.

The FCA said that the fine for RBS and the NatWest reflected "serious failings" in their advised mortgage sales business. The firms failed to ensure that advice given to customers was suitable, according to the FCA. Two reviews of sales from 2012 found that in over half the cases the suitability of the advice was not clear from the file or call recording.

Customers were not advised properly over the affordability of mortgages, or the appropriate term of products being offered. Others were given poor advice when looking to consolidate their debts.
Tracey McDermott, director of enforcement and financial crime at the FCA is quoted by the Telegraph:
Taking out a mortgage is one of the most important financial decisions we can make. Poor advice could cost someone their home so it’s vital that the advice process is fit for purpose. 

Both firms failed to ensure that their customers were getting the best advice for them.

We made our concerns clear to the firms in November 2011 but it was almost a year later before the firms started to take proper steps to put things right. 

Where we raise concerns with firms we expect them to take effective action to resolve them without delay. This simply failed to happen in this case.”
The FSA initially drew the firms’ attention to issues in their mortgage advice process in November 2011. However, no effective attempts to remedy the problems were made until the end of September 2012.
 
The fine is of course paltry in terms of a bank the size of RBS, therefore one has to question whether it is in the slightest way effective in "managing" the future behaviour of banks.

Tuesday, August 26, 2014

The European Quagmire

Unsurprisingly, the eurozone is stuck in both an economic and political malaise; as Germany published weaker than expected economic figures, and France's political system falls apart.

Thus the media is doing its best to pump up the markets, by pushing the tired old line that the ECB will do something radical (eg cut interest rates and go for QE).

This is of course hyperbole, as the ECB (in the shape of Mario Draghi) is incapable of doing anything radical. Instead the eurozone will sink ever further into the quagmire of its own economic and political structural failings.

Wednesday, August 13, 2014

UK Unemployment Falls

UK unemployment has fallen by 132,000 between April and June to 2.08 million.







More people are working, but their incomes are being squeezed. The "good times" are but a faded memory!

Tuesday, August 12, 2014

First Time Borrowers Keep Borrowing

Despite the dire warnings about the cooling of the property market, in London at least, it seems that first time buyers are still desperate to borrow money to buy a house.

The Council of Mortgage Lenders (CML) recorded the highest number of loans (28,600) lent to first time buyers this June, since December 2007. This is an increase of 7.1% since May.

The amount borrowed in June was £4.2BN, up from May's figure of £3.8BN.

At some stage the  market will cool and rates will rise, the issue will then be can these borrowers keep up with their mortgage payments and are they in a position of negative equity?

Monday, August 11, 2014

London Property Market Has Peaked

Research from Hamptons, which specialises in selling houses in London and the South of the UK, appears to confirm reports of panic selling this year as homeowners try to cash in at the top of the market before a significant cooling next year.

This research will of course further fuel the "panic" selling, thus providing estate agents with a good fee income for the coming months.

Friday, August 08, 2014

China Recovers

The Chinese economy appears to be recovering.

As per Positions and Promotions, the official PMI, which samples 3,000 nationwide enterprises of various sizes, reached its highest level in more than two years at 51.7, up from 51 in June. The fifth consecutive month of recovery, was stronger than the market consensus forecast of 51.4.

The HSBC PMI, which samples 420 small and medium enterprises, showed similarly positive results reaching 51.7 for July. It indicates the strongest rate of improvement for China's manufacturing sector in a year and a half.

Wednesday, August 06, 2014

Bitcoin - A Nice Little Earner for Osborne

It would seem that the rise of Bitcoin has caught the Chancellor's gimlet eye, as a possible means of raising extra revenue.

Osborne has instructed the Treasury to assess how the UK could become a leading global centre for Bitcoin and other virtual currencies.

If it moves tax it, if it threatens other means of revenue generation regulate it!

A nice little earner!

Tuesday, August 05, 2014

HSBC Staff Turn To Unnecessarily Safe Activities


Douglas Flint, the chairman of HSBC, has expressed concern that increased regulation of the banking industry is pushing staff to turn to unnecessarily safe activities.

He is quoted by the Telegraph:
Unwarranted risk aversion threatens to restrict access to the formal financial system to many who could benefit from it.

There’s a creeping concern that staff are concerned about the penalties for getting things wrong and building risk aversion… getting to a state where there’s a zero risk tolerance.”
Flint expressed his opinion following HSBC's results, which saw a 12% fall in first half profits to £7.3BN.

As is the nature of any post binge clean up, the pendulum often swings too far the other way.

However, Flint may care to remember that these regulations (whether they are excessive or not) came into being because of the activities and risk appetite of the banks and their staff.

Monday, August 04, 2014

Pensions Costs


George Osborne has, from April next year, given people the right to access their pensions when they turn 55 rather than having to buy an annuity. However, pension companies will not be forced to apply these new rights.

In the event that companies are unable to release the cash, people can move their pensions. However, this might incur an exit charge.

Justin Modray, of Candid Financial Advice, is quoted by the Telegraph:
I think many policyholders will be very surprised to be told, come April, that they can’t have their money and there will be a big backlash.”
As with all financial schemes, the devil is in the detail!

Friday, August 01, 2014

The Bubble is Pricked.

European stock markets have fallen again for the third day in a row.

For why?

People are becoming very nervous about the knock on effects of the sanctions on Russia, and fears that interest rates may start to rise in the US.
Are these fears justified?

Yes.

That being said, markets go up and markets go down. There will always be another bubble then another crisis to prick that bubble.

Wednesday, July 30, 2014

Bankers' Bonus Clawback

I note that the Bank of England has come up with a proposal to deal with errant bankers, that is a little more robust than the nonsense about making bankers swear an oath.

The Bank of England proposes that UK bankers guilty of misconduct could have their bonuses clawed back up to seven years from the time these were awarded, and could face hefty jail sentences in some cases.

The BBA won't like this at all!

Tuesday, July 29, 2014

An Oath for Bankers

ResPublica, a think tank, has come up with the bizarre recommendation that in order for public trust in the banks to be  restored bankers should swear an oath.

Director at ResPublica, Philip Blond, is quoted by the BBC:
"As countless scandals demonstrate, virtue is distinctly absent from our banking institutions. 

Britain's bankers lack a sense of ethos and the institutions they work for lack a clearly defined social purpose."
An extract from the oath says:
"I will do my utmost to behave in a manner that prioritises the needs of customers. 

It is my first duty to provide an exemplary quality of service to my customers and to exhibit a duty of care above and beyond what is required by law....


..I will confront profligacy and impropriety wherever I encounter it, for the conduct of bankers can have dramatic consequence for society."
All very well and nice, but to whom do the bankers swear this oath?

BBA executive director for financial policy and operations, Paul Chisnall, said:
"Restoring trust and confidence is the banking industry's number one priority.

But meaningful cultural change in an industry as complex and diverse as banking takes time....

..very well could be part of the answer".
An oath of course would mean absolutely nothing, and would entail a very small administrative burden. Hence the fact that the BBA rather likes the idea!

Friday, July 25, 2014

Back To The Future

The Office for National Statistics (ONS) reports that gross domestic product expanded by 0.8% in the April-June period.

Compared with the second quarter of last year, growth was 3.1%, the fastest pace since the end of 2007.

Total economic output was 0.2% higher than in the first quarter of 2008, its previous peak.

Hoozah!

As Robert Peston wisely observes:

Thursday, July 24, 2014

Rates Will Rise When They Rise

Mark Carney, Governor of The Bank of England, is proving to be something of a Delphic Oracle.

He spoke at a business conference in Glasgow and expressed concerns about a housing bubble developing. Yet, in the same speech, he also noted that the Bank was not worried about the house prices themselves but was worried about household debt.

He noted that interest rates will be "materially lower" in the medium term than they have been historically.

When will rates rise?

Carney is quoted by the Telegraph:
The clearest indication of when rates will rise is when they rise.”
I personally do not see them rising before next May's general election.

Wednesday, July 23, 2014

A Nice Little Earner for Russian Oligarchs

Congratulations to those Russian oligarchs who currently own property in London.

Aside from making money out of the rising property prices, they are also guaranteed to make money from the declining rouble (as the sterling value of their UK properties appreciate against the rouble) as sanctions are ratcheted up on mother Russia.

A nice little earner!

RBS Executives Wilfully Obtuse

Andrew Tyrie, chairman of the Treasury Select Committee, is to write to Sir Philip Hampton, chairman of RBS, to complain about the evidence given by Chris Sullivan, deputy chief executive of RBS, and Derek Sach, head of the bank’s Global Restructuring Group (GRG) in June;accusing them of being wilfully obtuse.

Tyrie is quoted by the Telegraph:
If this is how RBS deals with a parliamentary Committee, how much can customers and regulators rely on it to be straightforward with them?

I will be writing to the Chairman of RBS about this, and the Committee will report on it after the summer.
The executives were originally summoned by the MPs to answer a number of allegations about the treatment of small firms by GRG contained in two highly critical reports on RBS.
One report by Lawrence Tomlinson, a Government adviser, alleged that the bank’s GRG division was forcing small businesses into administration so that the bank could take their properties and sell them for a profit.
Tyrie also said:
Following the Committee’s decision to write to Sir Andrew Large for clarification, RBS has now offered the Committee what it euphemistically describes as ‘additional comments’. 

In fact, they have done a belated U-turn. It’s not as if the facts have changed. 

So it now appears that RBS has been wilfully obtuse with the Committee.” 
The financial services industry in the UK is quite simply a crock of shite!

Tuesday, July 22, 2014

Forex Criminal Investigation

The SFO has launched a criminal investigation into whether a number of traders at top banks colluded to artificially fix rates in the £3 trillion-a-day foreign exchange markets.

London is where around 40% of foreign exchange trading takes place and traders are alleged to have colluded via online chatrooms with names such as the “Bandits’ Club” and the “Dream Team”.

The Telegraph reports that so far more than 25 traders working at a number of the world’s biggest banks have been fired or suspended while regulators around the world continue their investigations.

The forex scandal is likely to be as damaging to the "reputations" of banks as the Libor scandal.

The lesson to learn from this, and all the other scandals, is that all markets are rigged in favour of the "house".

Monday, July 21, 2014

Impartial Pensions Advice

The government has stated that millions of people will be given free and impartial advice on how to invest their pensions from 2015.

This is all very well, theory. However, what constitutes "independent"?

Nationwide Online Shutdown

Nationwide customers were locked out of their accounts on Sunday after a technical glitch hit the firm's online and mobile banking services.

Nationwide have now restored service.

Friday, July 18, 2014

Inquiry Into Britain's Banking Industry

The Competition and Markets Authority (CMA) has recommended a full inquiry into Britain's banking industry, after a study found current account services and SME lending "lack effective competition".

The CMA said switching between banks remains low, meaning “very limited” gains have been made by banks with the highest levels of customer satisfaction. It said this was “not what would normally be expected in well-functioning competitive markets”.

CMA chief executive Alex Chisholm is quoted by the Telegraph:
 "Our studies have found that, despite some positive developments, significant competition concerns remain which mean that customers may not be getting consistently good service and value from their banks. 

Our provisional view is that a full market investigation by an independent expert CMA group is necessary to look at this market in detail and identify appropriate measures if competition concerns are found. 

However we very much welcome views, which we will carefully consider, before taking a final decision."
A full investigation, if it occurs, would take about 18 months.

Doubtless the vested interests will ensure that nothing concrete or radical happens if an inquiry ever gets off the ground.

Thursday, July 17, 2014

Banks Do A Wonga

The Telegraph notes that after revelations that Britain's high-street banks issued legal letters from what appeared to be independent law firms demanding that they repay money owed to the banks, the chairman of the Treasury Select Committee, Andrew Tyrie, wrote to the banks asking for an explanation.

The letters, despite being headed with names that make them look like they are from separate law firms, were actually from the banks' in-house legal teams.

In his response to Mr Tyrie, Lloyds chief executive Antonio Horta-Osorio said the bank had used the name of SCM Solicitors, a business purportedly based in Hove, East Sussex, because customers in financial difficulty did not respond to letters from the bank itself.

Mr Tyrie is somehwat less than impressed and, according to the Telegraph, is of the view that the letters were "calculated to mislead".

Lloyds claims that letters were "intended to encourage customers to speak with us".

RBS, Nationwide and HSBC also used the names of law firms when sending correspondence from their own departments. 

Cynics have noted that Wonga were not fined for their letters because the mainstream banks were all playing the same dishonest game.

Britain's financial services industry is pox ridden!


Wednesday, July 16, 2014

Employment Up, Wage Gap Rises

The Office for National Statistics (ONS) reports that the number of people in employment rose by 254,000 to a record 30.6m between March and May this year, and that unemployment fell by 121,000 between March and May to 21.1M.

The jobless rate for that period stood at 6.5%, close to the 6.4% level of Q4 2008.

However, during the same period of this year, average pay rose by 0.3% whilst CPI rose by 1.5%.

As ever with statistics from the ONS one has to be wary of them:

1 They are out of date

2 They are usually revised.

Friday, July 11, 2014

CoE Ditches Investment in Wonga - One Year On

In July 2013, shortly after Archbishop Welby said he had "bluntly" told Wonga boss Errol Damelin "we're not in the business of trying to legislate you out of existence; we're trying to compete you out of existence", it emerged that the Church of England had an indirect investment in Wonga of around £75K.

One year on, and the CoE has finally distanced itself from Wonga and dispensed with the investment.

The £1BN Loss On The Royal Mail Sale

The Business, Innovation and Skills (BIS) select committee accuse the government and its advisers (Lazard, Goldman Sachs and UBS) of botching the £3.3BN Royal Mail sale, and losing the taxpayer £1BN in potential profits.

Pricing a share issue is not an exact science, if the price is too high then all of the shares may not be sold (hence the need for underwriting) if the shares are sold too cheaply then there are accusations that a greater profit could have been made.

In this case a loss of £1BN on a sale of £3.3BN is materially significant. Also, worthy of note, is the fact that (as per the Telegraph) the asset management arm of Lazard (also a specially selected investor in the float) made £8M profit by selling off its stake immediately.

The Government sold 60% of Royal Mail at 330p in October. The shares soared by 38% on the first day of trading and rose as high as 615p but have since fallen back. Yesterday the shares closed at 474p. 

Thursday, July 10, 2014

CPP The New PPI

It seems that there has been another mis-selling scandal, akin to the PPI one, wherein people are entitled to seek redress, this being CPP (Card Protection Plan).

However, according to the Martin Lewis (writing in the Telegraph) up to five million people may be missing out on the compensation because they confuse the issue with PPI and throw away a legitimate ‘‘fill this in to get your money back’’ form for junk mail.

Since February more than seven million people have been sent CPP redress letters, dating back to policies since 2005. Many were under names such as CardGuard, Card Protection Plus, Card Safe or Egg Emergency Cover.

Martin Lewis estimates that £900 million remains to be claimed, with a deadline of August 30 looming on the horizon.

I wonder if there is any financial product in this country that hasn't been mis-sold?

Tuesday, July 08, 2014

USA Criticises UK Oil Tax

The US Energy Department has robustly criticised the UK's tax increases on petroleum exploration.

Washington said the increase in Britain’s petroleum revenue tax to 81% of profits for old fields and 62% for newer ventures pushed through in 2011, along with other penalties and a cap on relief for winding down old fields, have choked North Sea exploration and paralysed a string of major projects.

The Energy Information Administration (EIA) is quoted in the Telegraph:
As a result of the significant increases in taxes, the UK Continental Shelf [UKCS] projects have become even less competitive.
Increases in operating costs coupled with higher taxes have resulted in decreased investment in both brownfields and new exploration. Even without the increased taxes, operating costs in the UKCS were prohibitively high, exacerbated by the high decommissioning costs of old facilities.”
'Twas ever thus, governments short of cash rarely cut expenditure; instead they increase taxes.
 

Monday, July 07, 2014

BBA Peddles a Myth

Anthony Browne, chief executive of the British Bankers Association (BBA), has stated that “branch numbers will continue to fall” and that those who call for a return to branch banking are “out of kilter with what millions of customers want”.

He is quoted in the Telegraph:
The way we bank now is far easier and faster.
The reality is that pushing customers towards online banking only will benefit the banks' bottom lines. However, when something goes wrong or a customer actually needs to speak to a human being, Browne's vision of the future is that we will be forced to use hopeless and hapless call centres to resolve our problems.

Additionally, the loss of the personal relationship with a bank manager means that customers seeking loans and mortgages are left in the hands of faceless credit ratings agencies and the banks' computers and risk algorithms for the outcome of the loan decision.

In short, the customer is screwed!

Monday, June 30, 2014

Coffin Corner

According to the Telegraph UK stock markets are approaching “coffin corner”, where even the slightest miscalculation could lead to a sharp correction or even a crash.

“Coffin corner” is the point at which a passenger jet is flying at maximum altitude with engines at full throttle. This is when even the smallest mistake can lead to disaster, and it has (so the Telegraph claims) startling relevance for today’s stock markets.

The people piloting the global economy today freely admit they are in completely uncharted territory and largely responding to each event as and when it comes.

I have news for the Telegraph, that is exactly how markets work.

Markets are based on fear, greed and the herd mentality; that is why bubbles form and bubbles burst!

Friday, June 27, 2014

2.5% - The New Normal

Mark Carney, Governor of the Bank of England, expects interest rates to stabilise at around 2.5% by 2017 and that the 2.5% will be "the new normal".

Anyone who attempts to predict the future wrt economics or politics is either remarkably foolish or remarkably well informed.

Time will tell!

Thursday, June 26, 2014

The Dark Pools of Barclays

Barclays, a bank that likes to remain in the headlines, finds itself once more the subject of media attention. This time the subject is that of "Dark Pools" (anonymous trading venues that do not make any trading information available until after the trades have been completed).

New York's Attorney-general Eric Schneiderman has claimed that Barclays duped investors by telling them they were investing in a safe places, when in fact they were exposed to high frequency trading predators. As such, Barclays is being sued over claims it falsified marketing material to mislead people into investing in its dark pools.
 
Mr Schneiderman is quoted by the Telegraph:
The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit.

Barclays grew its dark pool by telling investors they were diving into safe waters. Barclays’ dark pool was full of predators – there at Barclays’ invitation.
Mr Schneiderman alleged that Barclays removed from a marketing document, intended for institutional investors, the dark pool’s then largest participant – a high frequency trading firm Barclays knew engaged in predatory behaviour in the dark pool.

The attorney general's office quoted one Barclays employee as saying:
I had always liked the idea that we were being transparent, but happy to take liberties if we can all agree.
Another allegedly said:
"If we can help ourselves we should; it's in our control."
The attorney general's office claimed that Barclays "has never prohibited any trader from participating in its dark pool, regardless of how predatory its activity was determined to be" and gave "safe" ratings to traders that were found to be toxic.
"Barclays operates its dark pool to favour high-frequency traders and has actively sought to attract them by giving them systematic advantages over others trading in the pool." 
Barclays said in a statement:
We take these allegations very seriously. Barclays has been cooperating with the New York Attorney General and the SEC and has been examining this matter internally. The integrity of the markets is a top priority of Barclays.”
This will be worth following.

Wednesday, June 25, 2014

Housing Market Cooling?

The British Banking Association (BBA) would have us believe that the housing market is beginning to cool as mortgage approvals for new homes fell for the fourth consecutive month in May, to its lowest level since last August.

Data from the British Banking Association showed that mortgage lending grew by £1.2BN in May, down from a £1.3BN in April.

Mortgage approvals totalled 41,757 in May down from 41,834 in April.

The BBA's chief economist Richard Woolhouse is quoted by the Telegraph:
"Our figures indicate that the heat appears to be coming out of the housing market.

These are the first mortgage approval figures we have seen since the introduction of the Mortgage Market Review, so it is significant they have fallen for the fourth row in a month."
Maybe so. However, a reduction in approvals of 77 hardly constitutes a collapse!

Let us see more data in the coming months before concluding that the market is cooling.

Tuesday, June 24, 2014

Interest Rates

As I noted yesterday, don't expect interest rate rises anytime soon.

As per Mark Carney, Governor of The Bank of England, at today's Treasury Select Committee:
"The exact timing of that [increases in interest rates] will be driven by the data. But the most important aspect of the guidance that we're giving is that our view is that the increases in rates over the forecast horizon, in our best estimation, will be limited and gradual."
'Nuff said!

Monday, June 23, 2014

Interest Rates

David Miles, one of the Bank of England's Monetary Policy Committee (MPC), has written in the Telegraph that:
"It now seems to me much more likely that a normalisation of monetary policy starting at some point in my remaining year on the MPC will become appropriate."
Does that mean rates will rise in the next month or so?

No, rates will not rise yet.

For why?

Next year's general election needs to be out of the way first, before the government risks upsetting the voters. More to the point Professor Miles acknowledges that there is slack in the economy and as such "the stimulus given by very low interest rates is not something that has to be removed right now".

The media of course have missed the above two points and are screaming that interest rates will be raised in the very near future.

Monday, May 12, 2014

CBI Predicts Early Interest Rate Rise

The Confederation of British Industry (CBI) has warned that, because of rising house prices, the Bank of England may have to raise interest rates in the first three months of next year, before the general election, as opposed to the third quarter previously forecast.

This of course may be all very well if:

1 There were not a general elction in the offing, and

2 The price rises were not mainly be fuelled by London prices.

As such the Bank of England will defer any rate rise until after the election.

Thursday, May 08, 2014

Barclays - The Bad Bank

Barclays has increased its redundancy target this year to over 14,000, with 7,000 set to go from Barclays Capital (the current headcount of Barclays Capital numbers 26,000).

The redundancies are aimed at cutting costs and, more importantly, reducing the proportion of risk assets used by the investment bank.

A "bad bank" (non core division) will be set up to handle the process of shrinking the bank and £115BN of risk assets.


Wednesday, May 07, 2014

The Co-op's Ruinous Failure of Governance

Lord Myners has written a damning report on the governance of the Co-op Group, and has warned that unless it undertakes radical reforms "very soon" it risks being dismantled.

Lord Myners said that the Co-op needed to urgently create a professional board, and warned the organisation could not continue with its "deplorable governance failures" and had to address a "democratic deficit" that allowed a small elite at the top to run the business.

Lord Myners has also proposed the creation of a new 50-strong National Membership Committee to provide oversight of the top body, and the extension of voting rights to all individual members of the Co-op:
"I would say that the group board and many of the regional boards are still stuck in denial over this near ruinous failure of governance, whereas the vast majority of ordinary members feel justified anger. Radical decisions on governance structure need to be taken very soon - and with resolution - if the Co-op, as my mother knew it, is to be saved." 
However, in order for his report to have some beneficial effect for the Co-op and its members, his recommendations need to be approved by a vote of the 600 "elected members".

The question is, will the Co-op turkeys vote for Christmas?