Friday, December 21, 2007

Government Running Out of Cash

It seems that the government's plans top raise much need money to plug holes in its budget have come somewhat unstuck, as privatisations worth £6BN have been delayed.

The reasons for the delays include market, regulatory and political concerns.

What are Gordon and Alastair going to do now then?

Thursday, December 20, 2007

Stable Houses

It seems that the UK housing market might experience some near term weakness, but house prices should remain broadly unchanged during 2008.

That at least is the optimistic message from the Royal Institution of Chartered Surveyors (RICS).

RICS expects the Bank of England to lower interest rates to 5% during the first half of 2008.

RICS expects repossessions to rise to 45,000 from 30,000 next year.

Some seasonal cheer at least.

Wednesday, December 19, 2007

Northern Rock

The sorry saga of Norther Rock, a once proud bank destroyed by its board, continues.

The Northern Rock crisis is threatening to cost every taxpayer up to £3,600, as it emerged Gordon Brown was warned a year ago (he's not exaclty fast to react is he?) that "urgent action" was needed to prevent a banking meltdown.

Ministers yesterday announced that public guarantees to the beleaguered bank could rise to £100BN, with a full-scale nationalisation now thought to be imminent.

The trouble is, Gordon Brown is now frozen with fear; he is incapable of "urgent action".

Someone needs to "step up to the plate" and take action.

Once again my congratulations to the previous board of Northern Rock, who not only destroyed the bank but also the financial reputation of the UK.

They must be very proud of themselves!

Tuesday, December 18, 2007

Norwich Union Fined

The Financial services Authority (FSA) fined Norwich Union (NU) £1.26M for failing to protect its customers against fraud. The fine is the largest ever issued by the FSA in relation to security lapses and fraud.

The Charges

Norwich Union Life failed to take reasonable care to both assess where its financial crime risks lay and establish adequate procedures and controls to manage those risks and respond to the frauds in an appropriate and timely manner once they had become apparent.

How many policyholders were affected

- Over 632 policies were targeted by the fraudsters.

- There were 74 fraudulent surrenders amounting to approximately £3.3M in total.

Fraudsters obtained publicly available information on people who were directors of a business from Companies House, including their full names, addresses and date of birth. They phoned NU's call centres and used the data to answer security questions, alter addresses and bank account details, and surrender the policies.

Will the FSA also be fining HMRC for losing data belonging to 25 million people, and putting their personal security at risk for the next 20 years?

Monday, December 17, 2007

Trouble In Store

It seems that there is something of a spat going on between the government (ie Gordon Brown and his sidekick Alistair Darling) and Mervyn King (Governor of The Bank of England).

King is reportedly becoming fed up with Brown's dithering and inaction over the credit crisis, and the inaction by the government over Northern Rock.

In fact King has become so fed up, that he has allowed his displeasure to be leaked to the media. See The Times.

Seemingly Brown is so demoralised at his waning popularity that, like a rabbit caught in the headlights, he has become frozen with fear and unable to take/make any decisions.

King, meanwhile, faces a grilling tomorrow by the Treasury Select Committee over his handling of the crisis and his about face last week when he joined other central banks in offering credit facilities to the beleaguered banks.

This of course bodes ill for the country, a frozen Prime Minister at loggerheads with the Governor of The Bank of England spells economic disaster.

Friday, December 14, 2007


In a clear demonstration of pigheadedness and arrogance, the government has now extended Home Information Packs (Hips) to cover 1 and 2 bedroom properties put up for sale in England and Wales.

Needless to say, given the current credit crunch and ongoing decline in house prices, Hips will worsen the property market. The Royal Institution of Chartered Surveyors (Rics) said that spreading Hips to smaller properties would drive even more first-time buyers from the market.


"Our research shows they knock speculative sellers from the market.

Twenty per cent of people put their homes on the market with no initial intention of selling, but then half of them change their minds when they get a good offer.

Hips will put an end to that and shrink the market

The packs cost between £300 and £350 each and are paid for by the seller.

A complete waste of time and money.

Thursday, December 13, 2007

Central Banks Act

The Bank of England together with the central banks of America, Europe, Canada and Switzerland have woken up to the credit crunch crisis, and the dangers that it poses to the world economy. They have finally clubbed together, and will pump in over $110BN into the international money markets in a desperate attempt to ease the credit crisis.

This of course is an admission of failure in as much as it shows that the financial markets are in meltdown, and that the previous individual actions of central banks to catch the falling sword have not worked.

Banks will be able to bid for the money, in the form of loans, to shore up their finances.

Around £20BN will be put into the UK markets.

This should help.

However, it is only one side of the coin, the current turmoil has been brought about by what can only be described as stupid greedy lending by US banks to those least able to afford to be able to repay the loans and the greed of European banks in buying up bundled US debt packages.

Having dug themselves into this mess, the banks then made it worse for themselves by showing a gutless approach to lending to each other; ie they stopped interbank lending.

Fear has gripped the banks and the money markets.

As I have repeated on this site many times, the only way out of this mess is for the banks to show leadership, courage and vision and to start lending to each other again.

The trouble is it seems that there are no banks with such leadership, courage or vision.

Wednesday, December 12, 2007

Rock To Be Dropped

In a fresh humiliation to the dying corpse of this once strong and respected institution, Northern Rock is set to be dropped from the FTSE 100.

This should come as no surprise, as the bank has been destroyed by the previous board.

Once kicked out of the FTSE 100, the share price will fall further as investment funds are forced to adjust their books and sell their holdings.

I have warned on numerous occasions that this stock will end up the play thing of speculators, nothing better than Marconi shares. The company is dead, yet to be buried, the sooner the sale is agreed and finalised the better for everyone.

Tuesday, December 11, 2007

Confusion Over Rock

There seems to be some confusion over what the Bank of England actually wants to happen to the decaying corpse of Northern Rock.

Channel 4 news reported that "senior sources" in the Bank of England believed that nationalisation was the best option for Northern Rock. However, the Bank of England then denied the report (almost) by saying:

"It is not a preference.

Of course, it is a workstream that is progressing

Whatever that means!

The Treasury, quite rightly, do not want to take this into public ownership; only the rather isolated and out of touch Liberal Democrats are openly calling for nationalisation (albeit it "temporary").

In the meantime, Northern Rock Chairman Bryan Sanderson said that a decision on the fate of the bank was unlikely before Christmas.

However, it should be noted that the Treasury has drawn up a draft nationalisation Bill in case all other options to sell the bank fail.

Monday, December 10, 2007

HMRC Is Shite

I am proud to announce the birth of new website.

HMRC Is Shite

Anyone with any stories about HMRC, or who know people with stories about HMRC, please send them in.



Credit Crunch Woes Continue

Last week the Bank of England finally came to its senses, and cut interest rates by 0.25%. Given that the fear factor has now firmly taken hold of the banking sector, and has rattled consumer confidence, it is likely that the Bank of England will have to cut rates further if recession is to be avoided.

To add to the country's woes, Lloyds TSB has announced that it has taken a £201M hit as a result of its exposure to the credit crunch. Analysts had expected a "mere" £150M.

Lloyds TSB wrote down the fair value of its holdings of asset-backed securities by £89M, it also wrote down £22M of its £100 million investments in structured investment vehicles (SIVs) and taken a £90M pre-tax loss in its corporate markets business.

Lloyds TSB claims that it has enough liquidity facilities to borrow in the short-term lending markets.

Eric Daniels, the chief executive, said that the impact of the credit crunch had been more than offset by profits from selling non-core businesses and the continued health of its retail bank.

Other well known banks are rather more exposed that Lloyds, it will be revealing to see what they report in the coming months.

Friday, December 07, 2007

Flowers Pulls Out

The US buyout firm J.C. Flowers has withdrawn from the auction process to buy Northern Rock, according to Reuters.

Seemingly Flowers has found it "impossible" to structure a deal that would deliver required value for Northern Rock shareholders alongside its own profitability criteria.

Doubtless their plans were not helped by the monumentally foolish and ill timed pay rise and bonus award announced earlier this week by Northern Rock.

Rock clearly has not yet learnt the lesson the it is finished.

Thursday, December 06, 2007

Systemic Failures of British Banks

Morgan Stanley has issued a warning note saying that it has removed Bradford & Bingley from its banking portfolio, and advises people to avoid British banks:

"Our UK banks analysts suggest international investors should avoid UK banks at the moment, given the structural and systemic issues."

To add to the gloom, the Financial Services Authority (FSA) said that lending conditions could get worse and that lenders should forgo profits to protect themselves against a collapse in liquidity similar to the Northern Rock fiasco.

Against this background of depression and gloom, the Bank of England Monetary Policy Committee (MPC) meets to day to set interest rates. Analysts, whether more out of desperation than sound reasoning, are predicting a cut from its current level of 5.75%.

Whatever the Bank of England may do, it does not excuse the other banks from their responsibility for creating the credit crunch and liquidity crisis which they are all bleating about. They have the means to resolve this by simply having the guts and cajones to start lending to each other again.

Who amongst the bankers has the courage and leadership to do that?

Wednesday, December 05, 2007

Mortgage Lenders Beg For Help

The Council of Mortgage Lenders (CML) are begging the government to "urgently" support homeowners who are struggling to pay their mortgage, and restore confidence in the financial system.

CML's director general, Michael Coogan, spoke at the annual conference and said that increasing support for struggling mortgage borrowers is one of the key issues the government must face to encourage home ownership as confidence continues to falter.


"The government needs to recognise and act to address the shortfalls in the safety net of state support for mortgage borrowers in most financial difficulty.

Waiting nine months for partial support is simply not good enough to help sustain home ownership

The CML also noted that confidence in the mortgage market and wider financial system has been badly hit by the turmoil of recent months, and said that both lenders and the authorities must work to restore trust in the system.

Maybe so.

However, much of the confidence in the financial system has been eroded by the financial service providers themselves; viz:

-Excess bank charges
-Excess charges for credit and mortgage arrangement fees
-The endowment scandal
-Northern Rock
-PPI scandal
-Cold calling to sell unnecessary financial products and services
-Sub prime lending
-The self inflicted liquidity crisis etc

It is down to the financial service providers, who have destroyed the credibility of the financial services industry, to restore confidence in it.

Tuesday, December 04, 2007

Fiddling While Rome Burns

In a sure sign that both the board of Northern Rock and the union representing the staff there have collectively lost touch with reality, it has been agreed between the two bodies that Northern Rock will pay staff a bonus of £200 plus a one off payment of 2% this year together with a payrise of 4%.

No doubt, under normal circumstances, they might be deserving of a bonus and rise.

However, circumstances are very far from "normal" at the moment.

Northern Rock is relying on £30BN of public money to keep it afloat.

Seemingly Northern Rock was warned by Unite, the union representing the staff, that without its staff there would be no company left to rescue.

Well, here's a newsflash for the board and the union:


If Northern Rock is sold successfully, its name and loan book will be absorbed into the new company; it is as dead as the parrot in the Monty Python sketch.

No matter how delusional the union and the current board are about awarding pay rises, this simple reality cannot be ignored.

You do not reward people for failure.


This agreement is beyond belief, and indicates that neither the board nor the union have any grasp on reality.

This sends a very bad message indeed to the customers, shareholders and prospective buyers. It may well scupper the sell off, and quite possibly the staff will find themselves without a job in less than a year.

What use then a pay rise?


Monday, December 03, 2007

Banks Show Fear

In a clear sign of fear, banks are asking their top UK corporate clients not to draw down their lending facilities as they approach the year end.

The banks claim this "advice" is to help the banks preserve their balance sheets. In reality the "advice" is being offered because the banks have precious little liquid funds to facilitate an extension of loans to their clients.

Citigroup was one bank that asked it clients not to use the drawdown facilities. A spokesman told CNN:

"Citigroup honours its commitments to its clients but, as part of our normal business, we discuss with clients the potential use of our balance sheet. This is standard industry practice."

The banks fail to recognise that they have got themselves into this mess, and are the only ones with the ability to get themselves out of it. They need to start lending to each other again.

The reason that they have cut back on interbank loans is because they are frozen with fear.

Roosevelt once warned:

"We have nothing to fear, but fear itself."

This crisis can be resolved if the banks show leadership, courage and backbone. They need to give history a nudge and make a bold move to increase interbank liquidity.

Who amongst the bankers has such courage and backbone?

Friday, November 30, 2007

Uncomfortable Times

Mervyn King, the Governor of the Bank of England, issued a warning in terms that only a seasoned Bank of England could, that the economy is heading for a very rough patch.

He was addressing the Treasury Select Committee and warned of "rather uncomfortable" times ahead, with a "big risk" that the credit squeeze could intensify.

Whilst these warnings if used by mere mortals may not seem to be that dire, to emanate from the mouth of the Governor they are very serious indeed.

As I have noted earlier, it is fear that is the key feature of this "crisis". King said that "sheer uncertainty", and fear of what lies ahead was driving wholesale interest rates back up to levels seen at the height of the summer credit crises.

Mr King said:

"In recent months, the near-term outlook for both inflation and growth has become less benign.

For the UK, the consequences of are difficult to assess and are likely to be evident first in the housing and commercial property markets

The Monetary Policy Committee (MPC) meets next Thursday. The question is will they lower interest rates?

There are many debt burdened consumers and mortgage holders who are hoping for an early Christmas present from the MPC.

Thursday, November 29, 2007

Crisis Has Further To Run

David Blanchflower, the Bank of England Monetary Policy Committee (MPC) member, has stated that credit crisis that is damaging the UK economy and housing market has further to run, and that banks' losses could be much greater than currently estimated.


"There is still concern in the credit market."

In a less than cheery pre Christmas interview with the Birmingham Post, he indicated that worse is to come.

As such he is calling or an early interest rate cut, and is supported in that call by Sir John Gieve another member of the MPC. Given that the MPC consists of 9 members, it just requires 3 more to bring about a much needed reduction in rates.

The question is will they have the vision to do this?

Wednesday, November 28, 2007

War is Declared

Whilst Northern Rock has been all but destroyed, in terms of value and reputation by the ambitions of those who once sat on its board, the shareholders do not intend to be thrown into the dustbin of history without a struggle.

Northern Rock's largest single shareholder John Wood's SRM Global hedge fund has increased its stake in order to oppose the board backed bid for Rock by Virgin, which many shareholders believes undervalues the company.

Virgin has received the explicit backing of Rock's board, and the muted backing of Chancellor Alistair Darling. However, the two largest shareholders SRM and RAB Capital reportedly prefer a rival bid from Luqman Arnold's Olivant group.

What is rather strange in all of this is the fact that the board of Rock have not even given the rival bid any consideration.

Some are concerned that undue pressure is being applied by Darling to the board to make this problem go away as quickly as possible, thus reducing the government's exposure to the ongoing fallout.

In effect, Rock has been quasi nationalised.

SRM are having none of this and now control 8.5% of the Bank, together with RAB Capital the rebel alliance of shareholders now control north of 15%.

However, Sir Richard Branson is no shrinking violet. He has upped the ante by taking out full page adverts in national newspapers, signed by him defending the bid.

War has been declared!

Tuesday, November 27, 2007


I wrote earlier this month about the plague of cold calls that I had been receiving from Contact4 who hide behind a variety of phone numbers (eg 08445560022, 08445560020 and 016131787000) in order to evade call blocking.

I had, at the time, raised a formal complaint with the Information Commissioner's Office (ICO).

I have now received a written response from the ICO. The ICO confirm that Cobntact4 has breached the requirements of the Privacy and Electronic Communications Regulations 2003.

So far so good!

The ICO then goes on to say that the Commissioner has no powers to punish an organisation for breach of the regulations, all that he can do is write to Contact4 reminding them of their obligations.

The ICO have written to Contact4.

Seemingly Contact4 have to continue to make a pain in the arse of themselves, before the ICO will pass on my complaint to the Regulatory Action Division.

Clearly this is not a system designed to help the individual complainant.

My question therefore is this:

What is the point of the regulations, the Commissioner and the ICO if they will not enforce the regulations?

I sent the ICO a link to this post today, together with the following questions:

"Thousands of people are being plagued on a daily basis by Contact4 (do a Google on them, or their phone numbers), why do you sit back and do nothing (ie merely write to them "reminding them of their obligations")?

What is the point of the regulations, the Commissioner and the ICO if they will not enforce the regulations?

Kind regards

Ken Frost

Monday, November 26, 2007

Northern Rock

Norther Rock shares initially fell by as much as 18% in early trading today. However, as at 9:15am they had risen by 53% on the back of the board's backing for the Virgin bid.

Northern Rock Chairman, Bryan Sanderson, said:

"A solution that firmly restores the company's prospects has been identified.

Furthermore our retail depositors can be fully reassured that the government has said it will ensure savers' money is safe whatever the outcome

Source Bloomberg

Clearly I as talking bollocks yesterday, when I said that the shares would drop like a stone.

Sunday, November 25, 2007

Rock Shares Set To Collapse

I don't think it requires any skills in finance, or clairvoyance, to predict that Rock shares will fall through the floor tomorrow morning.

"A consortium led by Virgin Group plans to launch a deeply discounted share placing for Northern Rock that would value the beleaguered bank’s shares at less than half the current price.

Under the Virgin plan, Northern Rock's shares would be valued at between 20p and 40p. Virgin would inject a total of £1 billion in cash as well as its Virgin Money operation, worth between £200m and £300m, into the bank and take a controlling stake.

On Friday, Northern Rock's shares closed at 86p, valuing the bank at £361m. But the revelation of the discounted placing will put further pressure on the company's share price this week.

However, the Virgin proposal, which has financial backing from Royal Bank of Scotland and Citi, appears to have won support from the Northern Rock board. Virgin and the private-equity group JC Flowers are now the two front-runners to take control of the stricken mortgage bank. A preferred bidder could be announced within days

Source The Times.

Saturday, November 24, 2007


The government clearly has a desire to cripple the housing market, just at the point in time that it has already been dealt a severe blow by the credit crunch.

That can be the only explanation for the completely barmy idea announced this week of rolling out HIP's across all sizes and types of houses.

Utter folly!

Thursday, November 22, 2007

HMRC's Staggering Incompetence II

It seems that our Prime Minister and Chancellor are not only guilty of setting up and running an incompetent organisation, but are also guilty of trying to blame a junior for the worse breach in security ever when in fact it was senior civil servants who were responsible.

Any government with such a cavalier attitude to security and the truth most certainly should not be entrusted with running the country.

The full story from The Independent is reproduced below:

The head of the National Audit Office, Sir John Bourn, locked horns with Her Majesty's Revenue and Customs and the Chancellor last night when he said the decision to post two computer discs containing the bank details of 7 million families was taken by senior HMRC officials and not, as Alistair Darling claimed, by a junior employee.

A public row broke out between the HMRC and the NAO over who was to blame for the blunder after Sir John launched a scathing attack on the former, saying high-ranking civil servants at the HMRC ordered the data – which the NAO had not requested – to be sent to his department. His comments contradicted Mr Darling's explanation to MPs on Tuesday.

The entire child benefit database was sent via internal mail by a junior official from HMRC in Washington, Tyne and Wear, to the NAO in London via courier TNT on 18 October.

Mr Darling said the civil servant broke the rules by downloading the data to computer disc and sending it by unrecorded delivery.

Edward Leigh, the Tory chairman of the Commons public accounts committee, said the NAO had asked only for basic details about child benefit recipients, without information on personal bank accounts, but was told by "high level" at the HMRC that it would be "too burdensome" to separate this data. He said he had been given a copy of a briefing note written by Sir John for the Chancellor, which suggested that senior HMRC officials authorised the release of the sensitive information.

The note says that the NAO requested data on child benefit claimants in a "desensitised" form, with bank accounts and other personal data removed, in March but an email from a senior business manager at HMRC stated that the data would not be desensitised.

Mr Leigh said the reason given for turning down the NAO's request was that desensitising information would require an extra payment to the HMRC data services provider EDS.

The disclosures will add weight to Tory claims that systemic failures at HMRC led to the worst loss of data in British history and cast doubts on the assurances by both Mr Darling and the Prime Minister that government bodies can be trusted to keep records safe.

It also raises suspicions that an office junior at the HMRC is being made a scapegoat for failures by more senior managers. That worker, who remains unnamed, was in hiding last night as the police search for the missing discs continued and the HMRC confirmed he was facing the sack. The man, who is understood to work in the IT department of the Child Benefit Agency, has been put up in a hotel with a minder to protect his identity as the clamour for his name to be published intensifies.

A spokeswoman for HMRC said: "His future is part of the investigation that is taking place. When that is completed disciplinary proceedings will follow. One of the outcomes of those proceedings is dismissal."

Senior civil servants are concerned that there should be no repeat of the public scrutiny and humiliation faced by Dr David Kelly, the government scientist who took his own life after he was exposed as a BBC journalist's source in the row over the "dodgy dossier" produced in the run-up to the Iraq war.

Mr Leigh's committee is launching an investigation into the lax data handling systems at the HMRC. It will summon Paul Gray, the department's former chairman who quit over the scandal on Tuesday, to answer MPs' questions.

Scotland Yard said officers from its specialist economic crime unit were helping to co-ordinate the investigation on Tyneside.A spokesman said: "Our inquiries will continue for the rest of the week."

It emerged yesterday that an almost identical breach rules governing the transfer of sensitive data took place in March. The NAO received discs from the Child Benefit Agency containing its full set of data on three occasions – yet none of its officials queried the decision to send out the data in an unfiltered form.

Wednesday, November 21, 2007

HMRC's Staggering Incompetence

The HMRC and Treasury finds itself further in the mire today, as more details emerge about the colossal failures of security in respect of the loss of child benefit data.

Yesterday I wrote that 15 million people were affected, in fact the figure is a mind numbing 25 million.

The discs seemingly were only password protected, they should in fact have been encrypted. This means that the data will be very easy to access, and it is reasonable to assume that the underworld is now looking for these discs.

Security experts have lambasted HMRC for its incompetence.

Tom de Jongh, product manager at SafeBoot, said:

"Basic policies were ignored. It appears that the fundamental policies upon which the National Audit Office and HMRC operate are flawed and it is no wonder that this breach has occurred.

The Chancellor freely admits that NAO and HMRC broke clear procedures, but that will not reassure the millions of families that are praying their financial details don’t get into the wrong hands

Brian Spector, general manager for content protection group at Workshare, said:

"It is staggering that an organisation responsible for the data of over 25 million child benefit claimants is still copying data onto CDs and not ensuring its full protection through encryption techniques.

It has never been acceptable for businesses or government departments to lose data, but in today’s information society, the flagrant disregard for the protection and security of this type of data is not acceptable.

The money invested in IT by the UK government must now be prioritised on security to ensure that the data of those the government serve – the public - is secure and protected

Jamie Cowper, director of European marketing at PGP Corporation, said:

"These discs should never have been transported in the first place – information of this type should only be transmitted using the strongest security protocols available such as encrypted batch transfer – but more to the point, these details should not have been stored in this medium.

Discs are easy to lose, but difficult to protect. This type of information should only be stored on formats where the data can be encrypted transparently, so that it remains protected wherever it resides, and whether at rest or in motion

An ex member of the HMRC spoke anonymously to the BBC:

"I wasn't surprised in the least when I heard the news. The problems with Child Benefit are only the tip of the iceberg.

Morale is non-existent. Mistakes happen continuously. Rooms full of unopened post are not uncommon.

Arbitrary individual hourly targets meant that people cut corners. It doesn't matter if you make mistakes because you won't be held accountable.

There is no trust between management and staff.

You are like a number. It is utterly demoralising.

I've spoken to some of my former colleagues about the Child Benefit blunder, and they are utterly apathetic. It's just one thing on top of another.

People hate it, but after 20 years or whatever they feel they can't get a job in the private sector.

Something like this was going to happen sooner or later

The above is not only a damning indictment of HMRC but also an indictment that applies equally well to all other bodies in the public sector, and exposes the consequences of ten years of Brown's rule at the Treasury.

The damage he will do to the country as Prime Minister, were he to remain in office for that long, is mind boggling.

Tuesday, November 20, 2007

HMRC Lose Data

Congratulations to HMRC who have succeeded in losing data relating to the child benefit records of 15 million people.

That's quite an achievement, even by HMRC standards of incompetence.

Chancellor Alistair Darling, who is having less than a pleasant week (what with the Northern Rock debacle etc), is making a statement to MPs.

The confidential details were contained on a computer disc, and is understood to have been lost in transit.

HMRC's chairman, Paul Gray, has resigned.

Seemingly the Treasury and government have known of this for the past ten days. One might ask why it is only now that they have chosen to share this knowledge with the rest of us.

The answer is simple, the news leaked.

Revenue and Customs claims that it does not think that the records (names, addresses, date of birth and bank accounts) have fallen into the wrong hands.

This statement is of course complete nonsense, given that they don't know where the records are. Quite why they assume that the public are so naive and gullible as to believe their reassurances is beyond me, and adds insult to injury.

The Metropolitan Police have confirmed they are "making inquiries" into the discs.

This is the same government that would have you believe that data stored on their beloved id cards would be safe in their hands!

Northern Rock Suspened

Trading in Northern Rock shares was suspended for the fifth time in early session today, after the stock slumped more than 41%.

It has now resumed trading, and is currently down around 21% at around 82p.

Congratulations to the board of Northern Rock for destroying this once solid company with their high risk lending strategy. They have succeeded in consigning the company to the dustbin of history, in a similar manner to the board of Marconi.

The shares in Rock are now the plaything of the speculators and will see rises and falls over the coming days that will make some individuals very rich, but will be of no comfort to the long term shareholders who bought in when the stock was valued at over £12.

I trust and assume that those responsible for this will not be receiving golden handshakes when they depart.

Monday, November 19, 2007

Clock Ticking For Rock

The Chancellor of the Exchequer, Alistair Darling, is seeking guidance from the European Union authorities in Brussels about how the £20BN Bank of England loan to Northern Rock can be extended without breaching the rules.

Meanwhile, Northern Rock's board met over the weekend to discuss the proposals it has received so far.

One is from Luqman Arnold's Olivant Group, which proposes to install its own management team in the bank, and the other from Virgin Group.

Rock revealed today that the bids are less than its share price; needless to say the price this morning fell like a stone, and was trading barely above £1 in early morning trade.

Northern Rock said:

"The value to shareholders from any of the proposals (and indeed any of the other strategic options available to the company) remains highly uncertain."

Shareholders have called on the Government to call off the auction, and are far from happy with the price.

However, realistically, what can they expect?

The company is dead, and has been destroyed by the board in a similarly reckless manner as the board of Marconi destroyed that once solid company.

The shareholders should focus their ire on the ex (soon to be ex) members of the board who did this, rather than the government.

Saturday, November 17, 2007

Bloodbath at The Rock

After weeks of mounting pressure, following the destruction of Northern Rock, the CEO (Adam Applegarth) has finally been persuaded to fall on his sword and resign.

Applegarth will leave by the end of January.

His is not the only head to role in this debacle, that has seen not only a major brand/bank destroyed, but the first run on a British bank in 140 years (thus severely damaging the credibility of Britain's financial system and that of the regulatory authorities).

Matt Ridley, the much maligned and invisible chairman, resigned in October; the bank has now announced that four non-executive directors - Sir Derek Wanless, Nichola Pease, Adam Fenwick and Rosemary Radcliffe - will step down with immediate effect.

Applegarth earned £1.36M last year. Northern Rock refused to comment on whether Applegarth would receive a compensation package when he leaves the business. The more pertinent question is whether they actually would have the funds to be able to pay him.

Rock also stated that three further directors - David Baker, Keith Currie and Andy Kuipers - would step down from the board, although they would remain officers of the company.

A complete shambles, and a humiliation for Britain's financial services industry and regulatory regime.

What other horrors are lurking in the woodwork in other banks I wonder?

Friday, November 16, 2007

A Mere £1.3BN

Barclays sought to calm the markets yesterday by stating that its investment banking business could maintain its growth in spite of a write down of £1.3BN as a result of the credit crunch.

John Varley, the CEO, said that Barclays Capital and Barclays could weather storms in parts of their operations.

The bank wrote down £500m of credit, mortgage and leveraged finance assets for the third quarter of the year and an extra £800m for October.

Mr Varley said:

"We do feel confident about that [Barclays Capital's growth]. It is not unusual in an investment banking business to have some areas that are hot and some that are cold. The sub-prime area, which has not historically been a big area for us, is cold at the moment. We have other areas that are hot."

He added:

"Is the business model working well? Is the risk management working well? Is there diversification by geography and asset class? The answer is in the numbers."

Last week there had been rumours of a massive £4.9BN writedown and the resignations of Mr Varley and Bob Diamond, the head of investment banking.

Wednesday, November 14, 2007

The PPI Scandal

The British financial services industry seems to have a death wish as far as it reputation with the consumer is concerned. Not content with foisting underperforming and useless endowment products on the unsuspecting public in the 1980's, it managed in more recent years to do the very same thing with PPI (Payment Protection Insurance) products.

The payback from this wanton mis-selling is now coming back to bite them.

Brunel Franklin, a claims specialist, has written to the Financial Services Authority (FSA) highlighting a number of serious problems in the PPI mis-selling sector, including what it believes is a deliberate statistical manipulation of the mis-selling figures by the PPI vendors.

According toe Brunel Franklin, Lloyds TSB and Welcome are some of the worst offenders and are offering gestures of goodwill across the board.

Anthony M. Sultan, managing director of Brunel Franklin said:

"We believe that vendors are using gestures of goodwill to mask the true scale of PPI mis-selling from the regulator. If the significant percentage of complaints are being dealt with as gestures of goodwill, how do we know that these are being declared to the FSA as complaints and showing up as incidences of mis-selling?

Lloyds TSB are pretending that there has been no mis-sale and no formal complaint, and are hoping to sweep thousands of complaints under the carpet under the guise of gestures of goodwill.

Our suspicion is that they are not being declared to the regulator and never appear in any FSA statistics on PPI mis-selling.

This mis-selling crisis may be bigger than endowment mis-selling in terms of the numbers of people affected and the total amount of compensation due, so it is perhaps not surprising that the vendors want to play it down in the hope that it will go away.

It will not go away and we are determined to get people the compensation they are entitled to

As if endowments and PPI were not enough, the financial services industry also has "blood on its hands" wrt extortionate bank and credit card charges, credit refusals for people with good credit ratings, excess bonus payments to underperforming directors, excess management fees for underperforming investment funds and the destruction of Northern Rock.

Hardly a "stellar" performance so far!

Tuesday, November 13, 2007

Spend Spend Spend

Proving once again that they are immune to all forms of financial shocks, financial reality and the credit crunch; the British consumer intends to have a jolly good Christmas, and spend themselves out of recession.

That at least is the conclusion of a survey conducted by Deloitte.

In its annual Christmas retail survey, Deloitte found that the average person plans to spend a total of £706 on this year's festivities, up from £662 last year.

However, there is a caveat, the initial survey was carried out in September before the credit crunch started to bite. That being said, the question was reasked in November and the answer given was more or less the same.

Richard Lloyd-Owen, head of consumer business at Deloitte, said:

"Early indicators suggest concerns about bruised financial markets and consumer confidence are nothing more than concerns.

The impact of the credit squeeze could play out in coming weeks when events have had time to percolate through consumer mindsets, but we think it's unlikely

The largest portion of the increase in consumer's planned expenditure is on socialising, with the average spend expected to be £143 up 18% £121.

Quite whether people will be feeling so happy with their expenditure in January, when credit will be hard to come by, is another matter.

However, Christmas is for wants not needs.

That's the real meaning of Christmas!

The British consumer may just save the economy, let us see.

Monday, November 12, 2007


The ongoing, self inflicted credit crunch, is producing an atmosphere of fear in the City. Banks and financial institutions are seeing their share prices drop, as investors fret over which one will be next to announce profit write downs and liquidity problems arising from the credit crunch.

Barclays has decided to try to grab the bull by the horns by asking its auditor, PricewaterhouseCoopers (PwC), to help with a breakdown of Barclays' financial performance for a trading statement due on November 27.

On Friday Barclays shares were briefly suspended, as a result of rumours concerning a possible writedown of £5BN.

Barclays quickly denied the rumours, and John Varley (CEO) issued an internal memo to staff assuring them that the business was sound.

Varley, in his memo to staff, said:

"If there were any substance in the rumours that I have been hearing in recent days, we would not have been required to have made a stock market announcement. But we have not."

What we are now seeing is irrational and unsubstantiated fear undermining the stability of sound financial institutions. This needs to be stopped here and now.

As Roosevelt once warned:

"We have nothing to fear, but fear itself."

The financial services industry and the regulatory authorities need to get a grip on this, otherwise what people fear will take tangible form and the financial markets will totally freeze up.

Friday, November 09, 2007

Fiddling While Rome Burns

Thomas Huertas, acting managing director of wholesale and institutional markets at the Financial Services Authority (FSA), gave a less than ringing endorsement of the quality of staff at the FSA when speaking at the Reuters Finance Summit.


"We are operating with the team that we have. It is a high quality team. It is in our view doing the job.

We can always use better quality people. We said we would like to have more quality people and any CVs you push in our direction would be most welcome

The FSA has come under heavy fire for it's "lightness of touch" in applying principles based regulation, rather than a rules driven approach. The Northern Rock debacle has hardly helped its reputation.

Huertas claims that the full lessons from the Northern Rock debacle will not be clear until next year. Far too long to wait for that, in my view.

Asked if the FSA was operating at full stretch, as a result of the liquidity crisis, Huertas said:

"Yes, it's fair to say that.

We have business as usual to regulate and supervise 20,000 firms here in the UK and there is a huge amount of work on liquidity and capital and large exposures that have dramatically increased and our staff are stretched

He believes that it is too early to talk about shaking up the tripartite system of regulating banks.

He is wrong.

The Northern Rock debacle provides clear evidence that the current tripartite system does not work, as does the aftermath where each member of the tripartite system (Bank of England, Treasury and FSA) sought to blame the other.

The fact remains that the board of Northern Rock were allowed to destroy the company, without any meaningful intervention from the regulatory authorities.

Make no mistake, Northern Rock in its current form is finished; the fact that the board (aside from the chairman) cling on to office and the FSA claim that no changes in the regulatory framework are needed is a disgrace.

The FSA is fiddling while Rome burns.

Thursday, November 08, 2007


Whilst the Treasury, Bank of England, FSA and assorted financial experts argue amongst themselves as to the causes, cures and effects of the current credit crunch and debt crisis that is swamping the UK, they may care to consider the consequences of this to the people in the street.

There are finance companies and call centres that happily cold call thousands of people a day trying to foist unwanted, unnecessary and unwise financial products onto them. They use times of financial uncertainty to their advantage.

Whilst those of us who are financially literate can easily dismiss these calls/offers, as one would swat an annoying fly, there are many in the UK who are not financially literate and who are easy prey for these odious people.

Allow me to provide you with my own personal experience of the type of organisation that operates in this field.

Over the past four weeks or so I have been swamped with cold calls from one particular call centre operating in Scotland, called Contact4. They claim the following:

"Our team of Contact Service Consulting Specialists bring unparalleled experience and deliver the highest standards in both the Inbound - Outbound Industry.

Services provided by Contact4 are underpinned by 4 key principals: Passion, Decisiveness, High Standards and Respect

The cold calls that I have received from this group claim to be "courtesy calls" on behalf of two finance companies, one of them being Smarter Loans (oddly enough the owner of Contact4, Pearse Flynn, is also Chairman of Smarter Loans).

I have on numerous occasions said quite directly, at the beginning of the call, "no thanks" and put the phone down.

Does this stop them?


The fact that I have been receiving the calls in the first place is rather troublesome:

1 I am ex directory

2 I have not in the last year applied for any credit, nor am I financially distressed, nor am I looking for a loan or extra credit.

3 I have, for a very long time, been registered with the telephone preference service. This means that cold callers are obliged not to call me. Quite why Contact4 have nee calling me is therefore a bit of a mystery.

Last week I formally complained in writing to the Information Commissioner's Office (ICO). The ICO has legal powers to ensure that organisations comply with the requirements of the Privacy and Electronic Communications Regulations.

I have heard nothing back from them, as yet.

However, still being plagued by Contact4 I blocked the number that they used (08445560022) using BT's "choose to refuse" service this week.

That worked until last night, when I received another call from them this time using 08445560020; it seems that their computer has been programmed to navigate around phone blocks.

Fortunately the BT service I use identified the "real" number behind the calls, as being 016131787000. I called this number, and got through to Contact4.

They say they got my number from maybe a data package that they bought.

The upshot being I have instructed them to remove my number immediately, and have also blocked their 0161 number.

Whilst I am well able to say no and to see through the fine print of financial products sold in this manner, there are many who can't and who are being pushed into taking on board products they don't/can't understand or indeed afford.

I would therefore strongly suggest to the Treasury, FSA, Bank of England and all other relevant regulatory authorities that if they want to bring some form of order to our over heated and over burdened credit market they need to address the issues on the front line, such as cold calling.

Those of you who have received calls from Contact4, and want to stop them them, here are their contact details:


Glasgow HQ Address
Cirrus Building
Marchburn Drive
Glasgow Airport Business Park

Tel: +44 (0)141 305 2000
Fax: +44 (0)141 305 2001

Campbeltown Contact Centre
Kintyre House
Kintyre Business Park
PA28 6SY

Tel: +44 (0)1631 787 000
Fax: +44 (0)1631 787 001

Dingle Contact Centre
Milltown Business Park
Co. Kerry

Tel: +353 (0)66 915 3102
Fax: +353 (0)66 915 3101

Gweedore Contact Centre
Gweedore Business Park
Co. Donegal

Tel: +353 (0)74 953 3300
Fax: +353 (0)74 953 3301

Contact4 Achill
One Stop Shop
Achill Sound
Co. Mayo

Tel: +353 86 58 6515

Here is their contact webpage Contact4

Gordon Hellyar
Business Development Manager
Cirrus Building
Marchburn Drive
Glasgow Airport Business Park

Telephone: 01631 787000

Here are some of the numbers they use to call:


Wednesday, November 07, 2007

Deposit Protection

The government, during yesterday's Queen's speech, outlined its plans to bring in legislation to strengthen protection for bank depositors and institutions "in distress". This is in response to the Northern Rock debacle.

However, as with many political promises, no date has been set.

The Treasury issued a statement:

"The government is committed to extensive discussion and consultation before bringing forward legislation in the forthcoming session of parliament." Noting that the government would do nothing until is was "assured that the benefits of the proposed changes exceed the costs".

The reform would have to meet five preconditions set down by the government:

1 It must be clear and provide consumer confidence

2 Transparent on how it would work in the event of another crisis and credible within the wider market

3 Preserve "critical" retail banking services while customers find another provider

4 Maintain the UK's reputation as a financial services centre

5 Protect taxpayers' interests and ensure "appropriate cost sharing"

A consultation exercise will begin next year, therefore don't expect anything in the near future; unless of course there is another Northern Rock waiting in the wings.

Tuesday, November 06, 2007

The Silence of The Banks

Whilst the credit crunch has hit home on the other side of the Atlantic, with profit warnings issued (eg Citigroup) and the scalps of leading bankers being claimed, on this side of the Atlantic matters seem relatively sedate and calm (aside from the Northern Rock debacle).

However, there are those who believe that this calmness precedes the storm and that the silence of the banks about their exposure wrt bad debts and dubious debt bundles precedes a similar meltdown here.

Analysts are calling for British banks to give public statements about their precise exposure to the global credit crisis.

Credit Suisse warned, in a briefing note, that investors are being "spooked" by the banks' silence. The complexity of British accounting standards has allowed the banks to perform a "smoke and mirrors" act wrt disclosing their true exposure.

The Financial Services Authority (FSA) claim that banks are bound by the Stock Exchange listing rules, in the same way as other companies. However, the rules allow companies to keep information private if they are unable to quantify the size of the problem reasonably precisely.

Given the ever shifting nature of the credit crunch, that is quite an opt out clause.

Whilst the banks, the analysts and the regulatory authorities engage in theorising about the true nature and size of the crisis, the hapless British financial consumer is already feeling the effects. Banks and other financial institutions are already tightening their lending rules, and reducing the credit that they extend to consumers and potential house buyers.

It is clear that, for the consumer holding debt, matters will get a lot worse before they get better.

Monday, November 05, 2007

Sainsburys' Deal Off

Delta Two the Qatari investment group has cancelled its bid to take over Sainsburys' citing turmoil in the credit markets.

Delta Two claims that the cost of borrowing has risen significantly since it first made its 600p per share offer.

Sainsbury shares fell 18% to 454p in early trading on the news.

The credit crunch is now proving to be the convenient excuse of choice for those wishing to change their minds in respect of deals and business agreements.

Friday, November 02, 2007

Congratulations Northern Rock

My congratulations to the board of Northern Rock, or rather those members of the board who were responsible for the fiasco that has caused them to destabilise the UK financial markets and borrow emergency funds from the Bank of England.

Figures released by the BoE show that Northern Rock are now indebted to the BoE to the tune of £23BN. That is nearly £730 for every UK taxpayer.

It doesn't stop there, there is also another £20BN of retail deposits that has been indemnified by the Treasury. This brings Northern Rock's indebtedness to us (the taxpayer) to a whopping £40BN, roughly 3% of GDP.

By the way, it doesn't stop there, the BoE predict that by the end of the year Northern Rock will have borrowed £30BN.

Well done lads!

I hope that you are proud of yourselves?

Northern Rock's chairman, Matt Ridley, has resigned; when are the rest of you going?

Thursday, November 01, 2007

Bankers Discuss Northern Rock

The UK's leading banks will meet the Treasury, the Bank of England and the Financial Services Authority today to discuss whether a full inquiry is needed into the Northern Rock debacle.

The talks will be held at a meeting, hosted by the British Bankers Association, about the credit crunch.

The meeting will also focus on whether structural legislative changes are required in order to prevent this debacle happening again. In other words the tripartite system of regulation has failed, and changes need to be made.

Wednesday, October 31, 2007

Darling Does U Turn

Alistair Darling, Chancellor of The Exchequer, has done a U turn over his plans for single rate 18% capital gains tax.

Having unleashed a storm of protest from business groups (such as the CBI) who complained that the removal of tapering relief would damage entrepreneurship, Darling has agreed to give £100K in tax relief for owners of small businesses who sell up and retire.

Therefore where will Darling now find the extra money needed to meet his U turn on CGT?

What the Chancellor gives with the one hand, he takes with the other.

Tuesday, October 30, 2007

Taxpayers Can Sue HMRC

The court of appeal ruling in favour of Neil Martin a builder who lost £500K, as a result of errors made by HMRC when it processed his company's Construction Industry Scheme (CIS) application in 1999, leaves HMRC open to being sued by taxpayers for errors.

The ruling means that HMRC has a duty of care to taxpayers, and taxpayers may now sue HMRC for damages in certain circumstances.

This is particularly relevant in cases where the HMRC help taxpayers with their returns.

The result will of course mean that HMRC will no longer offer taxpayers help in completing their returns, as such the process of submitting a return will become even more tortuous and difficult to complete.

Monday, October 29, 2007

House Prices Fall

House prices in Britain fell for the first time in two years in October, according to a survey by Hometrack.

The average cost of a home in England and Wales declined 0.1% to £176,100 from September. Whilst prices in central London fell by 0.5%.

Consumers are now sitting on debt of over £1.4 trillion.

The Bank of England stated that UK banks have approved the fewest mortgages in 26 months in September. Lenders have granted 102,000 loans for house purchases, the fewest since July 2005 and down from 108,000 in August.

The Bank of England needs to wake up to the fact that, whatever its high moral principles about excess debt, there are a large number of people sitting on debt that they cannot afford to service.

Like it or not, cuts in rates are necessary to avoid the economy going into freefall.

Friday, October 26, 2007

UK Economy Vulnerable

The Bank of England has warned that the UK economy remains vulnerable to the reverberations from the global credit squeeze. The BoE makes special mention of the fact that the commercial property sector is particularly "prone to further shocks and to rises in the cost of finance".

In its financial stability review the BoE also warns that equities are vulnerable, and that the US dollar might fall sharply "if the change in investor sentiment towards US securities experienced recently were to persist".

Given this warning, it will be interesting to see if the BoE translates its words into actions such as reducing interest rates.

Wednesday, October 24, 2007

Lack of Understanding

A study by CreditExpert reveals that most people have a "worrying" lack of understanding about the financial impact of rising interest rates on mortgage payments.

An astonishing 70% of those questioned did not know the effect of a 0.5% interest rate rise on a £100,000 mortgage.

The study also revealed that 80% of five mortgage holders do not know what their Annual Percentage Rate (APR) was.

Given this appalling level of financial ignorance in the UK it is hardly surprising that the banks, credit card companies and other organisations within Britain's lousy financial services industry treat their customers with such contempt.

Tuesday, October 23, 2007

Darling Digs Heals In

Alistair Darling, the Chancellor of The Exchequer, dug his heels firmly into the ground yesterday; when he met with business leaders who were pressing him to change his plans to abolish tapering relief on capital gains, and replace it with a flat rate 18% charge.

Darling refused to be moved by their pleas.

The Director General of the CBI, Richard Lambert, put a brave face on it and said that the talks had been "positive". He claimed that the Treasury had to look at ways to encourage entrepreneurs.

The CBI, British Chambers of Commerce, Institute of Directors and Federation of Small Businesses believe that the change will negatively impact small businesses and entrepreneurs.

Mr Lambert said:

"We believe the pre-Budget proposals represent a significant step in the wrong direction for the UK economy, and we will continue to press the case for them to be changed.

As things stand, they will hold back vital investment in businesses of all sizes and send out totally the wrong message about the Government's attitude to enterprise

That's probably very true. However, the announcements made by Darling wrt the tax changes were not done on the basis of sound economics but out of political expediency. Gordon Brown had run scared of an election, and the Tories fox (wrt inheritance tax) needed to be shot.

The remaining years of the Brown/Darling "partnership" will be unhappy ones for the British economy, political short-termism and fudge will replace any semblance of fiscal probity.

Monday, October 22, 2007

The Long Goodbye

The Chairman of Northern Rock, Matt Ridley, finally resigned on Friday after enduring several weeks of humiliating media articles and a grilling last week by the Treasury Select Committee that left his reputation and the reputation of the board in tatters.

During the weekend it emerged that he will not receive a pay-off from his £315,000 a year job.

The Treasury Select Committee accused him of "damaging the good name of British banking".

This is but the first head to roll, the question is will the others leave without a pay-off?

The Treasury Select Committee will now call investment banks, ratings agencies and accountants for a new series of hearings; after widening the terms of reference of its inquiry into the credit crunch.

The hearings will last until at least the end of 2008.

Friday, October 19, 2007

IMF Warning on House Prices

With the price of houses in the UK now standing at nine times the average salary, the IMF has finally decided to suggest that there is a high risk that property prices in the UK may fall.

In their view house prices are overvalued by 40%.

However, the report ignores the fundamental structural weaknesses of the UK housing market which in fact underpin the prices:

1 There is a shortage of supply

2 There is an inherent desire to own property

3 There is a large variety of readily available mortgages

4 There are large numbers of wealthy foreigners seeking property in the UK

5 City mega bonuses are distorting the London market, the ripples from which affect the rest of the UK

Only when the above 5 points have been reversed, or nullified, will the property market crash.

Thursday, October 18, 2007

Debt Funds Debt

Shelter issued the results of a poll this week, that shows that over a million householders are using credit cards to pay their mortgage or rent.

The survey, conducted by YouGov for the charity's magazine Roof, polled 2,000 households last month. It found that 6% (over 1M) of householders paying mortgage or rent reported using a credit card to make payments. This figure rose to 7.5% of younger people aged 18-24, who were trying to keep a foothold on the first rung of the housing ladder.

Adam Sampson, Shelter's chief executive, is quoted in the Guardian:

"The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs, are rapidly rising. For many people trying to keep a roof over their head, desperation is driving them to short-term, high-cost borrowing."

Mainstream credit card companies charge interest at between 15% and 18%. However, the less reputable companies charge people with poor credit ratings 40% or more.

Using short term, high interest, debt to finance a long term capital commitment is the route to disaster. However, given the dire situations that some people now find themselves in it is difficult to see what else they can do without downsizing their property or rescheduling their debt.

Wednesday, October 17, 2007

The Great Credit Card Con

Not content with their already lousy reputation, Banks and credit card companies in Britain are determined to dig a further grave for themselves and the British financial services industry.

Campaigners allege that banks are deliberately deceiving customers who try to reclaim default charges on their credit card bills. Banks have been telling courts to halt their cases, because of a separate decision affecting efforts to reclaim overdraft charges.

In April 2006, the Office of Fair Trading (OFT) said it would not challenge the legality of credit card default fees, so long as they were set at a level no higher than £12. Therefore many people are entitled to reclaim fees in excess of this amount.

Martin Lewis, of, said

"Many banks are outrageously trying to apply the hold on bank charges reclaiming, to credit cards reclaiming, even though the Office of Fair Trading already sorted this out back in April 2006."

The British Bankers' Association deny this:

"This only applies to current accounts and should have no effect on credit card claims.

The Financial Services Authority is monitoring how this is working

A somewhat lame excuse, as it attempts to pass responsibility to the FSA.

Is it any wonder people have lost faith in the financial services industry, and loath banks and credit card companies?

Tuesday, October 16, 2007

Northern Rock's Directors Face Grilling

Top executives from Northern Rock are currently being grilled by MPs at the Treasury Select Committee. Chief executive Adam Applegarth, Chairman Matt Ridley, non-executive directors Sir Ian Gibson (who is also deputy chairman of Morrisons and chairman Trinity Media) and Sir Derek Wanless are are among those who are facing the committee.

Committee deputy chairman Michael Fallon kicked off the proceedings, setting the tone, with a cutting question as to whether the hapless directors actually "know what's happening at their own bank".

Seemingly the directors are employing the tactic of blaming "unexpected events". Maybe they should have taken Prime Minister Macmillan's comments many years ago, as to what knocks governments off course ("events dear boy"), to heart.

On being pressed by Fallon as to why no one has resigned, Ridley said that his resignation is there if the board wants it.

Well, what's stopping them accepting it?

It is going to be a long day for these hapless directors!

Monday, October 15, 2007

Virgin Takes a Punt on Northern Rock

Sir Richard Branson's Virgin group is trying to take a punt on the corpse of Northern Rock. Virgin has put together a consortium to take control of Northern Rock.

It is in the public domain that there are two other bidders for the Rock, private equity firm JC Flowers and hedge fund Cerberus.

Virgin's consortium includes AIG, the insurance company, and the London hedge fund Toscafund which is headed by the former Royal Bank of Scotland chairman Sir George Mathewson.

In order to boost its credibility, wrt being able to pull off the bid, the consortium are looking for a well respected banking veteran who could take control of the Northern Rock board and reassure regulators, politicians and the financial markets.

The Virgin wishlist, according to the Guardian, includes Sir Brian Pitman and Sir Peter Ellwood ex ceos of Lloyds TSB, former Bank of Scotland chief Sir Peter Burt and HBOS chief executive James Crosby.

The Virgin consortium says that it will inject around £1BN in cash into Northern Rock, together with the Virgin Money business (estimated to be worth £200M).

The consortium would be issued new shares, at a deep discount to the current price, giving it around 50% of the bank. The Northern Rock name would be killed off and the new bank would be called Virgin Money.

JC Flowers and Cerberus have made it clear that current shareholders would receive very little in the event of a takeover.

Given the public offers on the table, and the fact that the sharehodlers are clearly not going to receive very much, it is very surprising to see how the shares have rallied last week. This morning they have fallen by 27% to 199p.

However, anyone currently holding shares in this company must face the reality that the current price may now be incredibly volatile and not necessarily reflect the true "value" of the company; as Northern Rock is now the plaything of the speculators.

As I have already noted several times before, this share now strongly resembles the dying days of Marconi's listing on the FTSE.

Friday, October 12, 2007

Early Warning System

Alistair Darling, the Chancellor of The Exchequer, is going to propose the introduction of an international early warning system of potential financial market turbulence at the G7 meeting in Washington this month.

Darling believes that an alert system would strengthen surveillance of the financial sector.


"I will urge faster, rapid implementation of international agreements on solvency, accelerated work on international standards for regulating liquidity, more transparent information on credit ratings and action to improve the transparency of off-balance sheet vehicles."

The danger of an early warning system is that, if it too sensitive, it may just spark the panic and meltdown that it was trying to avoid (such as the case with automatic share trading systems, that sell shares when their price moves beyond certain preprogrammed parameters).

Thursday, October 11, 2007

House Prices Fall

The Royal Institution of Chartered Surveyors (RICS) report that house prices across the UK fell last month, at the fastest rate for two years.

RICS stated that in September, 14.6% more surveyors reported a fall in prices rather than a rise. In August 3.3% more surveyors that reported a fall over a price rises.

In another indication that the property boom is over, new buyer enquiries fell for the tenth consecutive month.

Jeremy Leaf, a spokesman for RICS, is quoted in the Guardian as saying:

"The combination of rising interest rates, the introduction of home information packs and volatility in the financial markets resulting in tightening of lending criteria, has certainly affected the confidence of buyers and sellers.

As a result, some would-be buyers are turning to the rental market

Mr Leaf is of the view that the housing market is in for a soft landing, rather than total collapse, on the assumption that there are no other shocks to the economy.

London, as ever, showed a small rise in prices; as the market there is boosted by wealthy foreigners and those on multi digit bonuses.

Wednesday, October 10, 2007

The Safest Bank in The Country

Congratulations to Northern Rock for achieving something of a miraculous volte face. Instead of remaining the pariah of the banking world, unloved and untrusted by any of its depositors, it is now the safest bank in the UK for depositors to place their money.

How did Northern Rock achieve this 180 degree turn around in its fortunes?

Suffice to say, it has nothing to do with the actions of the board!

The Treasury has stepped in, and guaranteed all deposits until financial markets become less volatile. This means that money deposited after September 19th will now be covered by the Bank of England, the Treasury and the Financial Services Authority. The authorities previously only protected deposits made before then.

This news, whilst cheering for the depositors, also gave the long suffering shareholders some respite as well. Shares rose yesterday by 20% to 206p, as the news gave Northern Rock (irreparably holed below the water line) more time to sell itself to third parties.

The talks with third parties are likely to drag on for a few more months.

Needless to say, this debacle should never have occurred in the first place. Had Northern Rock's directors operated a more sensible business model, and the FSA actually done their job of monitoring the situation, much heartache and financial loss would have been avoided.

As if by chance, the Financial Services Authority (FSA) Chairman Callum McCarthy found himself being grilled on this very subject by the Treasury Select Committee yesterday.

Discussing the ability, or rather lack of ability, to predict the closure of the markets both for securitisation and for short-term repurchase agreements, he said:

"We didn't identify the probability of that happening.

No regulator anywhere around the world succeeded in predicting that

Not everyone was particularly impressed with his performance. Sion Simon, a Labour Party member of the committee, said that he had heard that relations between the FSA and the Bank of England were "poisonous" and compared McCarthy to a boxer.


"You are the Sugar Ray Leonard of the financial-services sector. You are a world-class ducker and diver.

There was a run on the bank, the nation was a global laughing stock, and you say the provisions worked

The first run on a British bank in 140 years, quite a success in the FSA's narrow view of the world! A shambles and an embarrassment by anyone else's standards.

It is clear the the tripartite market monitoring system introduced in 1997, whereby the Treasury, Bank of England and FSA, share an uneasy responsibility for watching over the financial services industry, is not working.

One of these bodies will have to be placed in charge over the other two, and made responsible for monitoring and regulating the markets.

Unfortunately, given the nature of the parties involved, there is likely to be a protracted turf war for which body takes on that role. In the meantime, the UK financial services industry and the UK economy will be left exposed to further shocks and scandals.

A very shoddy state of affairs indeed.

Tuesday, October 09, 2007

The FSA's Light Touch

The BBC's Panorama programme last night exposed the precarious foundations of Britain's housing price bubble and credit boom, as it highlighted a number of "criminally" negligent cases of mortgages being provided to people who had no hope of ever affording them.

One such case being that of Emmanuel Blango, a psychiatric nurse who earns around £25K per annum. He was awarded a a sub-prime mortgage from the Alliance and Leicester for £300K, and another mortgage for £200K from Platform which is part of the Britannia Building Society.

Unsurprisingly Mr Blango is having trouble paying the interest, and has had his second flat repossessed.

Panorama noted that around 70% of the 7000 repossessions over the last 3 months are down to sub prime lending.

The reasons for this boom in "risky" (for want of a better word) lending are as follows:
  • The commissions earned by the mortgage salesmen, who target the financially naive, are distorting their "ethical" principles when they advise their clients.

  • The lax checks performed by banks and building societies on mortgage applications.

  • The bundling of the debt by City institutions for immediate resale, thus paying off the first lender and eliminating the original lender's risk.

  • The light touch of the FSA in regulating the market and enforcing its rules.
The extent of sub prime mis-selling is reminiscent of the endowment scandal of the 1980's.

It is regrettable that despite the lessons that the FSA should have learned over the endowment mis-selling scandal, it appears not to have taken them on board in its regulation of the sub prime mortgage market.

The UK faces the very real threat of a housing price collapse, and economic chaos, as the number of defaulting sub prime mortgages increases.

Why has the FSA allowed this to happen?

Clearly the FSA, in its current form, is not fit for purpose.

Monday, October 08, 2007

The Failings of The FSA

The Commons Treasury Select Committee will haul The Financial Services Authority (FSA) over the coals tomorrow, for its failure to adequately supervise Northern Rock.

The committee will question Sir Callum McCarthy, the FSA chairman, and Hector Sants, the chief executive, about Northern Rock's growth and "risky" business model.

Seemingly Northern Rock may have just saved itself from extinction, in the short term, by agreeing a £10BN loan from Citigroup. This will help fund its ongoing operations and reduce its dependency on more expensive Bank of England funds, while it continues negotiations with possible buyers.

An FSA spokesman is quoted in The Times:

"We don't object to securitisation per se. There are some benefits in terms of spreading risk, but it has to be done sensibly."

A child of ten could see that the Rock's model was hardly "sensible", the question therefore remains "was the FSA asleep at the wheel?"

Rock's shares rose to 171p this morning, as speculators gave it is some breathing room. However, a bank so heavily indebted can hardly be said to have a rosy long term future. Those who hold shares in this company are in for quite a few sleepless nights.

Friday, October 05, 2007

The Cost of Houses

The average house price in London has risen above £300K for the first time ever.

Figures released by Nationwide and Halifax building societies show London house prices have gone up from £260,644 to £302,486, and for first time buyers they rose to more than £260,000.

Yesterday the Bank of England chose to keep interest rates on hold.

Thursday, October 04, 2007

Post Office To Offer Mortgages

The Post Office is launching a new mortgages product in the North of England. Despite denying it, the timing and area of the product launch coincides nicely (for the Post Office) with the Northern Rock debacle.

The three new products, offered in conjunction with Bristol & West, include a fixed-rate mortgage and a buy-to-let deal; they will be promoted in 100 Post Offices across the region.

If the trial run is successful, the mortgages will be rolled out in the Post Office's 1,600 branches across the rest of the country at the beginning of next year.

The Post Office mortgages consist of a three-year fixed rate at 6.09%, a three-year variable-rate at 0.8% below the Post Office's standard variable rate, currently charging 6.44%, and a buy to-let loan, fixed at 6.35% for three years.

These rates are not the best on the market, and potential borrowers would be well advised to shop around.

Whilst the Post Office dabbles in activities not normally associated with its core brand, it faces rather serious issues in its mainstream business.

The announcement that it will close 180 post offices has not gone down well, and the postal strike that will last this week and part of next week will not help secure its future. Customers will inevitably seek other, more reliable, service providers.

Wednesday, October 03, 2007

Northern Rock

The FT reports that Northern Rock will hold talks with a US private equity firm JC Flowers, these talks may lead to a takeover bid.

The shares in Northern Rock rose a meagre 9% on the news, to around 146p (they have been trading at over £12 less than 12 months ago).

In other fallout from the Northern Rock debacle, the Bank of England's offer of £10BN of emergency liquidity remains unwanted, untouched and unloved.

Banks are instead flocking to the European Central Bank (ECB), which is offering far better terms and the guarantee of anonymity.

The "Old Lady of Threadneedle Street" appears to be somewhat out of touch with the markets these days, that should be a matter of concern to us all.

Tuesday, October 02, 2007

Ninja Mortgages

According to The Guardian there is evidence of an abundance of, what Americans call, Ninja mortgages (No Income, No Job or Assets) having been sold in the UK.

These mortgages and debts are, when looked at in the cold light of day, unaffordable by many of the people who are sold them. However, that doesn't seem to have stopped brokers and banks foisting them on the unwary.

The reason for this wanton disregard for financial probity is simple, commission. Brokers are paid a nice fat commission for selling these products, and therefore have a vested interest in selling as many as possible.

Which? claim that the rot set in during the 1980's with endowment mortgages.

Since then, the financial services industry in Britain has been happily destroying its reputation and most probably the economy.

Monday, October 01, 2007

Northern Rock

It looks like Northern Rock will be broken up, in a hastily arranged fire sale. The BBC reports that Cerberus and JC Flowers, two US investment funds, are interested in buying its home loan book.

The Treasury, now effectively in charge of Northern Rock, have given the two funds permission to engage the Northern Rock board.

This of course is bad news for the shareholders of Northern Rock who have seen their shares fall in value from over £12, to less than £1.80. As I have noted before, this story bears more than a passing resemblance to the decline of Marconi.

The UK Shareholders' Association have called on the Treasury to support the bank's shareholders, arguing that they should be protected against further losses by the government.

I would say that there is zero chance of that happening. Quite what the "take out" price for the bits and pieces of Northern Rock will be, is anyone's guess. However, Marconi was all but effectively wiped out,as it was gradually sold off.

Those that ignore the past, are destined to relive it.

Friday, September 28, 2007

Northern Rock Borrows £8BN

It transpires that Northern Rock has borrowed another £5BN from the Bank of England, bringing its indebtedness to the BoE close to £8BN.

This means that Northern Rock has now borrowed the equivalent of 33% of its retail deposits at the end of June.

How long has this bank got left in its present form?

Who will buy it, and at what price?

Thursday, September 27, 2007

The Banana Republic of Great Britain

Richard Lambert the Director General of the CBI put the boot into Britain's financial services industry yesterday, by likening the regulatory system's failure in its handling of the crisis at Northern Rock as akin to something from a "banana republic."


"Outside the movies, a run on the bank is something that happens in a banana republic.

That one should have happened, under our noses, in a mature and prosperous country like the UK, is almost unimaginable

He poured scorn on the tripartite system, whereby financial regulation is split between the Treasury, Bank of England and the Financial Services Authority, saying that it had "failed to deliver the goods" and needed to change.

Adding that the Bank of England's lender of last resort facility should be reassessed, and rules governing how deposits are protected must also be overhauled.


"No institution will ever go down that route again if it remains unchanged. What happened to Northern Rock is just too grim a precedent."

It all comes down to confidence in the system, regrettably as a result of numerous scandals (endowments, pensions, bank charges, over zealous lending etc) people in Britain have totally lost in the financial services industry.

It will take more than a revamp of the tripartite system to restore that confidence.

Wednesday, September 26, 2007

Northern Rock Caves In

Northern Rock finally caved in to pressure from politicians and taxpayer groups, and cancelled it £59M interim dividend. The 14.2p-a-share dividend was due to be paid next month to shareholders on the register at the end of this week.

Thus hammering another nail firmly into the coffin of the shareprice.

Northern Rock is now trying to sell itself, potentially to investors who target distressed assets.

Selling Northern Rock, possibly in pieces rather than as a whole entity, will effectively wipe out the remaining share price. The shares have fallen 74% since the bank said it was having credit problems 12 days ago.

The bank, trying to shore up its share price, said after the close of trading yesterday that it had received several approaches. Talks are preliminary and no price has been mentioned, it said.

This situation is beginning to resemble the Marconi debacle, where stock that once traded at above £12 ended up being traded for 12p.

Tuesday, September 25, 2007

Speculators Target Sterling

Speculators are targeting Sterling, in the belief that the Bank of England does not have enough money to head off the continuing credit crunch, and that it will be forced to cut interest rates.

Bloomberg notes that the UK's Financial Services Compensation Scheme has £4.4M to protect deposits, compared with $49BN in a similar fund in the US.

It will be interesting to see how the Chancellor's plans to offer a £100,000 guarantee to all savers will be financed. The banks will most assuredly target their customers for any "perceived" increase in their cost base arising from the implementation of this scheme.

Monday, September 24, 2007

Heads Should Roll

Alistair Darling used his inaugural Labour Party conference speech as Chancellor to drop a very large hint that, in his view, senior managers at Northern Rock should lose their jobs over the recent shambles.

AIA Accountant of The Year

Following on from my earlier note, about being nominated for "Accountant of The Year" for The Association of International Accountants (AIA), you may be interested to know that I have made it through to the finals.


AIA President's Awards 2007

Congratulations to the finalists and to all those who were short listed. Winners will be announced at the President's Dinner on 21 November 2007.

AIA Accountant of the Year


Ken Lever, Helen Weir, Ken Frost.

Short listed
Ken Lever, John Griffith-Jones, Helen Weir, Jon Symonds, John Connolly, Ken Frost.


An award designed to recognise organisations' accountancy stars. Firms, businesses and institutes are encouraged to make nominations, though individual entries are also welcome. Open to all qualified accountants whether in business, practice or public services.
  • Nominees must have demonstrated sound judgment, technical skill, innovation and leadership ability.

  • Nominees must have demonstrated dedication to clients.

  • Nominees must stand out from their colleagues as an accountant who has made significant impact, taking into account the length of their career in accountancy and any notable obstacles they have had to overcome.

  • Nominations should include any work related activities undertaken and broader contribution to the profession.

  • Nominations should include their contribution to the community.
Source AIA

The two other finalists are:

Ken Lever

Finance Director Tomkins plc
Age: 52

Appointed to the Board of Tomkins plc in November 1999. He is a non-executive director of iSOFT Group plc. He is a Chartered Accountant and a member of the ICAEW Financial Reporting Committee and Chairman of the Hundred Group Financial Reporting Committee. He has held executive directorships at Albright and Wilson plc, Alfred McAlpine PLC and Corton Beach plc and was a partner in Arthur Andersen.

Helen Weir

Group Finance Director Lloyds TSB

Joined the board in 2004. Group finance director of Kingfisher from 2000 to 2004. Previously finance director of B&Q from 1997, having joined that company in 1995, and held a senior position at McKinsey & Co from 1990 to 1995. Began her career at Unilever in 1983. A non-executive director of Royal Mail Holdings and a member of the Accounting Standards Board. Aged 45.

Wednesday, September 19, 2007

Northern Rock

Whilst the depositors in Northern Rock may now feel relaxed, the shareholders are in a very different position.

Shares are down 8%, and are currently trading at 280 pence (off a low of 246 pence).

This is rapidly becoming a "traders" share, as stake sales from two investors reignited concerns over Northern Rock's future.

The drop is explained by traders as being due to possible offers for takeover at around 200 pence or lower.

Tuesday, September 18, 2007

Northern Rock

Chancellor Alistair Darling, speaking after the stock market closed on Monday, said that if necessary the government and the Bank of England would guarantee all existing Northern Rock deposits during the current instability.

This intervention appears to have calmed market nerves, as shares in Northern Rock currently stand 11% up on yesterday.

The banking system and the indeed the whole financial system can only work if people have confidence in it; it seems that the actions by the Chancellor, certainly in the short term, have restored some confidence.

That being said, the "shorters" will do their best to test the resilience of the share price.

Monday, September 17, 2007

Northern Rock

Bloomberg notes the following:

"The cost of overnight borrowing in pounds rose the most since June as the bailout of U.K. lender Northern Rock Plc stoked concern other home-loan providers will be forced to seek emergency funding.

The overnight rate banks charge to lend pounds soared 60 basis points to 6.47 percent today, the highest in more than a month, according to the British Bankers' Association. The three- month rate fell 7 basis points to 6.75 percent, the BBA said

Northern Rock's share price is currently down 34% on the day.

The time has come for the Bank of England to:

1 Lower interest rates

2 Knock some heads together in the City, and ensure that the self imposed moratorium by banks on interbank lending is lifted

Should the Bank of England fail to loosen interbank liquidity, other banks will start to wobble. Bloomberg notes that Bradford & Bingley Plc and Alliance & Leicester Plc also rely more on financial markets than customer deposits to fund mortgages.

It is time for the Bank of England to get off the fence.

Northern Rock

Monday morning is proving to be a "grey day" for shareholders in Northern Rock, as they saw the share price plunge by 29% in early trading to 311 pence.

Friday saw the price fall by 31%, as the Bank of England agreed an emergency lending facility for Northern Rock.

Whilst it is clearly bad news for shareholders and those wishing to take a mortgage out with Northern Rock, the fall in shareprice and liquidity issue should not worry savers with money sitting in Northern Rock accounts.

The fact that the Bank of England has agreed to cover Northern Rock's liquidity means that savers will not lose their money.

The reality will be as follows:

1 Northern Rock will be taken over at a bargain basement price

2 The mortgage market, and hence housing market, will be adversely impacted.

That being said, people are still queuing to withdraw their savings from Northern Rock, why?

1 The herd instinct of fear

2 The sadly British lack of understanding of how the financial markets work

3 A complete lack of trust in the financial services industry.

The blame for the latter can be laid fairly and squarely at the door of the financial services industry, which has foisted on the hapless British public a plague of disasters including:

-The endowment crisis
-The pensions crisis
-Excess bank charges
-Irresponsible lending
-Conspicuous greed (eg mind boggling bonus payments to senior bank executives)
-Offshore call centres
-Impersonal banking etc

Who can blame the public for no longer trusting the financial services industry?

The financial services industry will now have to work very hard indeed to regain the public's trust, I wonder if they have realise quite how hard they will have to work and whether they will ever regain the public's trust?

Sunday, September 16, 2007

Northern Rock

Northern Rock two years ago was the only bank to offer mortgages of up to 125% of a property's value (or 95% of value plus up to £30K) and up to six times borrowers' income.

Is it possible that, by being so "generous" with its loans, it has brought this mess that it is in upon itself?

The Telegraph takes the view that Northern Rock was doomed:

"No other lender has been more aggressive in growing its share of the ever-more inflated UK housing market.

No other bank has gorged itself on cheap debt to the same extent in order to maintain its relentless growth profile.

No other bank has been so dependent on short-term cash from the money markets to keep funding its business model.

There has always been a school of thought that believed Northern Rock was an accident waiting to happen

The Sunday Telegraph quoted a source close to Northern Rock as saying if its shares fall heavily again on Monday, then a fast break-up and sale of its assets "looks inevitable".

In other words, Northern Rock will cease to exist and be taken over.

This should not adversely affect those with savings in the bank (note: had the Bank of England not stepped in, then the position of savers would be entirely different and they could face losing everything). However, it may well adversely affect the mortgage market and hence house prices.

In case you are wondering who will end up footing the bill for the Bank of England bail out of Northern Rock; it will be us, the taxpayers.

Saturday, September 15, 2007

Northern Rock

In scenes reminiscent of "It's a Wonderful Life" Northern Rock experienced a good old fashioned run on the bank yesterday, as customers queued to withdraw their money.

About £1BN, 4-5% of retail deposits, was withdrawn on Friday; it is claimed that there are queues forming today as well.

As ever, with matters of finance, the hapless citizens of Britain have got hold of the wrong end of the stick. There is precious little likelihood of their savings in Northern Rock disappearing, as the bank is not about to go bust.

The danger in fact is posed to those who wish to borrow money for a mortgage. Northern Rock and other lenders simply do not have the liquidity to lend money on the scale that they were doing before.

The result?

Falling house prices.

That's where the danger lies!

Friday, September 14, 2007

Northern Rock

Northern Rock, Britain's fifth biggest mortgage lender, has been forced to go cap in hand to the Bank of England to secure emergency financial support.

Today the Bank of England provided that emergency financial support, as Northern Rock became the first major British bank to be severely hit by the US credit crunch crisis.

Northern Rock also issued a profits warning, stating that profits would undershoot forecasts by £147M.

The Chancellor of the Exchequer, Alistair Darling, took a side swipe at American financial practices by noting that Northern Rock's problems might have been avoided had US banks not been so willing to offer cash to borrowers with poor credit histories.

The Bank of England stated:

"The Chancellor of the Exchequer has today authorised the Bank of England to provide a liquidity support facility to Northern Rock against appropriate collateral and at an interest rate premium.

This liquidity facility will be available to help Northern Rock to fund its operations during the current period of turbulence in financial markets while Northern Rock works to secure an orderly resolution to its current liquidity problems

Darling waded into the American financial system by saying:

"Right across the world, banks and financial institutions do need to be clear who they are lending to... If you look at the root causes of all this problem in the United States, perhaps if someone in America had actually looked closely at who they were lending the money to ... then some of these problems might have been avoided."

The share price of Northern Rock has fallen 25% this morning to 482 pence. Not surprisingly, Northern Rock management are believed to be talking to investors who have seen their investments collapse as a result of the Bank of England bailout.

There are two lessons to be learnt here, both by the "man in the street" and the so called "sophisticated" financial institutions:

1 Don't borrow more than you can afford to pay back.

2 Don't use complex financial instruments, and sign agreements, that you don't understand.

Thursday, September 13, 2007

Bank Charges

As the date for the court appearance by eight banks, who will be taken to court in January by the Office of Fair Trading (OFT) for allegedly unfair bank charges, draws ever nearer; some banks are trying to show "some flexibility" in their approach to their customers.

Thisismoney reports that Lloyds will be the first bank to reduce its overdraft charges.


"On November 2 Lloyds will introduce a monthly charge of £15 and a sliding scale of daily charges of between £6 and £20 instead of its previous daily charge of £30 for unauthorised overdrafts."

Whether this mollifies the OFT, or is the start of a price war between the banks, remains to be seen.

The list of shame includes; Lloyds, Abbey, Barclays, Clydesdale Bank, Natwest and its owner HBOS, HSBC, The Royal Bank of Scotland and Nationwide Building Society.