Congratulations to Nick Macpherson, Permanent Secretary at the Treasury on an annual salary of £196,400 and friend of Gordon Brown, who has been knighted for his handling of the banking crisis.One small problem, the crisis hasn't yet been solv...
Wednesday, December 31, 2008
Tuesday, December 23, 2008
Statistics
The Times reports:"Britain's economy shrank during the third quarter of the year for the first time since 1992 and endured the worst single quarter since 1990, it was revealed today. The Office for National Statistics (ONS) said gross domestic product (GDP) from July to September was down 0.6 per cent on the previous quarter. The contraction came at a faster rate than previously thought, and was down from last month’s initial estimate of a 0.5 per cent contraction."Given the fact that the figures supplied by the ONS are, more often than not, unreliable...
Monday, December 22, 2008
Slow Witted
The Times reports:"The Bank of England's Deputy Governor for Financial Stability has admitted that the central lender failed to grasp the full scale of Britain’s economic problems before the current financial crisis erupted. In an edition of Panorama, to be screened tonight, Sir John Gieve tells the BBC that the Bank was aware that a bubble was developing in the housing market, as well as in the price of other assets, and that it was being fuelled by “crazy borrowing”. However, it failed to comprehend how serious the problem really was and what...
Friday, December 19, 2008
Sink or Swim Together
As the recession deepens, it is "heartwarming" to note that it is not just the ordinary citizens and businesses of Britain that are deeply in debt but also the government.The Times reports that the Treasury plunged a record £16BN into the red in November. Given that the recession is still in its early stages, this does not bode well for government finances.However, at least the government now knows the pain that the rest of the country fee...
Thursday, December 18, 2008
National Lending Scheme
Alistair Darling, exasperated by the banks' refusal to resume lending, is (according to The Times) considering a national lending scheme.Under the scheme the government would guarantee new lending to businesses, on the condition that it is genuine new lending and not an attempt by the banks to reschedule old loans/debt.Ironically figures from the Office for National Statistics (ONS) show an unexpected rise of 1.5% in retail sales in the UK last month. Needless to say, the veracity of the figures are being called into question.Like it or not, unless...
Wednesday, December 17, 2008
Virtual Zero
The Federal Reserve put its money where its mouth is, wrt making all efforts to kick start the economy, by cutting interest rates to between zero and 0.25% yesterday. This puts pressure on the laggardly Bank of England to do what it should have done before, and cut rates further. Ironically it seems that the Bank of England did consider a larger rate cut, but was worried about the destabilising effects of such a cut (source The Times).Does the MPC not realise that the recession and collapse of the banking system is in itself destabilising?The Fed's...
Tuesday, December 16, 2008
L&G Play Ostrich
Legal & General (L&G) have been acting like an ostrich recently, as they have put off telling investors in their structured products backed by Lehman Brothers that they may lose up to 20% of their investment.L&G finally told 2,300 individuals the "good" news last week. This is of course a tad tardy, as Lehman Brothers went into liquidation three months ago. Indeed, the delay is even more surprising given that other structured products providers such as Meteor, NDFA and Arc warned investors within weeks of Lehmans' failure that their...
Monday, December 15, 2008
Barclays Warns On House Prices
John Varley, CEO of Barclays, gave a stark warning about the length and depth of the recession; by saying that house prices could fall by 30% to the end of 2009 compared with their peak, and that unemployment could top 7.5%.He gave this warning during an interview to be broadcast on Sky News this evening. During the interview he expressed some remorse for the culpability of the banks in the ongoing collapse of the economy, noting that mortgages of 100% or more were madness.The Times quotes him from the Sky interview:"I think if you look at the...
Thursday, December 11, 2008
Egg Fined by FSA
Egg, the Internet bank, has been fined £721K by the FSA for serious failings in the way it sold payment protection insurance (PPI) to its credit card customers. The FSA has also ordered it to pay compensation, which could cost £10M.The FSA found that Egg had instructed sales staff to use hard-sell techniques on those who proved reluctant buyers.These included over-emphasising the benefits of the cover, or telling customers they could take it out for free for a limited period and then cancel. The Guardian notes that Egg, in some cases, applied the...
Tuesday, December 9, 2008
The Gloves Come off
The Times reports that Michael Coogan, director general of the Council of Mortgage Lenders, made a scathing attack on the government:"To different degrees lenders are facing conflicting pressures to recapitalise against possible future losses, service government's preference shareholdings at 12 per cent, pay a premium to access the Bank of England Special Liquidity Scheme, show forbearance to borrowers in arrears, follow base rate moves down to help their existing borrowers, keep savings rates high to support existing savers, and provide competitive...
Monday, December 8, 2008
The Trillion Dollar Plan
Good luck to President elect Obama and his trillion dollar plan.The money may well help ease the recession, if it is carefully targeted. However, the key to kick starting economic recovery is confidence. Fortunately Obama is starting from a very good position, as no one (at this stage) believes that he will be worse than the outgoing administration wrt competen...
Friday, December 5, 2008
Banks Refuse To Pass on Rate Cut
Unsurprisingly many banks have refused to pass on yesterday's interest rate cut of 1%. The Times reports:"Hundreds of thousands of borrowers will be denied the full benefit of yesterday’s cut in interest rates because many banks are refusing to pass on the whole one-point cut to all mortgage customers. Britain's biggest mortgage bank, which received billions of pounds in taxpayers' money, failed to respond in full to the latest move by the Bank of England. Halifax cut its standard variable rate (SVR) by only 0.25 percentage points, while Nationwide...
Thursday, December 4, 2008
Bank Cuts Rates
Banks across the world have made a series of co-ordinated interest rate cuts today (eg Sweden's Riksbank cut rates by 1.75% to 2%)in an attempt to ease the pain of the recession and to restart the engine of liquidity.The Bank of England also cut rates by 1% to 2%, they are now at 1951 levels.As already noted, we are heading towards zero rates.The question is, will the banks willingly pass on these cuts and start lending again or are more drastic measures requir...
Bonds
Question - When is a bond not a bond?Answer - When it is a "Guaranteed Equity Bond".The definition of a bond (as per Wikipedia) is "a debt security, in which the authorised issuer owes the holder's a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity".How strange then that various "respected" financial organisations in the UK are marketing "Guaranteed Equity Bonds" which do not pay any interest, but merely guarantee to underpin the capital invested and offer the chance of a modest capital appreciation...
Wednesday, December 3, 2008
Halifax Collar Unenforceable
The Times reports that the 3% mortgage "collar" imposed by Halifax on over 500,000 of their tracker mortgage customers, which allows Halifax to evade passing on rate cuts below 3%, may in fact be unenforceable.Jon Pain, the FSA's retail market manager, said that collars should be included in a lender's key facts illustration (KFI). Halifax, rather oddly, removed the details of its collar from its key facts in 2005. Mr Pain told the Council of Mortgage Lenders (CML): "If it is not [included] you run the real risk of both breaching our disclosure...
Tuesday, December 2, 2008
Rates Heading To Zero
Ben Bernanke, the Chairman of the Federal Reserve, gave a clear signal to the markets that rates are moving towards 0%.Mr Bernanke is quoted in The Times:"Although conventional interest-rate policy is constrained by the fact that nominal rates cannot fall below zero, the second arrow in the Federal Reserve’s quiver, the provision of liquidity remains effective.Secondly, the Federal Reserve can backstop liquidity not only to financial institutions but also directly to financial markets, as we have recently done for the commercial paper market."That...
Monday, December 1, 2008
London Scottish Fails
London Scottish Bank (LSB) went into administration this morning.LSB specialises in offering fixed rate savings accounts and loans to customers with poor credit histories. Its structure was somewhat top heavy, it had only 10,000 savers, £250M in deposits but employed 700 people. In the six months to April 2008, it made a loss of £7.4M.The Treasury issued a statement guaranteeing all deposits (even those above the FSCS £50K limit):"The Chancellor has put in place arrangements to ensure that all eligible retail depositors in London Scottish Bank...
Friday, November 28, 2008
No Confidence
A Populus poll for The Times shows that two thirds of voters think that the Government's measures to boost the economy will make no positive difference in either the short or long term. This will become a self fulfilling prophecy; because if people don't have confidence in the future they won't spend any money, and Britain's consumer based economy will remain stuck in recessi...
Thursday, November 27, 2008
Woolworths In Administration
As expected, Woolworths is now in administration. Deloittes, who are acting as administrators will keep the stores open and pay staff in the period up to Christmas; there are expressions of interest in the company.However, this sorry state of affairs could have been avoided if certain lenders had not blocked the company's plans for selling the retail unit to Hilco.The lenders who blocked the plans included Barclays, and Bank of Ireland subsidiary Burdale Financi...
Wednesday, November 26, 2008
Woolies Suspended
The Times reports that shares in Woolworths have been suspended at 1.22p this morning, as the company attempts to conclude talks to sell its 840 store retail business. Hilco are understood to be prepared to buy the retail division for £1. However, the banks that Woolies owes money to are less than happy with the possible losses arising on such a deal.Added to the problems that Woolies faces, in trying to secure a deal, is funding the wage bill and continuing to trade "solvently". The directors are under a legal obligation to trade solvently, in...
Tuesday, November 25, 2008
Rearranging The Deckchairs on The Titanic
Alistair Darling delivered his pre budget report yesterday, which in theory was designed to ease the pain of the recession.However, at best it can only be described as tinkering with palliatives in the short term with painful costs in the medium/long term.A cut in VAT from 17.5% to 15% will have little effect on demand, as stores etc are already offering 20% discounts; indeed it is considered likely to cause more administrative hassle than it is worth. Darling needed to cut VAT by more than this, were it to have any significant effect; regrettably...
Monday, November 24, 2008
Paulson Rescues Citigroup
The US government, in the shape of Hank Paulson (the hapless and hopeless US Treasury Secretary), has come to the rescue of Citigroup which has seen its shareprice collapse over the last week.Paulson has come up with a package, including guarantees against losses on assets, worth $306BN together with a $20BN.There is irony here.Those of you with a reasonable memory may recall that when Lehman Brothers faced a similar crisis, Paulson was happy to let it go to the wall. The result being the current banking crisis and the world's worst recession since...
Friday, November 21, 2008
Start Lending!
John McFall, the chairman of the Treasury select committee issued a blunt warning to banks last night. "The banks appear reluctant to launch their recapitalisation lifeboat and start lending again to households and businesses.They are navel gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty."To add to the pressure on the banks, heads of the main high street banks have been summoned to the Treasury today for a final warning.The cosy world of banking has been...
Thursday, November 20, 2008
The Ultimate Pound Store
Woolworth's has the dubious distinction of turning itself into the ultimate pound store, as it puts its 815 retail stores up for sale for £1.Woolworths has about £295 million worth of debts, and has entered takeover talks which could see its retail division sold to Hil...
Wednesday, November 19, 2008
Timid
It seems that the Bank of England's recent 1.5% cut in rates was not as bold as some commentators had first believed. According to minutes of the Monetary Policy Committee (MPC), members had wanted to cut rates by 2%. However, they were afraid that such a cut would be too much of a shock for the financial markets.We are facing the worst recession in decades, under these circumstances assertive bold leadership is required; yet the Bank continues to dither. The upside to the dithering is that clearly another rate cut is on the w...
Tuesday, November 18, 2008
Inflation Falls More Than Expected
The Consumer Price Index has fallen by more than expected, from 5.2% to 4.5%.The fall in inflation is being attributed to the reduction the price of fuel, food and utility bills.This is the first fall since July 2007, and opens the way for the Bank of England to cut rates further and faster.The question remains as to whether the Bank of England will act with courage, and cut rates aggressively in order to stave off the worst effects of the recessi...
Monday, November 17, 2008
Icleand Deal Agreed
Some good news for some of the hapless individuals who placed their life savings offshore in an unprotected environment.Iceland's prime minister, Geir Haarde, said that an agreement had been reached (a 'common understanding') with EU member states that will see it cover savers' deposits in return for financial assistance, including agreeing on a stabilisation package from the International Monetary Fund (IMF).The government of Iceland will "cover deposits of insured depositors in the Icesave accounts in accordance with EEA law."I would express...
Friday, November 14, 2008
The PPI Rip Off
The Competition Commission is finally looking to get its teeth into the con trick of payment protection insurance (PPI), as it issued a statement yesterday calling for a ban on sales of the policies when people take out loans and credit cards.The Commission wants banks to wait for 14 days before approaching borrowers to sell PPI, and wants to ban financial providers increasing interest paid by charging for the entire cost of a policy at the start of a loan.Martin Lewis, the personal finance campaigner, estimates that half of the policies in force...
Thursday, November 13, 2008
Halifax Profiteers Out Crisis
Halifax decided to ignore government pleas to pass on rate cuts, and instead chose to double the margins on some of its most popular mortgages last night. Halifax reintroduced two year tracker deals for borrowers with a 25% deposit at a rate of 5.14% (2.14% above base, Halifax's best tracker a month ago was 1.04% above base).Halifax's five year tracker for borrowers with a 25% now has a rate of 5.39% (2.39%, a month ago Halifax was offering five year trackers at 1.25% above base).Shades of profiteering?Halifax, needless to say, blame Libor. Oddly...
Wednesday, November 12, 2008
Back on Track
Three mainstream mortgage lenders have relaunched their tracker mortgages, since last week's mass exodus following the 1.5% cut in interest rates.- Abbey has introduced a two year tracker at 4.99% (1.99% above base, being 0.7% higher above base than its previous tracker)- Lloyds TSB has introduced a tracker at 4.79% (1.99% above base, being 0.7% higher above base than its previous tracker)- Alliance & Leicester has introduced a new tracker at 4.89% with a 1% fee.Strange that they increase their margins, when the rates are falling. However,...
Tuesday, November 11, 2008
Sales Collapse To 1978 Levels
The Royal Institution of Chartered Surveyors (RICS) latest survey shows that estate agents in England and Wales have sold an average of 10.9 properties per firm in the 12 weeks to the beginning of November.That is the lowest level of sales since the survey began in 1978. The Times reports that, in response to the recession, Gordon Brown is to use this weekend's financial summit in Washington to call for co-ordinated tax cuts across the world's major economies to help reduce the depth of the global downturn.The most effective for of tax cut will...
Monday, November 10, 2008
Bankers' Blacklist
Be warned, according to The Times, bankers are drawing up secret black lists to ban businesses from overnight borrowing.Seemingly hundreds of clients have been included on the lists, which include international trading and commodities companies that supply the small-to-medium-sized business sector.Were the banks still private companies, this would be a matter between them and their borrowers. However, now that the government has effective control over a number of them, this is now a matter that directly affects government policy and credibility...
Friday, November 7, 2008
Called To See The Headmaster
As predicted, despite the 1.5% cut in rates yesterday, the high street banks have been a tad tardy in passing on the cuts to their hard pressed borrowers. Needless to say, the government is not best pleased as it will be blamed by the voters for this (not least because it now has effective control of a number of these banks).Alistair Darling therefore summoned the CEOs of HSBC, Barclays, Lloyds TSB, HBOS and Abbey to Downing Street this morning to demand that they immediately pass on the rate cut to their customers. Bradford & Bingley (B&B),...
Thursday, November 6, 2008
Bank Finally Acts
The Bank of England has finally taken bold action to try to ease the pain of the recession, it has cut interest rates by 1.5% to 3%.Here is the announcement in full: Bank of EnglandThe question is will banks and building societies pass this rate cut on to their borrowers, or merely cut their savings rat...
Wednesday, November 5, 2008
Change
Congratulations and good luck to President elect Obama.He has one hell of a task on his hands wrt the economy (US and world economy). He at least will hit the ground running, by announcing his treasury team in the next few days, and will not wait until January before implementing a number of initiatives.This may be the turning point, if other countries and their central banks also do their b...
Tuesday, November 4, 2008
Mandy Piles on The Pressure
Lord Mandelson, Business Secretary, has put pressure on the banks today, by warning them that their customers will not be best pleased if the interest rate cuts are not passed on.This warning comes after David Hodgkinson, chief operating officer of HSBC (who travelled with Gordon Brown to the Gulf), warned consumers they might not see any benefits if the Bank of England cuts interest rates this week.Lord Mandelson, who is also in the Gulf, is quoted in The Times:"I have to say when official rates are being cut it's not unreasonable for the customers...
Monday, November 3, 2008
Thursday, October 30, 2008
House Sales Fall
The Times reports that the number of homes sold during 2008 has fallen to the lowest level since 1974, this despite a record 14.6% fall in annual house prices during October. The pressure is on the Bank of England to stop dithering and cut interest rates aggressively, so called "experts" predict that rates will fall from 4.5% to 2.5%.In the midst of this, Gordon Brown and the Labour party are enjoying the "high" from their "nationalisation" of the banks.My advice to Brown and Labour is simple, enjoy it whilst it lasts. Bankers, banks and money...
Wednesday, October 29, 2008
Signs of a Heartbeat?
Despite the best attempts by the politicians and media to talk the UK economy into a slump, the mortgage market has refused to lay down and die.The Bank of England reports that mortgage approvals for house purchases rose in September, for the first time in over a year. Mortgage approvals rose to 33,000 in September, up from a record low in August of 32,000.Net mortgage lending rose by £2.2BN in September, in August it fell by £691M. Notwithstanding the faint signs of a heartbeat in the mortgage market, the pressure is still on the Bank of England...
Tuesday, October 28, 2008
The Bankers Strike Back
The major high street banks, never fearful of damaging their already trashed reputations, will go to the Court of Appeal today in a bid to overturn the High Court ruling that unauthorised overdraft charges are unlawful.The banks lodging the appeal include; Abbey, Barclays, Clydesdale, HBOS, HSBC, Lloyds TSB, Nationwide and the Royal Bank of Scotland.Whatever the outcome, not expected to be decided for quite some time, the banks will ensure that they make money out of their customers one way or another. In the event they lose the appeal, they will...
Monday, October 27, 2008
Sterling Falls
The Pound continued to fall this morning, below $1.55 in early trade, as traders take account of Britain's parlous financial state.However, those who believe that a country's machismo can best be displayed by a strong currency are seriously misguided. A falling pound, under the current circumstances, will be of great benefit to Britain's exporters.That said, the Bank of England has a duty to cut interest rates swiftly and aggressively in order to lessen the effects of the recession.The longer the Bank dithers, the worse it will beco...
Friday, October 24, 2008
Down Down Down
The FTSE fell 8% this morning, as the UK entered its first recession in 16 years.Alistair Darling told BBC News: "It's obvious now that our economy, other economies across the world, are moving into recession. Yes, it's going to be difficult, yes it's going to be tough, but we can get through it." Therefore why is the Bank of England still sitting on its hands, and not cutting interest rates more aggressive...
Thursday, October 23, 2008
How The City Works
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for £10 each. The villagers, seeing that there were many monkeys around, went into the forest and started catching them. The man bought thousands at £10 and, as supply started to diminish, the villagers stopped their effort. He further announced that he would now buy monkeys at £20 for each. This renewed the efforts of the villagers and they started catching monkeys again. Soon the supply diminished even further and people started going back...
Monday, October 20, 2008
Tax and Spend
Old style Labour is rearing its ugly head in terms of its fiscal "management".Figures from the Office of National Statistics (ONS) show that net debt (£645.3BN), expressed as a percentage of GDP had risen to 43.3% at the end of September, up from 36.2% a year ago.This rise in public spending, which of course will have to be financed by tax rises, will not save the country from recession nor indeed provide much of a soft landing. The key to "managing" the recession is that of cutting interest rates, not just in the UK but in the other major economies...
Thursday, October 16, 2008
Rate Cuts
Despite the "bailouts" being promised by various governments, the markets are currently in freefall as the fact that the world's economies are heading for recession strikes home.Poor retail figures from the US, and lousy employment figures in the UK have added to the misery.It is clear that the "bailouts" need to be augmented by serious interest rate cuts by the central banks of the G7, failure to grasp that nettle will see the world stuck in a recession that may turn to slu...
Monday, October 13, 2008
The Bank Run
Injecting capital (nationalising) into banks is all very well. However, there are two further steps that governments need to take:1 Guarantee all deposits (deposits are the bedrock of the banking system, without a guarantee depositors will continue to withdraw their money)2 Cut interest rates by at least another 1% in all major economiesDo the above and the run on banks will be halted, fail to do the above and the run will contin...
Thursday, October 9, 2008
Interest Rate Cut
Yesterday's 0.5% reduction in interest rates by the Bank of England was not enough to stave off recession, another 0.5% at least is required n...
Wednesday, October 8, 2008
Worthless Guarantee
As I predicted earlier this week, the guarantee by the Icelandic authorities re bank deposits was not worth the newspapers it was printed in.Icesave, the online British arm of Iceland's second biggest bank Landsbanki, announced yesterday that its customers could no longer withdraw or deposit money, as Landsbanki was taken into receivership. The Icelandic government then reneged on their pledge to guarantee deposits.Alistair Darling told the BBC:"The Icelandic government have told me, believe it or not, they have no intention of honouring their...
Tuesday, October 7, 2008
The Disunited States of Europe
True to form the governments of Europe have shown their true colours and acted in their own self interests, wrt the ongoing banking crisis, rather than in a unified Europe wide manner.Ireland, Germany and Denmark have guaranteed bank deposits and others (such as Spain and Greece) look likely to follow.Had the EU acted in unison, it may have lessened the panic. Unfortunately the scramble to protect self interest has done nothing to assuage the market.The UK now needs to take the following actions, without any further dithering:1 Guarantee all bank...
Monday, October 6, 2008
The House of Cards Comes Tumbling Down
The FTSE fell by 6% this morning, despite the fact that congress approved the bailout.The Times reports that Alistair Darling will make a statement later today on whether he will bail out the UK's banks.On Saturday Angela Merkel, the German leader, criticised the Irish decision to guarantee all deposits in their leading banks without consulting other European countries. One day later Ms Merkel was forced to take almost the same action. All very well. However, the uncomfortable truth, that governments dare not speak of is that if there were to be...
Tuesday, September 30, 2008
Madness
Yesterday I wrote that "Bush has done to the US economy what no terrorist or hostile country could ever do, that's quite a legacy!"I was wrong, Bush merely loaded the gun; Congress, in an act of collective madness, has in effect destroyed the US economy by voting against the bailout plan.Given that the plan was the only one on the table, one might ask why they jettisoned their only hope. Regrettably partisan politics outweighed commonsense and selflessness, as the Republicans used a speech by Nancy Pelosi (seemingly she hurt their feelings) as...
Monday, September 29, 2008
The Great Bailout
US President George Bush has said that Democrats and Republicans will come together to pass the bailout plan to rescue the US economy.All well and good, if what he says actually comes to pass. However, the bailout was never a matter of merely throwing billions at the problem to make it go away but of injecting confidence into the economy.The bailout plan had the possibility of working, until it became apparent that Paulson in fact had no plan and McCain pushed himself in front of the cameras in a bid to appear as a dealmaker (thus wrecking any...
Thursday, September 25, 2008
Time Running Out For Bradford and Bingley
Bradford and Bingley have announced that their mortgage processing centre in Borehamwood, Hertfordshire, is to be closed and the 300 staff made redundant. It seems that it does not have a future as an independent business, its credit rating has now been cut to one notch above "junk".The Financial Services Authority is trying to find a buyer for the bank, in order to avoid another Northern Rock fias...
Wednesday, September 24, 2008
FBI Investigation
The Times reports that the FBI is investigating a number of executives from Fannie Mae, Freddie Mac, Lehman Brothers and AIG.The Times states that are investigating as to whether the executives lied to shareholders, and whether fraud helped caused some of the troubles at these organisation.The investigation includes whether executives deliberately misled the stock market about the state of their businesses. Needless to say the politicians who oppose the $700BN Paulson bailout have latched onto this as another reason not to give money to greedy...
Tuesday, September 23, 2008
The Dead Cat Bounce II
Lats week I wrote about the rebound in shares, in response to the US bailout of the financial system, being a "dead cat bounce".It would seem that I was right.Shares in London and Asia have fallen sharply, as doubts grow about whether the $700BN bailout will work. At the time of writing:-The FTSE is down 2%-The CAC down over 1%-The MSCI index of Asia-Pacific shares (excluding Japan) down 2%-The Dow down over 3%The package proposed by Henry Paulson, US Treasury Secretary, is expected to face opposition from members of Congress about how to pay for...
Monday, September 22, 2008
No New Taxes
The Times reports that Alistair Darling has pledged that there will be no tax increases, despite the fact that Britain may have to borrow £90BN next year. The Chancellor said people were "hard pressed" and it was not time to be "taking money out of the economy". Where will the money come from th...
Friday, September 19, 2008
The Dead Cat Bounce
Share prices are surging today on reports of a massive bailout of toxic debt by the US government, coupled with the ban by the FSA on short selling of financial stocks.At the time of writing, the FTSE is up over 7%, the DAX up by almost 4% and the CAC up by 6%.Talks are being held between the US Treasury Department and the Federal Reserve to examine proposals to move illiquid toxic assets, backed by mortgage debt into a government backed vehicle; ie they will be taken out of the balance sheets of the banks and financial institutions that created...
Thursday, September 18, 2008
Emergency Aid
The world's leading central banks, including the Bank of England, have joined forces and injected approximately £100BN into the world's financial system.The action is US funded, whereby the US Federal Reserve is lending the Bank of England, the European Central Bank (ECB), the Swiss National Bank and the central banks of Canada and Japan the money to pump into their financial systems. The question is, given that the US government allowed Lehman Brothers to go to the wall on Monday, will this restore confidence into the syst...
Wednesday, September 17, 2008
The Law of The Jungle
The death of Lehman Brothers has not sated the market's appetite for fresh corpses.AIG teetered on the brink and has been bailed out, at the eleventh hour, after the US Federal Reserve agreed an $85BN bailout of the company. The deal gives the US Government a 79.9% stake, ie they nationalised it.Somewhat ironic that the world's leading advocate of free market economics resorts to old fashioned socialist policies of nationalisation, in order to save a capitalist institution.Now comes the turn of HBOS.The Times reports that Lloyds TSB is in advanced...
Monday, September 15, 2008
Lehman Collapses
In case anyone has not heard, the Wall Street bank Lehman Brothers has filed for chapter 11 bankruptcy protection, after emergency talks to find a buyer failed.Lehman Brothers was one of Wall Street's biggest dealers in fixed interest trading, and was heavily invested in securities linked to the US sub prime mortgage market. The FTSE has fallen 3% on the news. The effect that it will have on UK banks remains to be seen, and will depend very much on their exposure to ...
Tuesday, September 9, 2008
London's Reputation Tarnished
London's reputation as the world's leading financial centre was further tarnished yesterday when the London Stock Exchange suffered its worst systems failure in eight years, forcing it to suspend trading for seven hours.To add to the woes of those trying to trade yesterday the crash happened on what would have been one of the busiest days of the year, hot on the heels of the news over the weekend that Fannie Mae and Freddie Mac had been bailed out.A cynic might argue that the system was deliberately shut down, so as to avoid a massive spike in...
Monday, September 8, 2008
Freddie and Fannie Balied Out
President Bush bailed out Freddie Mac and Fannie May yesterday, as he announced that the two mortgage lenders would be taken over by the US government.Seemingly they were weeks away from collapse.President George Bush is quoted in The Times as saying that the failure of Freddie or Fannie would have been "unacceptable". "Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing. Americans should be confident that the actions taken today...
Thursday, September 4, 2008
Decision Day
In less than an hour the Bank of England Monetary Policy Committee will announce their decision about interest rates.Most pundits expect them to remain unchanged. However, the decision comes against the backdrop of Darling's suicidal warning about the state of the economy over the weekend, the announcement by the OECD that we are facing recession, Brown's ineffectual economic revival package and figures released by the Halifax that show that house prices fell by 12.7% in the year to August.Given the above, one wonders quite how bad things must...
Wednesday, September 3, 2008
Careless Talk Costs Cents
Alistair Darling is learning the lessons that previous Labour Chancellors have learned, namely that careless talk costs the pound dear.Sterling continued on its downward path today, falling to a 12 year low (88.2) against the Bank of England trade weighted index of currencies and to its lowest against the dollar ($1.7669) since April 2006.The fall has been attributed, not unsurprisingly, to Darling's outburst over the weekend over the state of the economy.The fact that he is now barely on speaking terms with his old "friend" Gordon Brown have given...
Tuesday, September 2, 2008
Pissing In The Ocean
The government, in a rather piss pathetic attempt to reanimate the corpse of the housing market, has announced that it will exempt properties worth less than £175,000 from stamp duty (the current exemption is £125K).Given that the average house price in the UK is around £200K, this will have next to little effect.Additionally, statistics show that the number of property deals that are already exempt from stamp duty has fallen almost as much as those liable for the tax; in other words the exemption is irrelevant.The fundamental issue facing prospective...
Monday, September 1, 2008
Self Flagellation
The FT today asserts that Chancellor Darling's bizarre self flagellation over the weekend, when he stated that the UK economy is facing times as bad as any ever seen in the last 60 years, may in fact have been a tad overdone.Quote:"The chancellor also claimed this weekend that the economic times facing Britain were arguably the worst in 60 years. His precise meaning has been in dispute but it would certainly be nonsense to suggest the UK faces the worst downturn in six decades. It is true that in specific areas – trust among financial institutions,...
Saturday, August 30, 2008
Darling Surrenders
Alistair Darling has all but given up trying to keep Britain out of recession, by announcing today in The Times that Britain could be heading for its worst economic downturn for 60 years.Darling also admitted that he had no idea how serious the credit crunch would become.This is man who has clearly given up, and who is likely to be out of a job in the next month.Regrettably the British economy and British voters are stuck with Labour and the disastrous tripartite regulatory system that Brown created for another two years, the damage that Labour...
Thursday, August 28, 2008
Banquo's Ghost
Much like Banquo's ghost, Northern Rock continues to haunt the government.Northern Rock, having sold excessively expensive and outsized mortgages to those who could least afford to manage them, is now attempting to repossess the homes of those who have failed to keep up with the payments on these most unsuitable of products.Research published by Standard & Poor shows that Northern Rock has been responsible for one in 13 repossessions in the UK in the second quarter of this year, as its customers are getting into trouble much faster than other...
Friday, August 22, 2008
Wheels Falling Off The Economy
Official figures indicate that Britain is on the verge of recession as output ground to a halt between April and June this year, the poorest performance since 1992.Jonathan Loynes, of Capital Economics, is quoted in The Times: "The economy now looks set to grow by just 1.2% or so this year, with a very strong chance of a technical recession in the second half. And things will be considerably worse in 2009." The pressure is now on the Bank of England to wake up to the threat of recession and to cut rates. However, given that Mervyn King has already...
Thursday, August 21, 2008
Greed
Britain's utility companies are to be congratulated on being even more greedy than banks, insurance and credit card companies, in their brazen fleecing of the consumer.E.ON added its name to the list of shame by raising prices this morning, electricity up by 16% and gas by 26%. Similar recent increases were imposed by EDF and British Gas. Time that the sleepy old watchdogs, that are allegedly looking after the interests of the ripped off British consumer, to wake up and earn their p...
Tuesday, August 19, 2008
What A Whopper
The Times quotes Professor Kenneth Rogoff, a leading academic economist, as saying that there will be worse news to come from the worldwide credit crunch."The US is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come.We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one — one of the big investment banks or big banks."Heartwarming stuff!However, before people start jumping from window...
Monday, August 18, 2008
Cash Call Fails
Bradford & Bingley's (B&B) cash call has flopped in the eyes of its shareholders, with only 27.8% of shareholders taking up its £400M rights issue leaving the remainder in the hands of its underwriters, Citigroup and UBS. B&B's new CEO, Richard Pym, has his work cut out to try to restore confidence in the bank.That being said, Mr Pym can take some small comfort in the fact that the take up of the B&B issue has significantly exceeded the take up of the HBOS rights issue. Only 8.29% signed up to that issue which closed in Ju...
Friday, August 15, 2008
Reposessions Up
House repossessions in Britain have risen alarmingly to levels not seen since the last recession.The number of mortgage repossession orders posted by courts in England and Wales between April and June this year rose by 24% to 28,658, compared to the second quarter last year. The figures are in line with the number of orders made in mid-1992, at the height of the recession. Unlike the last recession, repossession figures show that "second charge" repossessions feature strongly in the figures; indicating that many have unwisely used their property...
Thursday, August 14, 2008
HBOS Scales Back
HBOS announced today that it will axe 425 job cuts, and scale back its TMB brand which provides finance for new builds and buy-to-lets.HBOS recently announced a fall in profits of 72% to £848M.As from late August, HBOS will cease taking on new business from its TMB division and stop offering loans via its Intelligence Finance brand. The FT reports that the UK mortgage market will shrink from £368BN in 2007 to £280BN this year because the "number of lenders who relied on securitisation have quit the marke...
Tuesday, August 12, 2008
Housing Market Grinds To A Halt
The Royal Institution of Chartered Surveyors (RICS) report that the housing market ground to a virtual standstill last month, as a result of the lack of mortgages.RICS report that the average number of property sales handled by surveyors, over the past three months, fell to 14.4. Needless to say the government's botched leak about the possibility of lifting stamp duty for a few months has added to the problems, as people have now delayed making a purchase until the situation is clarified.Unfortunately the government will not be clarifying its position...
Monday, August 11, 2008
£1M Wiped Out Per Minute
PriceWaterhouseCoopers (PWC) have published an analysis that shows that £1M per minute (£600BN) has been wiped out from the UK's total wealth, since the credit crunch started a year ago.PWC estimates that £400BN has been written off residential property, and £200BN written off the stock market valuations of the banks and other financial institutions.PWC estimate that this will lead to a reduction in expenditure of around £12BN to £16BN over the next 12 months.As if that were not gloomy enough, PWC add the rather worrying caveat that the report...
Friday, August 8, 2008
Home Reposessions Highest Since 1999
The Council of Mortgage Lenders (CML) reports today that the number of homes repossessed in Britain in the first six months of the year has risen by almost 50% (compared with last year), to the highest since 1999.Repossessions rose to 18,900 from 12,800. Although this is not good news, it needs to be put in context. In the first half of 1991 home repossessions hit a peak of 38,900.Homeowners are continuing to face difficulties, as they try to refinance fixed rate mortgage deals that have run out.Alastair Darling and Gordon Brown's solution, to...
Wednesday, August 6, 2008
Pensions Black Hole
As the economic downturn continues, and negatively impacts the FTSE, pension schemes are feeling the effects. Actuarial consultants Lane Clark & Peacockfell, report that pensions went into a £41BN deficit in mid-July, reversing last year's £12BN surplus.The effective and efficient management of pensions require a very long term view of market ups and downs. Unfortunately, current pension reporting requirements introduced in 2002 do not take a the long term view and encourage short termism of the worst kind.A major overhaul of pension reporting...
Tuesday, August 5, 2008
Northern Wreck
The long suffering taxpayers of Britain got taken to the cleaners again by Brown and his mob, as it has emerged that £3BN of taxpayer loans to Northern Rock will be written off.The "Wreck" has published worse than expected results, showing a loss in the first 6 months of £585M, as borrowers fail to meet their obligations.The Treasury will now convert £3BN of government loans to the Rock, and £400M of Rock preference shares into ordinary Rock shares. However, the plan does require approval from our lords and masters in Brusse...
Monday, August 4, 2008
HSBC 28% Profit Collapse
HSBC revealed some lousy results today, much as expected. The ongoing credit crisis (caused by the banks' irresponsible lending) has knocked £5.1BN (28%) from its first half profits to £5BN.HSBC will not comment as to whether the losses from its toxic US loans have peaked or not. However, its provision for US consumer finance now stands at $6.8BN (85% higher than the same period last year).HSBC chairman, Stephen Green, maintained a stiff upper lip and noted that the outlook was challenging.Qui...
Thursday, July 31, 2008
Nationwide Warning
Nationwide has warned that a recession may now be likely, as the average house price in the year to July fell to a three-year low of £169,316. The average price of a home is now £15,000 lower than in July last year. Nationwide state that house prices have fallen nine months in a row, and in July declined by 1.7% (in June the fall was 0.8%).The question is what will the Bank of England do with rates this month?There is of course a silver lining to this. Those who waited to buy a house, and did not rush into borrowing ludicrous multiples of income,...
Wednesday, July 30, 2008
Fraud
Eight people were arrested yesterday in raids across London, as part of a crack down by the Financial Services Authority (FSA) against insider dealing.Among the eight were a UBS AG back-office employee and a JPMorgan Cazenove Ltd sub-contractor.Sarah Small, spokeswoman for UBS, is quoted on Bloomberg:"A junior member of UBS's support staff in London has been arrested and has been suspended from work while the FSA carries out its investigation."Tessa Murray, a spokeswoman for London-based JPMorgan Cazenove, said the unidentified individual was a...
Tuesday, July 29, 2008
Mortgage Lending Collapses
As the government dithers over what to do to restart the mortgage market (which in turn underpins the housing market and the rest of the economy), the Bank of England stated that mortgage approvals fell by 68.4% to a record low in the year to June. Mortgage approvals have fallen from 41,000 in May to 36,000 in June. The rate of mortgage approvals was the lowest since records began in 1993. Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, is quoted in The Times: "The latest numbers from the Bank of England demonstrate,...
Monday, July 28, 2008
The Price of Dithering
The FT reports that Chancellor of the Exchequer, Alistair Darling, is considering a new plan to help resuscitate the housing market by allowing banks to swap new mortgage assets for government bonds.The Treasury is formulating a plan to extend the Bank of England scheme, where high quality outstanding mortgage backed securities are exchanged for gilts to incorporate new mortgage lending.Sir James Crosby, the former chairman of HBOS, is expected to propose the idea tomorrow when he delivers his interim report on the mortgage market.It is a pity...
Thursday, July 24, 2008
Retail Sales Slump
Statistics from the Office for National Statistics show that retail sales growth has dropped by 3.9%, in the three months from April to June.This is the largest fall since the department began collecting the statistics back in 1986. As noted yesterday, the dearth of mortgages and the seizing up of the housing market is now negatively impacting the rest of the economy.It beggars belief that the Bank of England and the Treasury are not pulling out all the stops to free up liquidity. Instead there is a possibility that the Bank will in fact raise...
Wednesday, July 23, 2008
Mortgage Approvals Record Low
The British Bankers' Association (BBA) report that mortgage approvals dropped to a new low in June, falling 66.4% compared with the same month last year. David Dooks, director of statistics at the BBA, is quoted in The Times:"Another record low number of mortgages approved by the banks for house purchase means that the whole market is likely to be at its least active since the early 1990's." The downturn in the property market is now impacting the rest of the economy that relies on property transactions to provide an engine of growth eg; DIY, furnishings,...
Tuesday, July 22, 2008
Pre Funded Pot
Mervyn King, the Governor of the Bank of England, has told the Treasury Select Committee that banks should pre fund a compensation pot that would cover customers' losses in the event of another Northern Rock collapse.He believes, quite rightly too, that the lack of a 100% guarantee of savers' deposits contributed to the run on the bank last year.The current scheme is funded by the banks, which pay an annual levy. However, it does not hold enough money to compensate savers in the event that a bank collapses. The Financial Services Compensation Scheme...
Monday, July 21, 2008
An Inequitable Life
Following on from the recent report by Ann Abraham, the parliamentary ombudsman, in which she called for compensation for more than a million policyholders in Equitable Life there are now concerns that more than half of them may in fact get no compensation at all.The Equitable Members' Action Group (Emag) has estimated that the cost of compensation could be around £4.6BN. Many thousands of Equitable savers have gone through the Financial Ombudsman Service (FOS) to claim compensation for mis-selling. However, only 50% to 60% received any. Given...
Thursday, July 17, 2008
Apology Demanded
Ann Abraham, the parliamentary ombudsman, in a long delayed report has called for Britain to apologise to more than a million policyholders in Equitable Life and offer them compensation.The apology, not that it will ever come, will be a tad late as the Equitable Life scandal occurred in 2000.Equitable Life almost collapsed in 2000, after being forced to honour unsustainable guarantees stretching back 30 years. It eventually closed to new business in one of Britain's most dramatic financial scandals.Ms Abraham has been investigating the scandal...
Wednesday, July 16, 2008
Kick Starting The Mortgage Market
The ongoing mortgage drought has caused pain not just to those seeking to borrow, but also those wishing to lend (less loans means less commission and less interest).Finally those in the mortgage industry appear to be waking up to the fact that they need to do something about this mess. The Council of Mortgage Lenders (CML) want to free up UK banks and building societies to offer new home loans, to do this it wants the Bank of England to guarantee a market in mortgage-backed securities and covered bonds. The CML claims that the key issue is the...
Tuesday, July 15, 2008
The Engine of The Economy Splutters To A Halt
The engine of the British economy, the housing market, looks set to splutter to a halt. Figures released by the Royal Institution of Chartered Surveyors (RICS) indicate that house price declines in June stayed close to the most widespread decline since RICs began to measure the property market in 1978. The number of residential property agents and surveyors saying prices fell exceeded those reporting gains by 88%, in May it was 92%.To add to the market's woes, RICS state that property sales have fallen to the lowest on record. Additionally mortgage...
Monday, July 14, 2008
Ruined Reputations
The US, with characteristic speed and vigour, moved to steady the finances of Freddie Mac and Fannie Mae yesterday.The LA Times reported:"Acting to prevent a severe disruption of the mortgage market, the federal government stepped in Sunday with plans for a sweeping aid package designed to bolster confidence in battered home-loan giants Fannie Mae and Freddie Mac.The Bush administration said it would ask Congress to authorize the Treasury Department to lend Fannie and Freddie more money than current limits permit and buy stock in the two companies.Also...
Friday, July 11, 2008
Increase Liquidity Demand
Today some of the UK's largest banks are lobbying the Bank of England to extend the terms of its Special Liquidity Scheme (SLS), to increase liquidity in the money markets.The Telegraph reports sources that say that the SLS has not restored confidence to financial markets, as banks continue to avoid lending to each other as well as to customers.This fact can be attested to by anyone seeking a new mortgage or credit facility.Finance directors of the banks, and heads of the banks' Treasury departments, will attend a meeting with representatives of...
Thursday, July 10, 2008
Bradford & Bingley - The Plaything of Speculators
In echoes of Marconi and Northern Rock, Bradford & Bingley appears to have become the plaything of speculators as it desperately searches for a new CEO and for a white knight to buy it out.B&B shares jumped more than 25% this morning, 9¼p to 43¼p, on hopes that it will be bought out. Pundits believe that it is now likely that, barring further disasters, there will be a wind down or buy out.The pundits fail to recognise the havoc that the speculators will wreak in the short term. As a guide to the future, look at what happened to the share...
Wednesday, July 9, 2008
The R Word
Judging by the recent headlines in the media Britain is poised on the brink of recession, or at least talking itself into one.Capitalism is without doubt the best economic system thus far created by mankind. However, its fundamental weakness is that it relies on confidence in the future; knock that confidence away and you undermine the system.That aside, warnings about a possible recession are now coming thick and fast David Frost, director general of the British Chambers of Commerce, has warned that there was a "real risk of recession in the coming...
Tuesday, July 8, 2008
Treasury Plans For Depositors' Savings Attacked
Alistair Darling revealed last week that the Government was planning to increase its guarantee on depositors' savings from £35K to £50K.However, banks have rounded on the plans saying that they are unrealistic.The plans would see taxpayers initially foot the bill for paying out deposits, within the first week of a bank going under. The cost would then be recouped by selling the failed bank's assets, and imposing a levy on other banks.However, banks warn that the government would need to develop a costly centralised database that would store the...
Monday, July 7, 2008
Treasury Accounts Shambles
The Treasury's accounts are in such a shambles that the National Audit Office (NAO) won't sign them off.The NAO are less that happy with the government's handling of the nationalisation of Northern Rock, and have had a major row with Alistair Darling over it. The NAO is concerned about the way that the bank is being treated on the Treasury's books. Therefore the Treasury's annual report has been published with the financial accounts removed. Aside from the humiliation of having their accounts refused, the Treasury also faces falling staff morale...
Friday, July 4, 2008
Bradford and Bingley Woes
Bradford & Bingley (B&B) has plunged 15% to a new low of 52p this morning, after the US buyout firm TPG walked away from leading its restructured rights issue after Moody's downgraded B&B's credit rating for a second time last night.This less than welcome news follows B&B's rejection of a proposal of 72p per share from Resolution two weeks ago. The question that shareholders will be asking themselves is why did the board reject a 72p offer two weeks ago.Could it be possible that the board of B&B know that the due diligence that...
Thursday, July 3, 2008
Europe Raises Rates
The European Central Bank (ECB) risked excarbating a European recession by raising European interest rates yesterday by 0.25% to 4.25% (a rate not seen since September 2001).Jean-Claude Trichet, the ECB's President, fears inflation more than recession and warned that eurozone inflation could "explode" without decisive action. Taking "decisive" action may well avert inflation. However, it does nothing for the underlying systemic weakness of the European economy and structure. The unified currency and bank, with its "one policy fits all" approach,...
Wednesday, July 2, 2008
Confidence Hits 16 Year Low
Business confidence in the UK has hit a 16 year low, as the effects of the ongoing credit crunch and rising food/energy prices are felt. The Business Trends report, published by BDO Stoy Hayward, shows that the measure of business confidence over the next quarter declined to 97.7 in June from 98.3 in May, the lowest level since 1992. Peter Hemington, BDO partner, is quoted in The Times: "We've not seen short term business confidence plunge this low since Black Wednesday in 1992, indicating that UK businesses of all shapes and sizes are struggling...
Monday, June 30, 2008
Credit Untion Rules To Be Relaxed
As the mortgage and credit drought worsens, the government is desperately trying to look as though it is doing something to ease people's burden. The government announced today, via the BBC, that it will unveil an initiative to help people, eg those on low wages, beat the credit crunch by relaxing the rules on credit unions.Credit unions are community based savings and loans organisations. They act as low-risk savings and loans providers, usually for the less well-off. It is an ugly fact of financial life that those most in debt, and least able...
