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,...

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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...

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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,...

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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...

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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...

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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,...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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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...

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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,...

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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...

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