The Stench of Corruption and Greed Overwhelms Britain's Financial Services Industry

Britain's tarnished financial services industry and banking sector seems intent on bringing about its own self destruction. Over the years there has been a litany of scandals eg:

- endowment mis-selling
- subprime mortgages
- PPI mis-selling
- LIBOR fraud
- NatWest computer meltdown
- Northern Rock, RBS etc etc to name but a few

However, it seems that the industry is determined to add to its list of self inflicted shame and dishonour. Step forward the usual suspects ie; Barclays (a familiar name), HSBC, Lloyds and RBS which have all admitted to mis-selling interest rate hedges to small and medium sized business customers.

Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland have all agreed to immediately halt the sale of complex interest rate hedges to smaller businesses and have pledged to compensate potentially thousands of customers who have been screwed by them.

According to the Telegraph the FSA is of the view that about 28,000 businesses had been sold interest rate hedges.

Another nail in the coffin of the tarnished reputation of the UK's financial services industry.

The financial services industry is now fully immersed in its own self created shit, and quite clearly is on the verge of implosion.

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QEII Launched Into Choppy Waters

Hot on the heels of yesterday's launch by the Bank of England of QEII (valued at £75BN),
Moody's cut its ratings on a number of British banks.

RBS was dropped by two notches from A2 to Aa3, Lloyds TSB dropped by one notch to A1 from Aa3, Santander UK, Co-operative Bank, Nationwide and seven other smaller British building societies were also dropped.

The rationale being that Moodys' is of the view that the British government may not support certain banks in the event that they face collapse.

Unsurprisingly, George Osborne stated that he has confidence in the viability of the UK's banks.

The Treasury, as it happens, is also fighting tooth and nail any attempt by the EU to force UK banks to increase their capitalisation as a result of the soon to premiere "Stress Test III".

Is the reluctance by the Treasury based on their confidence in the banks?

Errmm..no.

It is a reluctance based on pragmatism, namely that were RBS to require more capital, the Treasury would be forced to buy shares (using taxpayers' money) at around 50p (as per the agreement with RBS) compared to the current price of 23p.

The alternative would be for the government to fully nationalise RBS.

Neither option appeals to Osborne.

In other news, a certain London based financial newspaper (which heavily relies on advertising revenue from banks) is continuing to spread the rumour that there is a plan for saving the Euro and the European banking system.

However:

Learn this,
Repeat this, and
Retweet this:

THERE IS NO PLAN!!

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Went The Week Well?

It seems that this week is ending with shares around the world falling off the edge of a cliff, as investors panic and turn to gold.



Shares in banks such as Barclays, Lloyds Banking Group, HSBC and Royal Bank of Scotland (RBS) have taken a hammering and are now approaching levels last seen since 2009.



The rout of bank shares has been prompted by fears of a funding crisis in the European banking system, as European banks (instead of lending to each other overnight) are electing to deposit more overnight money with the ECB.



There is a genuine, and soundly based, fear that several European banks may have insufficient funds to continue operating.



In the absence of any decent political leadership on either side of the Atlantic, and unified global action to staunch the collapse, we are in danger of the fear of collapse becoming a self fulfilling prophecy.

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Banks Cave In Over PPI - Or Do They?

The British Bankers' Association (BBA) has stated that banks will drop their legal challenge to paying compensation for mis-selling Payment Protection Insurance (PPI).

The volte face is a result of Lloyds giving up the fight last week, and announcing that it would set aside a £3.2BN compensation fund, closely followed by Barclays announcing that it has thrown in the towel.

However, before those with "£ signs" in their eyes start popping the champagne corks in anticipation of receiving a payout, customers of the banks should consider this. Banks will simply fund these claims by putting up charges on loans/credit cards and, most likely, will introduce charges for current accounts.

One way or another, it will not be the banks that end up paying the compensation.

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Lloyds Ends 2010 On A "High"

Lloyds ended 2010 in much the same "spirit" as it besported itself during the year, by mistakenly double charging some 200,000 of its credit/debit card customers for transactions effectuated on New Year's Eve.

Well done lads!

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Lloyds Loses Touch With Reality

Lloyds Banking Group has appointed Santander's UK head, Antonio Horta-Osorio, as its chief executive. He will replace the current CEO, Eric Daniels, early next year.

Financial analysts, and so called "financial experts", seem on the whole to be delighted with this appointment.

All very well, maybe.

However, is this not the same Santander bank with the highest proportion of customer complaints in the UK (216,158 complaints in the first half of 2010), where complaints came in at the rate of one per minute in the first half of this year?

Jeff Prestridge wrote in the FT is September:

"..administrative problems at Santander including customers not being able to review their accounts online, customers’ savings accounts not set up promptly, as well as suddenly inoperable accounts even though they were set up on an enduring power of attorney.

There's more.

Customers have been designated dead when they are very much alive, customers' accounts have been set up in the wrong name, customers have been held on expensive telephone lines for ages, and branch staff have contradicted instructions given by the bank's call centres.

In terms of administrative meltdown, I've never seen anything like it in more than 25 years of personal finance journalism.."

Has Lloyds (one of the "people's banks") taken leave of its senses?

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Lloyds Tops List of Shame

I see that, not content with topping the FOS's list of shame, Lloyds has also topped the list of shame published by the Financial Services Authority (FSA).

The FSA report that Lloyds received more than 280,000 complaints in the first six months of 2010.

Barclays received 259,266, and Santander 244,978.

Well done lads!

Lloyds are unapologetic, they claim that its their size that generates the volume of complaints and note that the complaints came from less than 1% of their 30 million customers.

So that's alright then!

The British Bankers' Association (BBA) also tried to weasel out of the criticism, the BBC quote them:

"The banking industry welcomes greater transparency but is concerned that the separate publication of complaints data by the Ombudsman and the regulator could lead to data overload. What should be a useful overall summary could become a complex and confusing exercise."

Pathetic!

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Well Done Lloyds!

Lloyds Banking Group, which is partly owned by the taxpayer, has achieved a new accolade by being on the receiving end of over 25% of new complaints received by the Financial Ombudsman Service (FOS).

The FT reports that in the first 6 months of 2010, the FOS received 84,000 new complaints, of which over 22,000 related to Lloyds and its subsidiaries.

Well done lads!

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Did Brown Create a False Market?

When Gordon Brown persuaded Lloyds to take on the wreck of HBOS, he put his "reputation" on the line.

This "reputation" was placed even more on the edge of the precipice, when it became apparent that HBOS was on the verge of collapse.

How surprising then, that at that very moment, the Bank of England bailed HBOS out with a secret (secret to the public and shareholders) loan.

The question is, did Brown create a false market in the shares in order to save his "reputation"?

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The Secret Loans

Two of Britain's once respected banks stood on the precipice of collapse last year. Had they collapsed the UK's banking system would have ground to a halt (even cash dispensers would have ceased dispensing cash).

As such the Bank of England stepped in with an emergency loan of £62BN, to Royal Bank of Scotland (RBS) and HBOS during October and November 2008.

Mervyn King, Governor of The Bank of England, revealed the secret loan during a parliamentary hearing today. The money was repaid in full by January 2009.

I wonder if, had the responsibility for issuing the loan rested with Brown, whether such a decision would have been made (given Brown's dithering and inability to make decisions)?

"Ironically", the shareholders of HBOS and Lloyds were not told about this (ie given the full picture of the shocking sate of the banks' finances), when they were offered shares in earlier rights issues by HBOS and LLoyds in January 2009.

Suffice to say, they may well have grounds for "complaint" against the boards of these two banks.

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Lloyds Takes More Taxpayer Money

Lloyds Banking Group, the once proud bank that was wrecked by Gordon Brown when he persuaded its board to take over the toxic HBOS, is draining the taxpayer of even more money today.

Lloyds is raising £13.5BN via a rights issue. As such the government will be pumping another £5.7BN of our money into the bank, in order to maintain our current holding of 43%.

Lloyds wants the money so that it can avoid participating in the government insurance scheme for its bad debt.

The scheme would have protected Lloyds against worse than expected losses on its toxic assets. However, the government would have demanded a greater share in the bank in return.

I am sure Lloyds now bitterly regrets ever allowing itself to be persuaded by Brown to takeover HBOS.

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Lloyds Job Cuts

Lloyds Bank, the 43% taxpayer rescued wreck of a once proud bank, has announced that it will cut a further 5,000 jobs by the end of next year.

Lloyds, at the behest of Gordon Brown, rescued HBOS last year at the height of the banking crisis; it now faces having to "eliminate" a total of 12,500 jobs from a total of 129,000 staff employed in Britain.

Meanwhile HSBC and Barclays both issued positive trading statements, in which they claimed the rise in bad debts has peaked and profits are sustainable.

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RBS Slips Deeper Into The Mire II

Hot on the heels of the news that the Royal Bank of Scotland (RBS) will have to conduct a forced sale of some of its well known brands (eg Churchill) and that a further 3700 jobs (on top of the 16000 already lost) will have to go, RBS have also announced that it will be deferring the bonuses of higher paid members of staff (over £39K per annum) and board members until 2012.

RBS and Lloyds will defer bonuses in return for an additional £40BN of our money.

Part of the bonus payments will be deferred, and part will be paid in shares; ie there is no "bonus cut" as such, merely an adjustment as to how and when the bonuses will be paid.

Given that these two banks are in a complete mess, I don't fully "grasp" how it is that any senior manager is entitled to receive a bonus.

I would also note that by paying part of the bonuses in shares, the current shareholders will find their holdings diluted, and the management will be incentivised to talk the value of the shares up in future in order to maximise their personal gains.

Is this really an improvement in the corporate governance of these two failed banks?

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RBS Slips Deeper Into The Mire

Royal Bank of Scotland (RBS), the wreck of a once fine bank now 70% owned by the taxpayer, saw its shares fall by up to 14% this morning as it announced that it may be forced by the EU to sell more assets than planned.

Quote:

"It remains RBS's goal that any required divestments do not threaten its recovery plan."

Up for possible sale are Churchill, Direct Line and Green Flag insurance operations; along with more than 300 bank branches and its Global Merchant Acquiring card-processing unit. It may also have to downsize its investment banking arm.

Whilst these brands all have value, being part of the forced sale will inevitably reduce much of that value and the price that RBS hopes to be able to extract from any deal.

The forced sale is in order to satisfy EU policy that attempts to ensure that RBS doesn't have an unfair advantage in the market. The EU is also gunning for Lloyds Banking Group, which may have to sell assets and branches, and Northern Rock which is splitting into two.

Alistair Darling tried to spin this positively yesterday, by saying that the creation of three new banks will stimulate competition.

All very well, but if this is such an important issue, why did the government not intervene some years earlier in order to stimulate competition and provide consumers with more choice?

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Bargain Basement

Lloyds Banking Group has sold the Halifax estate agency business for £1 to LSL Property Services. The 460 staff who currently work there are expected to be made redundant.

The government, or rather the taxpayer, owns 43% of Lloyds; and it is for this very reason that Lloyds has offloaded this lossmaking business.

Were the group to keep it on its books, it would be forced to participate in the Government's Asset Protection Scheme (APS) which would cost Lloyds £15.6BN and an increase in public ownership to 63%, in exchange for the government underwriting £260BN of assets.

It is not clear as to whether it will be Lloyds or LSL that picks up the bill for the redundancy costs.

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Lloyds May Give Up Halifax

The European Commission, in the guise of Neelie Kroes (the Competition Commissioner), has warned that Lloyds Banking Group may have to split off Halifax as punishment for the state aid that it received in 2008.

Gordon Brown waived competition rules in September 2008 in order to allow Lloyds to take over HBOS in a rescue deal. Although this will be deemed yet another personal blow to this deal that he orchestrated (ie he twisted arms to save his political skin), splitting off Halifax will increase competition within the banking sector.

Doubtless Sir Victor Blank, ex Chairman of Lloyds, who was conned by Brown into merging with HSBC and also paid a price as he was forced to stand down as chairman, will not be shedding any tears for Brown's hurt "pride" if the EU get their way.

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Named and Shamed

The Financial Ombudsman Service (FOS) has finally had the guts to name and shame the worst offending financial services companies in the UK, being those companies that have logged the highest number of customer complaints.

Congratulations to the five major high street banks, which account for the majority of the complaints.

The big five have managed to notch up a staggering 38,286 complaints, out of a total of nearly 70,000 received by the ombudsman in the six months to 30 June 2009.

- Lloyds (which includes HBOS) came top to the league of shame with 15,233 complaints.

- The Royal Bank of Scotland group scored 5,533 of the complaints received by the ombudsman.

- Barclays scored 8,283.

- Abbey scored 2,493 complaints.

- HSBC group scored 2,363 complaints.

- Alliance & Leicester scored 1,786.

The chairman of the FOS, Sir Christopher Kelly, was more than unimpressed. He is quoted:

"I will now be writing to the chairmen of the financial businesses that generate the largest proportion of our complaints workload, to ask them to consider very carefully both their own complaints performance – as reflected in the data we are publishing today – and the complaints performance of their competitors."

As I have noted many times before, the financial services sector in the UK treats its customers appallingly.

Why does it use the word "services" in its moniker, given that "service" is the one thing that it doesn't provide?

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The Banking Rip Off

As I have noted before, the financial services industry in the UK has an unfailing knack for digging itself deeper into its own shit.

Not content with foisting endowment mortgages, PPI, excess credit card rates, bank charges and other insults on its hapless customers it now seeks to milk them further by "imaginative" and outrageous profiteering charges on mortgage arrears.

Many thousands of homebuyers, many of whom are unemployed, face profiteering penalty charges on top of their regular monthly mortgage repayments.

The Council of Mortgage Lenders (CML) report that the number of mortgages in arrears by three months or more has reached 270,400 (compared with 152,700 at the end of the second quarter of 2008).

Moneysupermarket.com report that Lloyds Group is charging £206 for repayments three months or more in arrears.

GMAC and Abbey charge penalties of £50 and £40, respectively, when the borrower is only one month in arrears.

Halifax charges £35 for every call/letter wrt mortgage arrears, and then has the barefaced cheek to charge £100 for debt advice.

The FSA has a Code of Conduct that requires that lenders treat customers fairly sympathetically.

Evidently the banks haven't read that code, or simply do not care about it.

The Treasury Select Committee is not impressed with either the banks, or the hapless and hopeless FSA. It has attacked the FSA for sitting on its hands.

Britain's financial services industry is rotten to its core.

Until the FSA is expunged from history, and replaced with a more pro active assertive regulatory body, the hapless British consumer can only expect more of the same and continue to be ripped off.

Those who currently are enjoying the fruits of their profiteering should bear in mind the wise adage:

"What goes around, comes around".

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Sants Fights His Corner

The embattled CEO of the Financial Services Authority (FSA), Hector Sants, fought his corner on BBC radio this morning.

In response to criticisms that the FSA's new remuneration code is too soft on bankers, he stated that politicians have "ducked" the issue and have passed "the buck to the FSA".

He quite correctly noted that the FSA was not set up to take a "moral view" on the scale of payouts. However, its role is to ensure that pay packages did not encourage inappropriate risk-taking.

He also, rather wisely, noted that it was "reasonable" for the government, as a shareholder in some institutions (ie Royal Bank of Scotland and Lloyds) to set parameters on how the companies were run. Thereby neatly reminding the government that, at least in those two cases, they really are in charge and do have a say.

Doubtless that suggestion will fall on deaf ears, as the government would very much like to pretend that it has no control over these two institutions; to admit that it does would mean that it would be blamed for the poor results.

Demonising bankers is all very well. However, like it or not, the country needs banks and bankers in order to function.

Short of returning to a primitive barter society, we will have to continue to endure seeing a handful of people making large sums of money for apparently doing very little.

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Lloyds Loses £4BN

Gordon Brown's state sponsored merger of Lloyds and HBOS has shown that he has the direct opposite of the "Midas Touch", as today the semi nationalised bank reported pre tax losses of £4BN for the first half of this year.

Sir Victor Blank, ex Chairman of Lloyds, who was conned by Brown into merging with HSBC has also paid a price as he was forced to stand down as chairman.

The lesson here is never trust Brown, and always perform a thorough due diligence before taking on anything offered by Brown/Labour.

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