The Curate's Egg

The World Economic Forum has ranked the UK as the world's number one financial centre, overtaking the US.

However, it has also ranked the UK as 37th out of 55 for financial stability, placing us behind Panama, Bangladesh, Nigeria, Poland and Colombia.

The number one ranking will doubtless give the government an excuse to use it for their own political ends. However, the poor showing wrt financial stability means that this "success" may well be very fleeting.

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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 bank shares occurring.

Reuters quoted one trader as saying:

"We have the biggest takeover in the history of the known world ... and then we can't trade. It's terrible."

Another said:

"This halt today clearly has once again damaged (the LSE's) reputation as a leading exchange, especially on a day like today, highlighting that it may have been unable to handle the volumes this morning."

The LSE have not given an explanation for the crash, traders though are demanding an explanation.

LSE Chief Executive Clara Furse wrote to the FT on Monday, somewhat ironically, and said that the system used by the LSE was "the cutting edge".

This is just one of a string of issues that has tarnished the City's reputation. Other include; the endowment scandal, fat cat bonuses for failed executives, Northern Rock, excess bank and credit card charges, the mortgage drought, mis-selling of mortgages, PPI mis-selling etc.

The great and the good of the City should bear in mind that reputations are hard to earn, but easy to lose.

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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.

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The Metronet Debacle

It would appear that following on from the Metronet debacle, it is a case of once bitten twice shy.

That at least is the view of Terry Morgan, chief executive of the company responsible for maintaining and upgrading the Jubilee, Piccadilly and Northern lines, said he would not put Tube Lines at risk by simply taking on Metronet work.

"I think there's a number of things to happen yet," Mr Morgan said, referring to Metronet's decision to call in administrator Ernst & Young.

"First, someone has got to make certain it can't happen again. Tim O'Toole [London Underground managing director] and the mayor [Ken Livingstone] have made it clear there will have to be some changes with the way the Metronet contracts are let and London Underground will have to rescope the programme."

Source The Daily Telegraph

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The Metronet Debacle

Workers from Metronet facing redundancies, following its demise last week, are urging the prime minister to bring its contracts back into the public sector.

When Gordon Brown was Chancellor he bulldozed the Public Private Partnership (PPP) initiative through, despite fierce opposition, this was the scheme under which Metronet bid for its contracts.

RMT general secretary Bob Crow has asked for infrastructure work to be the control of London Underground.

In a letter to Brown, Crow said:

"The collapse of Metronet means there has to be a fundamental rethink on how the London Underground infrastructure is maintained and renewed.

We support the view of the Mayor of London that infrastructure work should be taken back in-house under the control of London Underground."

Brown will have to make quite a political contortion, something that he is not prone to do, if he is to meet the desires of the Metronet workers; ie it won't happen.

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The Metronet Debacle

Yesterday I asked, in a somewhat ironic tone, how is it that Metronet managed to get itself into such difficulties.

The answer lies in it's "jobs for the boys" approach to its contracting. More formally known as "tied supply chain", this ensured that Metronet's five shareholders (WS Atkins, Balfour Beatty, Bombardier Transportation, EDF Energy and Thames Water) were guaranteed most of its work maintaining and upgrading the Underground.

A nice little earner for those with their fists in the honey pot. However, rather a poor arrangement for the tax payers and commuters who find themselves holding the shitty end of this rather unpleasant stick.

This arrangement has been criticised regularly by London Underground, Ken Livingstone and Chris Bolt, arbiter of the £30BN Underground public-private partnership.

A prophet seemingly receives no honour in their own country!

I look forward to seeing how the "listening" clunking great fist tries to get himself out this mess.

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The Price of The Metronet Failure

Gordon Brown has not escaped quite so cleanly, as he may have hoped, from the Metronet debacle.

Transport for London (TfL) has promised to stump up £750M to prevent the "meltdown" of London's primitive and shameful tube system, following on from yesterday's announcement by Metronet that they have placed themselves into administration.

Alan Bloom, an insolvency expert from Ernst & Young, has promised the hapless commuters of London who endure on a daily basis the third world tube system that he had an "overriding obligation" to ensure that the tube network does not grind to a halt.

Well, he would say that wouldn't he?

Ken Livingstone, Mayor of London, to his credit had resolutely opposed the PPP Metronet scheme. However, he was bulldozed out of the way by the "big clunking fist" aka Gordon Brown.

Chickens now are coming very firmly home to roost; and the Mayor has warned that the refitting of over 100 tube stations might have to be pushed back years, in favour of a multibillion-pound overhaul of the underground's signalling systems that Metronet was due to carry out.

Mayor Livingstone said that London now faced a "difficult period", while TfL tried to handle Metronet and "the clunking fist's" legacy of a £2BN cost overrun, a lending freeze from its banks and question marks over who inherits its two PPP contracts.

One has to ask some blindingly obvious questions:

1 How were things allowed to get to this stage in the first place?

2 Was no one overseeing this fiasco?

3 Who will be held to account?

4 What has the clunking fist got to say for himself now?

Needless to say, it will be the long suffering taxpayer who gets saddled with another one of this government's financial foul ups.

Tim O'Toole, a senior TfL executive and head of London Underground, said that he expected the taxpayer to plug any financial gaps left by the Metronet intervention.

"This will feed in with the larger discussion with the government about the funding of TfL and transport in London."

Quite!

The cash bung of £750M will be enough to cover Metronet's funding gap until the end of this year; after that...who knows?

By the way, the reason the clunking fist imposed PPP contract was to transfer the financial risk of managing public sector assets to the private sector.

Yes, you did read that correctly!

It would seem that the risk has been very speedily transferred back, which would indicate that PPP contracts are not worth the paper that they are printed on.

Well done Metronet and the clunking fist.

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Metronet Goes Into Administration

Metronet, the London Underground contractor, has announced that it will go into administration after overspending by a staggering £2BN; it has asked Mayor of London (Ken Livingstone) to appoint the administrator.

Alan Bloom, an insolvency specialist at Ernst & Young and the former administrator of Railtrack, is expected to be appointed to run Metronet.

Metronet said that its two Public Private Partnership contracts to renovate and maintain London's tube system were unsustainable. Its Metronet BCV programme, for the Bakerloo, Central and Victoria lines, had an unpluggable funding gap of just under £1BN. Metronet's creditors and shareholders – Balfour Beatty, WS Atkins, Bombardier, EdF and Thames Water – had refused to provide more funding.

Quote:

"Metronet Rail BCV requires additional funding to enable it to carry out its contractual obligations during the period of the Extraordinary Review.

This company has now established that it has no access to such further funds."

The second contract, Metronet SSL, for London's sub-surface tube lines, has an an overspend of £1BN. Metronet said blamed the PPP regulator for not providing emergency funds for Metronet BCV.

Quote:

"Applying the logic of the PPP Arbiter's draft direction to the circumstances of Metronet Rail SSL, the Board of this infrastructure company has come to the conclusion that any application for Extraordinary Review... would come to a similar position."

The collapse of Metronet is a kick in the groin to the then chancellor, Gordon Brown, and his PPP policy. Brown bulldozed the tube PPP through despite strident objections from those who knew it would be a disaster.

Hardly surprising that he was so keen to become PM, thus avoiding the mess that he created.

The head of London Underground, Tim O'Toole, has assured Londoners that the service on the lines that Metronet is responsible– nine of the capital's 12 – will continue as normal.

Hardly much of a reassurance, given that the service is a shambles anyway.

We can expect this to be a shambles, not just for the current tube passengers but also for the Olympics 2012.

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US Sub Prime Infection Spreads To UK

The fallout from the US sub prime mortgage collapse has spread to the UK. Cambridge Place, the London fund manager, has been forced to close its $908M listed fund as a result.

Cambridge Place said that it would sell the assets of Caliber Global Investment, a London-listed fund, after suffering a net loss of $8.8M in the first quarter of this year.

Caliber has about 60% of its investments in the US, mostly in mortgage debts rated BBB or below. These are securitised tranches of mortgages given to people with impaired or nonexistent credit histories.

Not surprisingly such loans are high risk and carry an interest rate premium. The collapse in house prices in the US has caused borrowers to default on their payments, thus causing a knock on effect affecting those funds that bought the securities.

A sneeze in America can give Britain a very nasty cold.

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Excess Charges Mass Hearing

Today will see a record number of people have their claims for the return of bank overdraft charges dealt with at Leeds Mercantile Court.

Around 200 cases have been scheduled to be heard, though some have been settled at the last minute.

Over the last 12 months there has been a surge in mass litigation, whereby angry bank customers have sued their banks for the return of the charges they have had to pay for having an unauthorised overdraft.

Banks have attempted to settle all the cases against them, rather than contest one before a judge; as they fear a precedent being set.

Were that to happen, all the banks would be forced to go back through their records for the past six years and repay the overdraft charges to every single customer who they have charged in that time.

In order to clear the large number of cases coming before district and county courts, mass hearings have taken place in the past few months at courts in Leeds, London, Guildford and Birmingham, with more to come in the next few weeks.

The banks have refused to say how many people have threatened to sue them, or how much they have paid out.

As I have said before, banks are in the business of making money. Even if a precedent were to be set, and every penny in overdraft charges were to be repaid, the banks would find other means of making money out of their customers (eg current account charges, lower interest rates on savings and higher rates on loans).

The dice are loaded in the banks' favour!

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Rate Hikes Yet To Be Fully Absorbed

The recent interest rate hikes by the Bank of England have yet to be fully absorbed by the UK housing market.

That at least is the conclusion of the Royal Institute of Chartered Surveyors (RICS).

Quote:

"The full impact of current rate hikes on the housing market should not start to appear until after the summer."

It would seem that there are indications that there is some cooling off in the housing market. The Land Registry survey for April showed that prices are being buoyed by London, while house prices fell in four English regions. Figures from the Bank of England showed mortgage approvals fell for the third month running in April.

It is expected that the Bank of England will raise rates at least one more time this year.

Belt tightening time is upon us.

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The Dangers of Mobile Phones

I am always amazed as to how foolish some people are when it comes to their personal security, wrt pass codes and credit card details.

However, I was quite gobsmacked to overhear (as did the rest of the carriage) a conversation that someone was having on their mobile phone when travelling to London the other evening.

The lady was buying some tickets for something and happily gave out her credit card details, over the phone, so that the whole carriage could hear them.

It is hardly surprising that there is an epidemic of identity theft and fraud, if people are this cavalier with their security.

Keep your details private!

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A Portent of Doom?

The news that Jon Hunt, the owner of estate agency Foxtons, will sell Foxtons for around £370m to BC Partners a private equity group has caused a few worries in the housing market.

This signals to many that Hunt has, in effect, "called the market" and decided that now is a good time to get out of UK property.

Foxtons started trading in a converted Italian restaurant in Notting Hill 26 years ago, it now has 19 branches in London. Hunt will continue to work in the US market.

Last year, a BBC undercover documentary made a number of allegations about the firm. It claimed staff used faked documents to support inflated prices, put forward false offers to sellers, and made use of customer information passed on to them by Foxtons-owned mortgage broker Alexander Hall, which is also being bought by BC Partners.

Foxtons joined the industry's ombudsman scheme, an independent dispute resolution service which can award compensation, this year.

The sale of Foxtons UK business is subject to regulatory approval, which is expected within six weeks.

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