Speculators Target Sterling

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

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

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

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Northern Rock

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

About £1BN, 4-5% of retail deposits, was withdrawn on Friday; it is claimed that there are queues forming today as well.

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

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

The result?

Falling house prices.

That's where the danger lies!

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ECB's Dangerous Game

The European Central Bank (ECB) is currently playing a very dangerous game, as it tries to avert a major credit crisis.

The ECB said that it will offer cash to euro-region money markets for a third trading day, as it tries to avert a credit crunch. This bail out is in response to the credit crisis precipitated by the sub prime mortgage collapse in the US.

The ECB, the U.S. Federal Reserve and other central banks injected $154BN into money markets on August 9 and $135BN on August 10, amid concerns that the U.S. subprime mortgage losses would curtail lending.

The danger here is that markets may interpret these injections as the harbinger of bad news, that has yet to be made public; the markets can smell fear, and are very unforgiving.

The ECB is playing a very dangerous game, which may precipitate something that it is trying to avoid..

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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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Government Rules Out Theft

The government has ruled out topping up a pensions lifeboat fund with surplus unclaimed pensions cash from life insurers, ie it has ruled out theft of private money for use in public expenditure.

Andrew Young, of the Government Actuary's Department, said that non-tax sources of funding for the Financial Assistance Scheme FAS (inherited estate orphan assets, windfall taxes or an extension of existing levies on solvent occupational pension schemes) were largely unsuitable.

He noted that there would be:

"substantial legislative and administrative barriers to establishing such a scheme".

How annoying when the law blocks government plans for theft!

You can be assured that this will not be the last that we hear of this scheme, and that the government will be doing its best to try to find a way around these "legal obstacles".

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Filthy Fivers

The Bank of England's Governor, Mervyn King, has told banks that they must help replace the "scruffy" old £5 notes with brand new ones.

King said that the "fiver" is in a sorry state, and is hardly ever seen in a freshly minted state.

King lays the blame for the demise of the "fiver" at the doors of the high street banks. They find it easier and cheaper to stock their cash machines with ten and 20 pound notes.

Therefore "fivers" remain in the banking system for twice as long as they should. Circulation of the notes has not increased in 15 years.

King said:

"We have an ample supply of new £5 notes waiting to be used. We want to see them in circulation."

Even the Bank of England is not highly impressed with the high street banks, yet another dent in their already tarnished brand value.

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What Use Are Consultants?

Those of you who ever wondered what use consultants are, and whether they really represent value for money, should take heart from the findings of the all party Public Accounts committee.

The committee has lambasted the government's waste of £2BN per annum on external consultants, deriding it as "sheer profligacy".

The committee said that given such amounts of expenditure it was "impossible to believe that the public are receiving anything like full value for money".

In 2005-06 the public sector in England spent approximately £2.8BN on consultants, a staggering increase of 33% pct over the previous three years, with central government accounting for £1.8BN.

The bulk of the increase came from higher spending by the National Health Service.

Quote:

"Central government is repeatedly using consultants for core skills, including project and programme management and IT, and is increasingly turning to a select list of suppliers."

Committee chairman Edward Leigh said:

"Departments are often on the phone to consultants without first finding out whether their own in-house staff have the skills to do the job.

Departments routinely do not agree with the consultants any measurable benefits to be expected from the contracts. And consultants are often paid simply on the basis of the amount of time worked and not on what the work has achieved.

What would we say of anyone in private life who dealt with contractors like this? The consultancy firms are truly on to a good thing.

It is impossible to believe that the public are receiving anything like full value for money from this expenditure. In fact, a good proportion of it looks like sheer profligacy."

Quite!

The consultants know that with this government, they have a prone cash cow begging to be milked to death; the government know that they need not worry about funding the bill, as all they have to do is raise taxes.

Everyone's a winner, except for the taxpayer!

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RBS Puts The Boot In

The Royal Bank of Scotland has put the boot in to Barclays bid for ABN Amro Holding NV, by claiming that the Barclays bid would cost 9,000 jobs net.

RBS said its proposed deal would lead to a maximum of 2,000 job losses in Britain, but the Barclays deal would lead to 11,000 losses.

RBS also hit the headlines this weekend, when its cash machines went off line; leaving millions of RBS and NatWest customers in the UK unable to withdraw money.

Although they are now back on line, Royal Bank of Scotland has refused to explain what happened.

The problems started at around 10pm on Friday, when a system failure meant that 13 million customers of RBS and NatWest were unable to use ATMs to take money out of their account. The problem extended to customers trying to use other banks' machines to access funds.

A spokesperson for the banking group said:

"It would be inappropriate to go into any further details due to security implications."

Derek French, director of the Campaign for Community Banking Services, said:

"It is appalling for a bank to be off-line and more importantly unable to deliver cash over a weekend at which point branches will be closed."

Another nail in the coffin of the reputation of British banks.

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The Uncollected Windfalls

Hidden beneath the headlines of today's bumper results from Standard Life, which saw sales rise by 40% for the first quarter to £3.9BN, is the less well known story that over 200,000 people with Standard Life policies have yet to collect a total of 83M free flotation shares they are entitled to.

The share price of Standard Life, since it was listed last July, has risen from 240p to 335p.

The 200,000 shareholders have until 2016 to claim their shares, before Standard Life claims the money.

The largest current outstanding windfall belongs to a member in Derby, who is owed £116,123 from 36,923. Second is somebody in Glasgow who is owed £115,151 and third is an individual also from Derby who is owed £109,424. There are a further two uncollected pots of cash worth around £71,500.

It is truly unbelievable how foolish and absent minded some people can be, when it comes to money.

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RBS Invents a New Charge

Congratulations to the Royal Bank of Scotland (RBS) for being so creative when it comes to inventing new ways to make money out of their customers. Hot on the heels of the announcement by the OFT that they would be investigating unfair bank charges on overdrafts, RBS foisted a new charge on customers who don't inform it of a change of address in a timely manner.

RBS will impose a £12 penalty charge on customers who fail to notify it of a change of address, after two statements have been sent to the customer's old address.

Needless to say its customers are less than impressed. However RBS remains unrepentant.

Quote:

"It is in the interest of customers to ensure the contacts details we hold for them are correct. We give clear instruction on each monthly statement on how to contact us to update these details."

Richard Mason, head of credit cards at the price comparison analyst Moneysupermarket, said:

"I've never come across this kind of charge before. But the OFT has cut credit card lenders' profits and that has made other charges inevitable."

Michelle Slade, an analyst at the personal finance consultancy Moneyfacts, said that credit card companies were finding new ways to increase revenue.

In April seven credit card providers, including American Express, Morgan Stanley and MBNA, have raised their interest rates. Other lenders have introduced new fees payable by customers who rarely use their cards, or cut the number of days following a credit card transaction after which interest becomes payable on the spending.

There are also new classifications of what constitutes a cash withdrawal; eg spending on internet gambling accounts is now regarded as a cash withdrawal, and charged at higher rates.

As I noted yesterday, banks are not charities. Squeeze their profits in one direction, and they will find another way to make money. The customer is a cash cow, there to be milked dry.

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Mortgage Exit Fees

The hapless home owners, screwed by the endowment mortgage scandal and high mortgage exit fees, may be forgiven for thinking that the banks and loan companies merely regard them as a cash cow to be slaughtered for their personal consumption.

However, after some considerable pressure from the Financial Services Authority (FSA), there may at least be a some respite for those home owners who have suffered from unreasonably high mortgage exit fees.

In January, the FSA told lenders that they would need to justify raising mortgage "exit" fees.

The FSA said if they could not do so by 28 February, then they would have to agree to charge no fee at all, or keep with their original fee.

It seems that has produced a positive result. Robin Gordon-Walker, an FSA spokesman, said:

"Certainly the impression we are getting as we go through the responses is that most lenders have gone for the original mortgage exit administration fee option."

Many of the fees charged by lenders have doubled to between £200 and £300.

People who have paid the raised charges will now be able to go back to their former lenders, and ask for some of their money back.

Ray Boulger, from John Charcol, told the BBC:

"Around 10 million mortgages have been redeemed in the last four years.

But the number of people who claim compensation will no doubt be largely influenced by the amount of media coverage this topic receives.

However, I would estimate that the total compensation payable will be at least £50m and probably in the region of £100m."

However, before people start popping champagne corks, remember that the banks and lenders will find other ways to part you from your cash.

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The Forthcoming Credit Squeeze

Those of you who are heavily in debt, and rely upon debt to pay your debt, be warned; there is a credit squeeze coming.

Aside from the prospect of further interest rate rises, which increases the cost of borrowing, banks and credit card companies are in the process of reviewing their customers' debt portfolio and tightening up their terms and conditons.

Such changes include; reducing credit limits, refusing new loan applications and reducing the amount of cash that you can withdraw via credit cards.

All of this will cause pain to those who are heavily in debt, and living "at the end of their credit lines", by forcing them to address their indebtedness.

A cynic might argue, that had the banks and credit card companies been a little more stringent in the first place with regards their customer portfolio, then there would be no need for this credit squeeze (shutting the stable door after the horse has bolted) now.

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The Farepak Debacle II

A very small measure of good news has been delivered to the hapless victims of the Farepak collapse. Roy Martin QC, one of Scotland's leading lawyers, is to represent Farepak victims for free in their fight to recover their money.

Roy Martin QC is dean of the Faculty of Advocates, and has agreed to waive his £5K per day fee to take up the case of the Farepak victims.

He will meet with campaigner Louise McDade, of the Farepak Victims Committee, to see if Farepak's victims have any grounds for legal action.

Mr Martin will examine the case on behalf of the 150,000 victims across the UK who lost £45M when Farepak's parent company, European Home Retail, went bust in October.

In other news The Office of Fair Trading and the Financial Services Authority are considering whether to introduce new regulations for the industry after the Farepak collapse, I would venture to suggest that this seems to be a tad late for the Farepak victims.

Meanwhile Park Group, the largest Christmas savings club in the UK, has unveiled measures to ring-fence £210M of savers' cash; in an attempt to maintain confidence following the collapse of Farepak (which was in fact a larger company).

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It's The Money Stupid

Buried beneath the media hype over the report into Princess Diana's death, was news that the Serious Fraud Office (SFO) has decided to drop its investigation into BAE Systems over the Al-Yamamah deal.

The government intervened in this long running investigation, and proclaimed that "national and international security" took precedence.

The probe, which focused on alleged slush funds for senior Saudis, had caused a major diplomatic row and threatened billions of pounds worth of British arms trade with Saudi Arabia.

The SFO said:

"This decision has been taken following representations that have been made both to the attorney general and the director of the SFO concerning the need to safeguard national and international security

It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest."

Despite further assurances that this was a "national security matter" from the Prime Minister, who had earlier been interviewed by police in the cash for honours scandal (the first serving prime minister to ever be interviewed by police), cynics are of the view that economic considerations played a very large part in the ditching of this investigation.

Britain's reputation for financial probity is easy to squander, but will be very hard to earn back.

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