Osborne's Statement on Barclays Fraud

I see that the Treasury state that George Osborne is to make a statement on the Barclays fraudulent manipulation of LIBOR:

"HM Treasury ‏@hmtreasury

The Chancellor will be making a statement to Parliament at around 1215 about the FSA investigation into bank borrowing rates, known as LIBOR"

You will observe that they have politely avoided using the word "fraud".

Whilst the avoidance of the word "fraud" may suit the sensibilities of those in Whitehall I suspect that, once people who owe Barclays money (eg mortgages, personal loans etc) wake up to the fact that the rates that they paid were based on the fraudulent manipulation of LIBOR, the word "fraud" will be liberally peppered across the myriad of class action suits that are bound to arise.

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Wonga To Offer Business Loans

Wonga, which specialises in short-term personal loans, is launching a new product aimed at businesses.

It will, subject to checks, offer businesses loans of between £3,000 and £10,000 for up to a year with APR's rising from between 16.6% to 180%.

Whatever happened to Project Merlin (that was meant to make £190BN available to SME's) then?

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Barclays Accused of "Reckless Disregard"

An independent report prepared for Guardian Care Homes (GCH), which operates 30 care homes, by derivatives experts at JC Rathbone Associates accuses Barclays of "reckless disregard" over its sale of a set of complex derivatives to GCH.

GCH are suing Barclays for £36M, and the report will be used in its case against the bank.

The Telegraph notes that the report alleges that the terms of the loan posed "a risk of breach of covenant", while also claiming that the hedges sold to GCH were never likely to have protected it against rising interest rates.

Barclays in a statement last week said:

"This action is completely without merit and we will contest it vigorously. Barclays is satisfied that it provides sufficient information to enable a client to make an informed, commercial decision about the products it offers."

On Friday, Bob Diamond, CEO of Barclays, said the number of complaints was "very small", but admitted "mistakes" were likely to have been made.

The banks marketed these products as protection against potential higher future costs, the products do not do this. It would have been in the hapless purchasers' interests to take out a simple to understand fixed rate loan. Unfortunately, for the hapless customer, the commission earned by the banks on these complex financial products were higher.

I will leave you with the thoughts of Bob Diamond, 3rd November 2011:

"The only way that banks will win back the public's trust is to become better citizens. That starts with how we behave, and in demonstrating we act with trust and integrity. 

At banks this means the interests of customers and clients must be at the very heart of every decision made."

How very true!  

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Banks Rush For Cheap Loans

Once it was just the hapless individual seeking a personal loan or mortgage who would rush for "cheap" loans.

Now the boot is on the other foot, as banks have been falling over themselves scrambling for the "cheap" three year loan deal offered by the ECB. Rates will be an average of the ECB rate over the next three years.

The ECB has loaned Euro489BN to 523 banks, significantly above the Euro310BN expected by the markets.

This of course has given the markets a temporary pre Christmas "pick me up". However, it does not cure the systemic failings of the Eurozone. The money will be used by banks to buy up sovereign debt and shore up their own finances; it will not be used to lend to companies or individuals in the wider economy.

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The Naked Greed of Banks

Banks still seem to be operating with their heads in the sand.

"A customer borrowing £100 for 28 days without the consent of Santander would repay £200, for example.

That is the equivalent annualised percentage rate, or APR, of 819,100%.

Comparisons between banks and so-called payday lenders showed that the annualised percentage rate charged for borrowing £100 over 28 days varied from 969% to 819,100%.....

No payday loan lender charged an APR of more than 5,000% but two banks - Santander and Lloyds TSB - charged an equivalent APR of more than 300,000%. 

Santander told the BBC: "It's is confusing to compare payday loans with overdrafts on current accounts because an unauthorised overdraft charge is for unauthorised use of a current account while a payday loan is an agreed loan facility."

Barclays would charge a customer using a personal reserve - a pre-agreed emergency borrowing facility - £22 for every five consecutive working days they were in it. This means customers would pay £88 on top of the £100 capital after 28 days - an equivalent APR of 366,000%."

Source BBC

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Let The Good Times Role!

As David Cameron sheds tears today for the average British householder, who will face a "difficult and tough" year ahead, it is reassuring to know that the banking sector is booming again.

The Telegraph reports that four HSBC, Barclays, Lloyds and Standard Chartered will announce combined profits of £24.2BN (a rise of over 10% compared with the £21.5BN they reported last year).

To some extent these profits (and associated bonuses) will be recouped by taxes. However, the key to the banks' "reassimilation" into "polite" society will be whether they show that they are willing to lend more to businesses and homebuyers than they have been doing of late.

Seemingly, as discussions between George Osborne and the banks over lending levels (aka project "Merlin") have become deadlocked, it may be a while before banks (by their actions) are "reassimilated".

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Buy Like Hell?

Mike Slade CEO of Helical Bar is advising people to buy investment property "like hell", as he claims never to have seen such a gap between yields and borrowing costs.

All very well, maybe, if you are a professional property company with many years experience. However, the rest of the country may well be advised not to follow that advice:

1 Borrowing the money from the banks, at a decent rate of interest, is not that easy.

2 Interest rates in the next year will most likely rise.

3 There are buying opportunities (eg distressed sales etc). However, these are most likely to be snapped up by companies such as Helical Bar.

4 Helical Bar doubtless has a greater cash cushion than most, to enable it to ride out a crisis in the event that they are wrong.

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Bank Capital Base Deal Reached

A deal has been reached in Basel this weekend, between 27 "heads of supervision" of the world's banks, as to the capital base requirements of banks.

It has been decided that, in order to reduce the risks of future banking failures, banks will be required to more than double their reserves (common equity and retained earnings) from a minimum of 2% to 4.5%.

Additionally, banks will be required to build up an extra buffer that will take their total capital reserves to 7%.

This of course means that banks will have less money to lend, hence those trying to borrow money will find it harder to obtain a loan at an affordable rate.

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The Prostrate Cows

The UK credit card industry has long regarded their hapless customers as being akin to prostrate cows, ready and willing to be milked dry.

To some extent, given the appalling naivety of some customers when taking on debts that they cannot afford to pay, it is hardly surprising that the credit card companies hold this view.

However, the card companies are now charging rates that many could argue with some justification are simply "taking the piss" out of the prostrate cows.

Moneyfacts reports that interest rates on credit cards are now at their highest level for 12 years. The average rate charged is now 18.8%, despite the fact that the bank rate (ignored by the financial services industry, apart from when setting savings rates) is at a mere 0.5%.

The card companies, to some extent can argue that the rise in rates is as a result of the increasing levels of defaults. The Bank of England have published figures that show that write offs have doubled to £1.6BN in the third quarter of 2009.

Fair point, maybe.

However, did the banks and credit card companies not conduct a due diligence on their customers before granting them these loans?

Surely they are themselves partially responsible for their losses?

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Skipton Changes The Rules

The Skipton Building Society has shown its true colours by announcing plans to raise its standard variable loan rate from 3.5% to 4.95% effective from 1 March.

Doubtless Skipton's 100,000 borrowers, who had up until now been guaranteed that the variable rate would not rise while Bank of England base rate stayed at 0.5%, will be crying "foul".

Skipton doesn't care, because it refers all such "wingers" to the small print in it loans' agreements.

What does the small print say?

The magic phrase (that can be used by any bank/lender to change to rules as they go along) "exceptional circumstances".

Skipton claim that they are suffering from competition, such as that provided by National Savings & Investments (NS&I).

A lousy excuse from a lousy industry.

The financial services industry in Britain truly stinks, and should be thoroughly disinfected. No one should trust any financial institution that they have dealings with.

This all but makes the Bank of England's base rate irrelevant.

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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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Prostrate Cows

Those UK citizens who rely on credit cards to fund their day to day living are in for an unpleasant shock, as rates will increase and annual fees will be introduced.

PricewaterhouseCooper says that the increase in rates and imposition of fees is because lenders face extra regulation, difficulties in obtaining cheap funding and significant increases in bad debts (estimated at being around 9%).

That maybe so.

However, given that the rates on many cards are already close to 30% exactly how much of the increase is out of true necessity (in order for the card companies to remain in business) and how much is down to the fact that the card companies view and treat their customers as prostrate milch cows?

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Financial Prisoners

Keith Morgan, head of wholly owned investments for UKFI, gave evidence to the Treasury Select Committee yesterday. He painted a bleak picture for those hapless 85% of Northern Rock borrowers trapped in the wreck of that once respected bank.

Seemingly they will become financial "prisoners" when they are assigned to Northern Rock's "bad" bank.

Some 476,000 mortgage borrowers (some of whom were foolish enough to borrow up to 125% of their property value) will be transferred to the "bad" bank (hereinafter called Northern Rock Assets Management), because they will be unable to remortgage elsewhere.

Approximately 10% of the loans are in arrears.

Gordon Brown, in rare display of decision making and speed, is rushing to return the "good" part of the bank to the private sector.

For why?

So that the Tories cannot claim credit for doing so, when they win the election next year.

Hardly a noble motivation!

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A Gnat's Piss On The Dung Heap of Debt

The government, in attempt to shut the stable door long after the horse has bolted, has come up with some proposals theoretically designed to force credit card companies to help customers reduce their debt.

Card companies will be forced to allow customers to pay off their most expensive debts first, rather than pay off the cheaper debts and allow charges to accrue for higher interest debt.

The minimum monthly repayment level would also be increased, to encourage people to pay off their debt faster.

The government said:

"Around one-third of people who don't pay off their credit card bill in full each month make only the minimum repayment. This can mean consumers take decades to pay off the debt."

Indeed so, but this is most likely due to the fact that they cannot afford to pay off much more than the minimum.

By forcing those already in debt to pay a greater amount, the government is in danger of pushing many hard pressed families over the "financial edge".

The government also proposes to ban the practice of credit card companies automatically increasing credit limits, without specific authorisation from their customers.

Will they also ban card companies from arbitrarily cutting credit limits on those card holders with good credit records, who clear their debts each month?

The government also wants tighter rules imposed on increasing the interest rate on existing debt without "proper explanation".

That will not make not one jot of difference to this rip off practices employed by card companies. They will continue to increase rates based on the "explanation" that they are finding their margins squeezed by "difficult trading conditions".

Until there is a thorough independent investigation of the make up/rationale of companies' charges, and the quasi "price fixing" scheme of arrangement wrt this practice operated by the companies, they will continue to charge what they like, because they know that they can get away with it.

The proposals are open to consultation until January 19 2010.

This particular horse has long since bolted and the British consumer is hopelessly mired in debt, these proposals are little more than a "gnat's piss" on the dung heap of debt that has been created by the Faustian collusion between greedy consumers and lenders.

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Banking Bonuses

The Conservative Shadow Chancellor, George Osborne, is calling on the government and the Financial Services Authority to ban large cash bonuses for retail bankers; he wants cash bonuses capped at £2K, with the rest of the bonus paid in the form of shares.

The theory being that the £20BN saved could be lent to consumers and businesses.

Fat chance!

Osborne laid out his views at a Reuters, in Canary Wharf.

The cap would only apply to High Street retail banks, and the investment arms of banks that also lend to consumers.

All very well.

However, the dilution of shareholdings (as a result of the issuance of new shares in lieu of bonuses) will not necessarily please the shareholders.

I would also remind the Tories that one of the route causes of well publicised spectacular frauds, such as Enron, was rewarding executives with shares in the company. This provided them with a massive incentive to talk/manipulate the performance of the company up, in order to increase the value of their shares.

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Window Dressing

Mervyn Davies, the chairman of Standard Chartered, has been appointed Trade Promotion and Investment Minister under Lord Mandelson to help to turn around the banking sector.

Davies will step down from Standard Chartered and work for no pay, doubtless a gong will be in the offing if he succeeds.

The government is also offering £20BN of loan guarantees for banks to lend to small/medium sized businesses.

As to whether this is mere window dressing, remains a moot point.

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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 the event that Woolies becomes "insolvent" (ie the banks refuse to provide any more working capital) then the company will be forced into administration thus threatening 30,000 jobs.

In the "good old days" of "privately" owned banks (ie before the banks went cap in hand to the government for a bailout) the banks would have only themselves and their "consciences" to answer to wrt pushing a company in administration.

However, now that they are semi nationalised, for them to force 30,000 people onto the dole queue in this manner would be a tad "politically unwise" to say the least.

That being said the banks are very capable of making a very foolish decision and consigning Woolies to the dustbin of history, were they to do so they would be signing their own death warrants.

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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 enough Libor is at it lowest point in four years.

Maybe someone should tell Halifax that?

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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 wrt its attempts to limit the impact of the recession.

The banks will find that, unless they modify their behaviour, Brown and Darling will become very hands on "directors".

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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 to borrow more, are at the greatest risk from loan sharks.

Currently any area or organisation can form a credit union; however, they have to operate within their own communities (the Common Bond). The Treasury will broaden the Common Bond, allowing the sector to expand.

The government envisages that by this time next year, people will be able to access cheap, secure loans.

All very well, but the need for low cost credit and an easing of cashflow is now; not in one year's time.

The loan sharks are going to feast themselves sick over the coming months, on the rotting corpses left behind by the government's mismanagement of this crisis.

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