Squeezing The Balloon

As the tide of public opinion turns against mega bonuses, Citywire reports that the City has come up with a "novel" wheeze for ensuring that their "star" players are not inconvenienced by having to cut back on their lifestyles.

Salaries are being increased to sop up the shortfall on bonuses.

Those of you with even a rudimentary intelligence will have probably guessed that would have happened anyway, you squeeze a balloon at one end it will expand at another.

The FSA have tried to direct people's attention to their "pro active" (albeit many years a coming) actions wrt bonuses. Hector Sants claims that the FSA would not allow any "new" multi-year guaranteed bonus payments to be made.

However, as the article points out:

"The FSA fears that if base salaries were low, it would make it difficult for a bank to eliminate or cut bonuses in a poor financial year."

In other words, in order for the FSA to show that it has actually done something (ie cut bonuses) it has to allow (nay force) companies to increase base salaries.

The FSA truly is a creation of Brown!

I look forward to its demise in the next 18 months.

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Virgin Backtracks

Now that the finishing post is in site, in the race to take over the corpse of Northern Wreck, those organisations that expressed a very public interest in making a bid are now having to get ready to put their money where their mouths are.

Monday saw Olivant pull out, today it is reported that Virgin are backtracking on a promise not to cut jobs if it succeeds in its bid.

Jayne-Anne Gadhia, the head of Virgin Money, said:

"We cannot continue to make the promise that there will be no redundancies, but we would aim very much to minimise any reductions."

When Virgin originally very publicly announced it was interested in bidding for Northern Wreck, last October, it said that it would keep Northern Rock operating in its current form and did not anticipate any job losses.

Needless to say the unions are not best pleased with this volte face. Unite said that it will meet with the company on Thursday to discuss the details of their bid.

Graham Goddard, Unite deputy general secretary, said:

"Unite will oppose any compulsory redundancies."

That's all very nice, but how exactly do they intend to oppose the redundancies without destroying what remains of the corpse of the bank?

The BBC estimate that approximately 1,000 (1 in 6) members of Northern Wreck's staff will lose their jobs.

It seems that the issue that has caused this volte face by Virgin is the insistence by the government that the loans made by the Bank of England to Northern Rock must be repaid in three years, rather than five years as previously expected.

Money has the rather annoying habit of really focussing the mind!

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Money

Those who occupy the top positions in Britain's boardrooms have had rather a pleasant year. The BBC report that directors of Britain's leading companies saw their pay jump 37% over the past year.

Those in charge of firms listed on London's FTSE 100 index earned, for the first time, more than £1BN in total for the 12 months to the end of June.

The best place to be is, of course, a bank - Barclays Bank.

Now you know why banks need to keep their charges so high!

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Wage Rises Highest Since 1998

Salary inflation has reached its highest level since May 1998.

That is the finding of the report on jobs by the Recruitment & Employment Confederation and KPMG.

Michael Carter, people services partner at KPMG, said:

"July's survey results continue to reflect a buoyant labour market.

The availability of staff has deteriorated at the fastest pace for over two years and employers need to continue to be creative in their recruitment strategies."

Permanent salaries, as measured by an index, increased to 65.3 from 64.2.

This will increase pressure on the Bank of England to raise interest rates at least one more time this year.

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Bleak House

The Times yesterday painted a bleak future for the housing market and for first time buyers. It is estimated that by 2026 the average house price will be 10 times the average person's salary.

Quote:

"The next generation of first-time buyers will face house prices equivalent to ten times their average incomes, putting home ownership out of reach for the majority of young people, a new government agency says today.

The average home in England currently costs seven times annual earnings, but that is set to rise to ten times by 2026 even if the Government succeeds in its aim of sharply increasing the rate of homebuilding, the analysis reveals.

Campaigners said that the developing crisis would "stop social mobility in its tracks", and force young people to live in overcrowded conditions and take out ever-riskier mortgages.

The stark warning comes from the National Housing and Planning Advice Unit (NHPAU).."

How has this sorry situation come about?

Aside from the very obvious points that the UK is not building enough new houses, and that the rising population is placing an intolerable burden on the scarce housing stock, there are also other factors at play here:

• A rise in single person households



• The greater wealth of "younger" buyers, and their greater aspirations, means that they leave home earlier in their lives



• The elderly are no longer living with their children, and are often (before being "homed") living in the original family homes



• There has been a rise in multi house ownership

Aside from an increase in housing stock, which is not in any bank or property owner's interest as it will push prices down, there will need to be a change in social attitudes, customs and practices wrt to the above.

This is unlikely to happen in the short term. Hence the situation looks very bleak indeed for first time buyers.

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The End Game

The end of Paul Woilfowtiz's career as president of the World bank is now in sight, all that is happening now is an elaborate negotiation about the terms on which he should leave.

On Tuesday evening, after World Bank directors accused Wolfowitz of breaking ethics rules in negotiating a promotion and salary raise for his companion, Wolfowitz pleaded with them to give him another chance.

Wolfowitz urged directors to separate the specific mistakes he may have made in handling his companion's reassignment, and larger questions about his contentious two-year tenure at the bank.

"If you want to have a discussion about my leadership, my management style and the policies I support, let's do it.

That's fair. That's legitimate. But let's get past this conflict-of-interest matter that was resolved over a year ago."

This last minute plea is unlikely to save him, as President Bush has now signalled that he is prepared to "allow" (in Bush's mind he has the power to keep Wolfowitz in situ - he does not) Wolfowitz to resign.

Bush has let it be known, that he would "allow" resignation if the bank board dropped its insistence to declare him unfit to remain in office.

However, as with many "new initiatives" and "changes of mind" that Bush proposes, this is too little too late. The majority of the countries who fund the bank are absolutely against allowing an easy opt out for Wolfowtiz, partly this being a reaction against Bush and his administration's unilateralism over the past 6 years.

It seems that the board will endorse the findings of a special committee that Wolfowitz broke bank rules, ethics and governance standards in arranging for, and concealing, a pay and promotion package for his companion, Shaha Ali Riza, in 2005.

Now is the time for Wolfowtiz to bring his lawyers in to discuss his severance package.

Another mess caused by the ineptitude of the Bush administration, that will have consequences for America's relationship with the rest of the world.

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The World's Local Bank!

HSBC, which claims to be the "world's local bank", has decided that the concept of "local" is flexible depending on your income.

That at least is the case for the hapless customers of its Poole Canford Cliffs branch.

HSBC have decided that those people that it classifies as non "Premier" are no longer worthy of interacting with staff at its branch in Poole; ie it will ban "face to face" interaction with "poor people".

Why is this?

Seemingly Poole is a wealthy area and HSBC have more than enough wealthy customers, so they don't need to deal with the "riff raff".

HSBC should take note that it's the "little people" that keep many banks going, as they borrow at exorbitant rates of interst and become steadily indebted.

Arrogance comes before a fall.

To find out if you qualify to see a human being at HSBC's Poole branch, take this simple test:

Do you have:

-£50,000 savings?
-or a £200,000 mortgage?
-or a £100,000 mortgage and £75,000 salary?
-or pay £19.95 a month "premier" account fee?

No?

Then Fark Off!

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Mortgage Lending Down

Mortgage lending fell by 14% in December, compared to November, according to figures released by the Council of Mortgage Lenders (CML).

The CML said £28.6BN was lent by banks, building societies and others to homebuyers during the month; £33.2BN was lent in November.

The figures show that a typical first-time buyer would now expect to take out a home loan 3.31 times the size of their salary. This means that first-time buyers are struggling to enter the market, despite this they accounted for 36% of all home purchase loans in 2006.

Michael Coogan, director general of the CML, said:

"The monthly figures clearly show the cumulative effects of the gradual worsening in affordability for first-time buyers, and the ever-rising proportion of them who are caught by stamp duty.

Although the mortgage market performed extremely well in 2006, the effect of rising interest rates and the continuing decline in affordability are likely to dampen activity somewhat in 2007."

As the first-time buyers are priced out of the market, so will the downward pressure on house prices increase. In other words, the housing market is due for a major correction in the next 18 months.

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