The Yorkshire Chelsea Merger

Those members of Chelsea and Yorkshire building societies (due to merge by next April) who had hoped that they may received a windfall, should keep their champagne on ice for another day.

There will be no windfall for members, but there will be job losses for the 3,200 staff working at the 178 branches.

The merged behemoth, to be named Yorkshire Building Society, will have combined assets of £35BN, and 2.7M members.

In reality this is not a merger but a takeover of Chelsea, which has lost £44M from the Icelandic banking scandal and £41M due to buy to let mortgage fraud.

Given the "in vogue" political hysteria against banking behemoths, it is surprising that this deal is going ahead and is being trumpeted so vocally.

Perhaps, in this instance, the politicians and regulators are relieved that another "Northern Wreck" has been deftly avoided?

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Councils Breached Guidelines

The Audit Commission has issued a report "Risk and Return: English local authorities and the Icelandic banks" that states that seven local authorities breached guidance and their own treasury protocols by investing £32.8M with Icelandic banks just before their collapse last October.

The report identified the following boroughs as negligent;authorities and the Icelandic banks, found London Borough of Havering, Kent County Council, Redcar and Cleveland Borough Council, Restormel Borough Council, Bridgnorth District Council, North East Lincolnshire Council and South Yorkshire Pensions Authority.

The authorities relied too heavily on credit rating agencies and external advisers.

Kent invested £3M of its cash in an Icelandic bank, after a finance official failed to open an e-mail which warned it not to do so.

The majority of the 451 authorities had invested within the rules laid out by the Chartered Institute of Public Finance and Accountancy (Cipfa). However, the report recommends a review of Cipfa guidelines, training for councillors and staff to enable them to interpret and question external and internal advice, monitoring of a wider range of information continually and revision of the national framework to reassess the consideration given to liquidity, security and yield.

The councils deny the report's findings.

Rita Greenwood, the finance officer at Havering council, said that the council made a deposit in an Icelandic bank 20 minutes before an alert went out which downgraded the banks to a lower security rating.

"We refute being called negligent. We rely on ratings done by established international organisations such as Fitch and Moody's and we were absolutely following all our policies and procedures."

The Guardian quotes Nick Chard, Kent county council's cabinet member for finance:

"The position and language used by the Audit Commission is quite extraordinary; it really is a case of the pot calling the kettle black. The Audit Commission's own internal report stated that they were not aware of the potential problems with Icelandic banks until Monday 6 October 2008; yet they are highly critical of local authorities making deposits after April 2008."

He noted that the commission has 18% of its total deposits in Icelandic banks compared with Kent's 9%.

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L&G Play Ostrich

Legal & General (L&G) have been acting like an ostrich recently, as they have put off telling investors in their structured products backed by Lehman Brothers that they may lose up to 20% of their investment.

L&G finally told 2,300 individuals the "good" news last week. This is of course a tad tardy, as Lehman Brothers went into liquidation three months ago. Indeed, the delay is even more surprising given that other structured products providers such as Meteor, NDFA and Arc warned investors within weeks of Lehmans' failure that their investments were at risk.

Why would L&G put off what was clearly inevitable?

Seemingly, according to some financial advisers, L&G wanted to avoid the negative publicity around Lehman Brothers.

I can't say that has worked, if that really was the reason, given that L&G now look rather foolish to say the least.

The two L&G plans affected are the Protected Capital and Growth Plan four and the Accelerated Growth and Investment Plan two. The plans were backed by Lehman Brothers, Barclays, Yorkshire Building Society, Citigroup Funding and Dresdner Bank.

Investors will now only be able to recover 80% of their capital in July 2011 if, when their plans mature, the FTSE 100 is below the level set when they were launched in July 2005.

I wonder if the FSA will look into this, given that financial markets are meant to be transparent?

Were I an investor in one of these products I most certainly raise this matter with the FSA.

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Banks Speed Up - Sort Of

A rare piece of good news for bank customers whereby the banks, whose reputation has sunk to an all time low, have actually started to do something the benefits their long suffering customers.

A banking scheme for one-day cash transfers over the phone or on the internet has started.

This is designed to speed up the process of transfers, which previously took up to four days.

Can you guess what happened to the money being transferred during this four day period?

It earned the banks a very nice £30M in interest per annum.

How nice for them!

Under the new scheme customers will be able to make one-off payments, up to a maximum value of £10K, over the telephone or via the internet. These payments will leave their account and arrive at the destination account on the same day.

The 13 banks included in the scheme are: Abbey, Alliance and Leicester, Barclays, Citi, Clydesdale and Yorkshire Banks (National Australia Group), Co-operative Bank, HBOS, HSBC, Lloyds TSB, Nationwide Building Society, Northern Bank (Danske Bank), Northern Rock, and Royal Bank of Scotland Group (including NatWest and Ulster Bank).

I wonder what the catch is?

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