Banking News & UK Comment 2008

The banking industry's incompetence, mismanagement, greed and recklessness, have finally burst the bubble of continuous profit making from ever increasing consumer debt. The full losses from sub-prime lending woes, whilst already huge, are still not yet fully revealed. What does this mean for banking consumers? UK Banking consumers will now inevitably own the Northern Rock because Nationalisation is the only option left which can repay the huge bank guarantee from the Bank of England. IBAS believe that Banking consumers will be left ‘shouldering the weight’ of multiple failures in the banking systems and the financial pain caused by bankers incompetence, mismanagement, greed and recklessness over the last decade, which will result in global financial pain which will cause damage for a long time to come. - 17th February 2008

World markets have lost £2.7trillion off global stock markets in January 2008. Spiralling US financial problems and US house prices still falling is indeed grim reading, because we know that the 'fall-out' will affect us all. 27,000 repossessions last year - highest since 1999 and with many more predicted for this year. The UK is already feeling the 'heat' from the American kitchen - Northern Rock the first, but expensive casualty. Soon we will have the banking reporting season. We have seen massive and record profits by banks over the last few years. But, this year may be different. Analysts worry that new losses linked to sub-prime problems keep emerging and we may yet see some more then. UK Business confidence is already at a record low. Most economists measure a recession as being two consecutive three-month periods of economic contraction and we seem to be teetering on the brink of recession. The next few months will show whether the UK has teetered over that brink. - 12th February 2008

Today's survey results that 80% of lenders predict a rise in mortgage repossessions of more than 10% is not too surprising to IBAS and Moore Blatch elaborate that "We have seen a significant increase in repossessions over the year, and with house prices falling, the vast majority of lenders expect this to continue over the foreseeable future," said Paul Walshe, head of lender services at Moore Blatch. The firm said that couples splitting up, redundancy or business failure are the primary causes of 69% of repossessions. Those facts are also well known to IBAS and we are already seeing the signs of such a 'build up' of increased pressures on small businesses in borrowing positions. The liquidity issues within the big banks will inevitably impact on small businesses. There are now some similarities to the last recession and small business will have to 'tighten it's belt' to survive the storm that is approaching. As with the last recession banks will close down businesses and sell the business assets to improve their own financial position. The 'trick' is to not be over extended and in a position where the bank can make immediate demand for payment at any time, which is convenient to the bank. - 5th February 2008

The Financial Services Authority (FSA) today published its Financial Risk Outlook (FRO) - warning firms and consumers of the risks inherent in a significantly less benign economic environment. Its central scenario identifies the following five priority risks:

Existing business models of some financial institutions are under strain as a result of adverse market conditions;
Increased financial pressures may lead to financial firms shifting their efforts away from focusing on conduct of business requirements and from maintaining and strengthening business-as-usual processes;
Market participants and consumers may lose confidence in financial institutions and in the authorities’ ability to safeguard the financial system;
A significant minority of consumers could experience financial problems because of their high levels of borrowing;
Tighter economic conditions could increase the incidence or discovery of some types of financial crime or lead to firms’ resources being diverted away from tackling financial crime.

The FRO focuses on the risks arising from the events of the second half of 2007 and the less benign economic outlook expected over the next 18 months.

Callum McCarthy, the Chairman of the FSA, said: "To be clear, these are not firm predictions about what we think will actually happen but are a prudent attempt to highlight the risks that could impact consumers and firms in a less benign economy. "Firms and consumers need to recognise there are both short and long term risks and should think about the implications.

"Firms are clearly more aware of these risks now and should continue to consider how they would respond to a crystallisation of these risks particularly those relating to capital and liquidity." - Source FSA - 29 January 2008

Sub-Prime losses from Bank reckless lending reach a staggering $98bn

The loss is directly attributable to US Sub-Prime lending and the ‘packaging’ of sub-prime lending into SIV’s (structured investment vehicles). The total figure is not known and may not be, for some time yet. These losses make the Baring Bank total loss of £860million appear tiny in comparison. Regulators said it could not happen again, but in only a few months during 2007 we have all seen what a new breed of clever bankers can create.

Most banking consumers had not heard of Sub-prime lending and SIV’s before mid 2007. Within a six month period the staggering losses from sub-prime exposure has created turmoil in world financial markets. Who is to blame? Who started packaging these bad loans into buyable lots for wider sale? Who cleverly labelled the buyable lots as being top rated investment potential? Who checked all this out and made sure they weren’t buying into ‘rubbish’? The list of buyers of the repackaged sub-prime mortgages appears to be large and one would hope Bank and institutions were clever enough to avoid being conned, but this fiasco ‘smells’ of one huge ‘con’. - 17^th January 2008

Personal Protection Insurance (PPI) total FSA fines now £2,903,000

The Financial Services Authority (FSA) today published that it has fined HFC Bank Ltd (HFC) £1,085,000 for failing to take reasonable care to ensure that the advice it gave customers to buy Payment Protection Insurance (PPI) was suitable, and for failing to have adequate systems and controls for the sale of PPI. The FSA states that ‘Between January 2005 and May 2007 HFC sold PPI with 75% of the loans it provided, totalling 163,000 PPI policies (of which 124,000 were single premium policies sold with unsecured loans). HFC's customers largely had credit ratings which resulted in them having limited access to consumer finance. Over this period HFC traded under the "Household Bank" and "Beneficial Finance" names.’ It would appear that many of these customers may have a claim for some money back if they follow the correct procedures.

The FSA had previously fined five firms over poor PPI selling practices and three other cases have been concluded where problems relating to PPI also featured:

HFC Bank: £1,085,000 - Regency Mortgage Corp: £56,000 - Capital One Bank £175,000

GE Capital Bank £610,000 - Loans.co.uk: £455,000 - Redcats (Brands) Ltd: £270,000

Capital Mortgage Connections: £17,500 - Home & County Mortgages: £52,500

Hadenglen Home Finance Plc: £182,000 (includes £49,000 for the chief executive)

(Source: FSA & BBC News) - 16^th January 2008

Northern Rock - The Northern Rock bank issue has not been settled one way, or the other and the true cost to the UK is completely unknown, although apparently considerable. The UK bank penalty fees debate is still to be settled one way or the other. 2007 was extraordinary in many ways and will inevitably make history. Massive UK bank profits, massive bank consumer unrest, plus a run on a UK bank which originates from banker's greed - all in one year. Which means that UK regulators are now in a very 'hot kitchen' indeed and they will need to be certain that the UK Government will back them, not attack them, for properly regulating banks and banking in the future.

For banking consumers the Voluntary Banking Codes, un-policed, without penalties for their abuse, are useless. Banking consumers are now able to see through that particular charade, although it's taken a long time. Banks have run a good PR campaign over decades using the BBA, the banking industry organization, to spread bank propaganda, not only to retain profits but to enable continued bank profiteering whilst avoiding proper regulation by legislation, or at least the threat of it being introduced by Government.

Banks inevitably 'channel' Banking Consumers towards the The Financial Ombudsman Service, which was formerly the Banking Ombudsman, established by the banks themselves in 1986 to cater for the individual complaints against specific banks.

The history of The Banking Ombudsman is that originally it was set up by UK banks in 1986 to avoid government legislation, which was then being suggested by John Major MP, then at the Treasury. John Major MP presented a white paper for discussion, because of the growing numbers of banking complaints from all banking consumers. Business organizations were apparently reluctant to represent their members as UK businesses were noticeably unrepresented which allowed UK banks a further opportunity to self regulate their own industry - legislation was therefore prevented at that time.

The result is that UK banks have enjoyed a further 22 years of very 'light touch regulation' with banks appearing to regulate themselves, whilst offering the illusion of providing better voluntary regulation at sometime in the years ahead, keeping customers and consumer organizations quiet - a bit like offering carrots for the donkey. Unfortunately, the carrots have been very small and also very rare, but bank profits have escalated year on year as this industry has been protected by successive governments.

It is only now because of the sub-prime problems that we perceive profits diminishing - but banker's greed will penalize banking consumers yet again, by making funding much tougher for businesses to obtain and by driving even more individuals into bankruptcy.

IMHO The message that government must send to regulators is that 'Light touch regulation' does not work, has not worked and more importantly, cannot work. The last 22 years has proved it, time and time again. The UK is now paying the price for past Government's lack of resolve in tackling the UK Financial Services Industry and particularly Banks, where profits 'at any price' has been the industry motivation.

My message for 2008 to Government is simple - Please, do not allow banks to do what Government was elected to do - Legislate, Regulate and Govern and please get rid of 'light touch regulation', because banking consumers have had enough of 'charades' from this industry to last them a life time - Eddy Weatherill, chief executive, IBAS - 10th January 2008

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Independent Banking Advisory Service (IBAS) is a national, independent, non-profit, unique specialist banking customer membership organization, which has campaigned on UK Banking customer issues for more than 14 years, providing bank and banking assessment, analysis, bank comment and content for BBC TV News, ITV, Radio and national newspapers - keeping many serious banking issues 'alive'.