In
the UK
the FSA have published The UK Financial Risk Outlook 2008. It is a bleak
forecast, which states that nearly one-fifth of those who took out a mortgage
between April 2005 and September 2007 risk property repossession. This
represents a 1.04 million group and includes those who took out their first home
loan, and those who remortgaged from one deal to another. All these customers,
who have borrowed at a time when property prices were soaring, have two or more
of the FSA's three 'high-risk' factors.
The factors as stated by the FSA are:
1)
Putting down a deposit of 10 per cent or less on a home.
2)
Taking a mortgage for longer than 25 years.
3)
Borrowing more than 3.5 times the customer's annual salary.
The FSA is particularly worried about 150,000 who have all three high-risk
factors as these are the most likely to have their homes repossessed, the FSA
has said in it’s annual Financial Risk Outlook.
The CML forecasts for repossession in 2008 are already quoted
as being much higher than the 27,000 for last year and that was the highest
since 1999. But, in our opinion everyone who has a mortgage, savings or
investments should read the FSA Report. It is not just for those who are over
indebted and who will obviously find it harder to remortgage this year.
All lenders will be looking at each new lending application
and new criteria will apply, to protect the lender from more problems from what
they perceive as ‘over borrowing’ consumers.
A `good risk or bad risk' tag is not historic in times like
these. Lenders will reassess a consumer’s ability to repay and many will find
they are considered a poor risk now, even though they have not reneged on any
past borrowing commitments.
IBAS see 2008 as being a very difficult year for all banking
consumers. This is not just based on the incredibly large value losses,
initially created by sub-prime lending failures in the US. Huge losses are evident as
‘fall-out’ from sub-prime lending problems which have spread to become global
issues. The really frightening aspect is the speed with which the ‘fall-out’ has
impacted into global financial losses and sparked global market crisis.
IBAS believe it is impossible to imagine that the huge values
of the losses (so far evident) will not impact on each and every one of us
within the next twelve months.
Our major concern is that the small business community will
inevitably be the first to see a large ‘shake-out’, as banks actively seek
assets, which they can liquidate in order to lower the bank’s own exposure to
debt, whilst also providing additional liquidity for the bank.
The Business Banking Code will not protect your business from
being asset stripped by a bank, nor will it assist you in any repossession
hearing when your family home is pledged to the bank and the bank then demands
immediate repayment of all business borrowings.
Business borrowers are contacting IBAS because there is now
more pressure on them from their bank and those with personal guarantee problems
are citing pressures on overdraft borrowings. Both show that Banks have started
to re-evaluate their loans and lending portfolios for small businesses.
Banks will continue to assess their lending against assets
already pledged for business lending and will be making internal decisions on
whether bank support will continue to be provided, if not, when demand will be
made for repayment. The bank may request more and bigger assets to be pledged,
whilst they decide (internally) if the bank will allow a business to continue,
over the short term and at what cost.
When banks targeted small businesses and their assets
relentlessly to bolster their own balance sheets in the early 90’s the catch
phrase often used was ‘Cash is King’. It is likely that the same phrase will be
repeated again and many times over, from now on.
In the last recession IBAS gathered a great deal of banking
information and knowledge of banking systems which taught us a great deal about
banks and their ability to protect themselves. We also found that some banks
were much more likely to act early, to use small businesses as a ‘cash cow’ for
their bank’s own purposes. But, from what we are now seeing the bank ‘shake-out’
or ‘shake-down’ of small businesses has already started.
- 17th February 2008 by Eddy Weatherill - Chief executive, Independent
Banking Advisory Service (IBAS).
Chancellor Alistair Darling has proposed that failing banks
should be able to receive help from the Bank of England in secret.
It is part of the new legislation that he has proposed to avoid another
bank crisis like the one at Northern Rock.
The
proposals suggest allowing a "period of non-disclosure" so that there is
not an "immediate adverse impact on consumer confidence".
The new measures will also
give the
authorities more powers to intervene at a bank considered as being managed in an
unduly risky way,
with the ability
to seize control of that bank as a last resort and manage it with the aims of
protecting retail depositors and taxpayers.
It is proposed that
there will be a 12 week
consultation period on the new legislation. Under the plans, the Bank of England
will no longer have to publish accounts each week setting out how much money it
has lent as emergency funding.
According to
BBC's
business editor
Robert Peston's
blog: “The Treasury feels that an emergency loan from the Bank of England
should only be kept secret where that loan is temporary and limited in nature.”
“But the Treasury, FSA
and the
Bank of England
have
concluded that the Rock was suffering from a serious structural flaw in its
business model. And they believe that the Rock would have required so much
taxpayer support for so long that it would have been inappropriate, naive and
impractical to endeavour to keep it on a life-support machine in a wholly
clandestine way.”
Eddy Weatherill, chief executive of the Independent Banking Advisory Service (IBAS),
said “The
hide information and confuse consumers ‘regime’ has been allowed for far too
long and we do not need more of it. What we need is tougher regulators using the
regulation, which is already available. The problems we now face have all been
created because successive governments supported banks, whether they were right
or wrong and have only ever provided 'light touch' regulation.”
“Light Touch”
regulation has now proved to have failed. That failure has undermined all
consumers and created tremendous financial uncertainty and instability for all
financial consumers, not just noe but for a very long period into the future.” - 30th
January 2008
Sub-Prime
losses from Bank reckless lending -
The main
Sub-Prime losses published so far are:
Merrill Lynch $22.1bn - Citigroup: $18bn - UBS: $13.5bn - Morgan Stanley $9.4bn
- Merrill Lynch: $8bn
HSBC: $3.4bn - Bear Stearns: $3.2bn - Deutsche Bank: $3.2bn - Bank of America: $3bn
- Barclays: $2.6bn
Royal Bank of Scotland: $2.6bn - Freddie Mac: $2bn - JP Morgan Chase: $1.3bn
- Credit Suisse: $1bn
Wachovia: $1.1bn - IKB: $2.6bn - Paribas: $439m
BBC News also disclosed today
that Hypo Real Estate a German investment bank has seen its shares slump by 35%
on the back of its US sub-prime market exposure, after revealing unexpected
write-downs. Hypo revealed it was writing off 390 million euros ($580m, £294m)
on US debt it had bought.
(Source: Company
reports and BBC News)
The total amounts to a
staggering $98bn loss so far , which is directly attributable to US
Sub-Prime lending and the ‘packaging’ of sub-prime lending into SIV’s
(structured investment vehicles) although equally they could be termed saleable
investment vehicles. Many companies have not fully disclosed their position and
exposure to Sub-Prime and SIV investment instruments held by them which
incorporates sub-prime lending. The total figure is not known and may not be,
for some time yet.
The Sub-Prime lending fiasco
makes Nick Leeson’s £350million loss in 1995, which then led to the £860million
loss which brought Barings Bank down, seem tiny in comparison. At that time
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. In a very short period
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 labeled 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’.
- 17th January 2008
Personal
Protection Insurance Update on PPI Fines
Total fines to
date for PPI issues is now £2,903,000 as the
The Financial Services
Authority (FSA) today published 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)
-
16th
January 2008
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Independent
Banking Advisory Service (IBAS)
is a national, independent, non-profit, unique specialist banking customer
membership organization which resolves banking complaints and disputes and which
has campaigned on UK Banking customer issues since 1992. We provide bank and
banking assessment, analysis, bank comment and content for BBC TV News, ITV,
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