HBOS & RBS 'almost went under' - from BBC News website

HBOS and RBS 'almost went under'

Mr King said deposits would have been frozen if the banks had collapsed Two UK banks almost collapsed in October last year, the governor of the Bank of England has revealed. HBOS - now part of Lloyds Banking Group - and RBS were within hours of going under, Mervyn King told BBC Two's The Love of Money programme. Just days after the near-collapse, the government launched a £37bn rescue package for banks, taking stakes in RBS and the merged Lloyds TSB and HBOS. The chancellor has called the situation "the worst faced in peace time". Mr King described how strains in the money markets came to a head on 6 October and 7 October last year. "Two of our major banks which had had difficulty in obtaining funding could raise money only for one week then only for one day, and then on that Monday and Tuesday it was not possible even for those two banks really to be confident they could get to the end of the day," Mr King said. He went on to describe the consequences if the banks had run out of liquidity. "Individuals would not have had access to the money in that bank. Their deposits would have been frozen," he said. The full interview with Mervyn King can be seen on The Love of Money, at 2100 BST on Thursday, 24 September, on BBC Two.

Mortgage approvals up 81% in year. From BBC News website

The has been a rise in mortgage approvals over recent months The number of mortgages approved by the major banks in August was up 81% from the same month a year ago when the housing market was in a slump. The British Bankers' Association (BBA) said the annual rise was exaggerated by the low lending levels of a year ago. Approvals for house purchases in August dipped slightly compared with July after seven months of month-on-month rises, the figures show. The BBA said major banks had been more active than other lenders recently. However, the number of homes being put up for sale was low. Consumers cautious There were 38,095 mortgages approved for house purchases in August by the major banks, compared with 21,001 in August last year. In reaction to the economic conditions, consumers appear to be building up their savings and controlling their appetite for unsecured borrowing David Dooks, BBA statistics director A year ago the mortgage market was at an "all-time low", according to David Dooks, the BBA's statistics director. However, the figure actually fell even further in November to 18,330. He said that the annual change was "difficult to understand", but was an "exaggeration" as a result of the combination of the low numbers a year ago and the return to the levels of lending seen at the beginning of 2008. Net mortgage lending rose by £2.8bn in August, similar to the average of the previous six months and a year-on-year growth of 4.6%. During the recession households were not taking on extra debt with jobs at risk and the economic conditions uncertain, Mr Dooks said. "In reaction to the economic conditions, consumers appear to be building up their savings and controlling their appetite for unsecured borrowing," he said. This meant that spending on credit cards and the amount borrowed in personal loans was down in August compared with the previous month. New spending on consumer credit was down 13.6% in August compared with the same month a year ago, at £5.6bn. In terms of mortgage lending, Mr Dooks said that applications to the banks for home loans were generally being approved. Specialist lenders have scaled back their operations considerably in the last year. However, many potential homeowners have been saying that they have been finding it difficult to get a loan, with many needing to put down a large deposit. Sales down The number of mortgages approved gives an indication of future activity and prices because the process comes prior to a new homeowner getting the keys. On Tuesday, HM Revenue and Customs (HMRC) said that the number of homes actually sold in August - 83,000 - was 4,000 fewer than in July, the first drop this year. However, sales were 19% higher than the same time last year. The BBA's David Dooks said that all these factors would lead to a "varied picture" for house prices across the UK. With interest rates still low, the BBA figures also showed that the number of loans for homeowners who were remortgaging was 47% lower than a year ago, at 26,124 in August.

Northern Rock Repossessions

The Council of Mortgage Lenders (CML) recently released details of the number of repossessions for the first half of this year, standing at 24,100*. Whilst encouraging, the CML still predicts 65,000 UK home repossessions throughout 2009, and this is supposed to be good news because it is a reduction from the previous forecast of 75,000. The biggest repossessors amongst all of that is the nationalised banks like Bradford and Bingley, Northern Rock**. Remarkably lenders, owned by the tax payer, find it acceptable to evict people from their homes and offload the cost onto, guess who, the taxpayer.

Repossession is a deeply unpleasant business. It starts with increasingly demanding letters and phone calls from the lender, then visits, court cases and finally bailiffs. Families facing repossession have to often make last minute alternative arrangements and these often involve their local council, further increasing the burden on society, whilst the lender reconciles a balance sheet - a balance tipped very much in their favour, bearing in mind the mechanics of modern money lending. Behind the numbers and statistics there are real life human tragedies, often overlooked in these times of obsession with performance, recovery and key indicators. The potential cost to those borrowers should not only be calculated in numbers. The stress of dealing with money problems, the perceived social stigma of being repossessed and the effect all this has on relationships and families is incalculable.

Repossession is also an expensive exercise for the lender seeking possession. The whole process costs tens of thousands of pounds in fees and administration, to which the loss in value of the property must be added. Vacant and often damaged homes sold at auction rarely fetch more than 50% of their nominal value. Again, factor in the cost to the taxpayer and society and you begin to wonder...

So why do we do it? Surely the clever bankers who can come up with securitization, derivatives and hedges can come up with an alternative to repossession? Apparently not! Apparently a clear signal has to be sent to borrowers unable to keep up payments, whatever their circumstances.

Of course, there are alternatives. It is just that they appear not to be working. The Governments Mortgage Rescue Scheme had helped six, yes that is a total of 6 borrowers in England to the end of May this year. Lenders do have solutions to offer borrowers an opportunity to avoid repossession, but these offer little real flexibility in helping solve the problem. Other solutions exist such as Sale and Rent Back (SRB), a very good solution for some, but open to abuse until coming under regulation by the Financial Services Authority (FSA) in July this year. The courts responsible for issuing the possession orders have also played a large part in reducing the numbers of repossessions taking place this year, but the question remains - are they simply putting off the inevitable as unemployment and mortgage arrears continue to rise?

But a new start-up business based on authentic and ethical principles and originating more from the world of property than the world of finance might just have the answer. Stratum Social Value Partners have a plan which generates profits by keeping people in their homes and their persuasive story has already brought them significant funding and interest from lenders keen to sell their portfolios of distressed mortgages.

Jason Scott, architect of the project explains. "It just seems crazy that nationalised banks can transfer the cost of rehousing people, who have been made redundant as a result of the banking crisis, and are in danger of loosing their homes, partly because of the banks poor lending decisions, to the taxpayer. Not only is this expensive for everyone - the banks, the taxpayer and the individuals involved, it is also highly socially destructive."

"Our intention is to keep people in their homes wherever possible and our mission is to 'Rehabilitate borrowers, not repossess homes'. We will engage with borrowers to gain a better understanding of their position so that we can help to rebuild their financial security or offer a number of other solutions to those who can't afford or no longer want a mortgage. We believe that this is not only more socially acceptable, but more profitable than evicting people from their homes."

So confident are they that the Stratum Social Value Fund is about to be launched. Scott continues 'This is a retail Collective Investment Scheme which we will make accessible to as many investors as possible. Investment of this type are seen as the exclusive domain of the Hedge and Private Equity Funds, often known as 'Vulture Funds', we do not see ourselves as carrion feeders!'

It is not an easy project to challenge the accepted practices of an industry, but Stratum Social Value Partners seem to be onto something.

* As published by the CML, 14th August 2009.

** Figures for repossessions by Northern Rock to 30th June 2009 stood at 2,522.

Personal debt shrinks for the first time on record

I have been following the monthly reports from Credit (surely debt?!) Action for over a year now. The statistics are always sobering, but for the first time since the Bank of England started to record it, personal debt has contracted.

http://www.creditaction.org.uk/september-2009.html

Boom, Bust & Blame

Well, it all started in the Land of the Free, and now we get the CNBC take on the ten steps that took the world's largest economy (and the rest of us) from boom to bust.

Although I think some of it is somewhat spun, there are some great sequences in this site, including the President and CEO of Bear Stearns, assuring the world that there's nothing to worry about at his bank, two days before it disappeared under a mountain of sub-prime debt and a storm of short-selling.

Enjoy!

Halifax branch closures

I have to admit being just a little cynical when it comes to 'insiders' and 'informants', but this story rather makes sense in the grand scheme of things.

It also presents an opportunity to think about the future of Banking. Branch closures and job losses are very sad and unfortunate for those affected, especially when portrayed as a consequence of 'mismanaged' banks taking the opportunity to trim their organisations. Closing branches and laying off staff has an enormous negative impact, not just on the staff and their families, but also on many others - the cleaners of the branches, provisioners and maintenance contractors, but also customers who may no longer have the facility available locally.

However, banking has to evolve and as the twenty first century approaches its first double digit year, all sorts of forces are acting to make those changes happen. Not only the Banks management teams, regulators and Governments, but customers have an opportunity to ring the bells of change.

Branch closures are an inevitable consequence of progress as what was once a strictly face-to-face relationship between bank and customer, is replaced by customer to screen relationships. I certainly feel that for my generation, who have had to adopt technology, unlike later generations who have been born into it, I have happily traded my relationship from 'in person' to 'online'. The freedom internet banking allows is vastly more efficient and fulfilling than having to make time to go to a branch, stand in a queue and do what I need to do, with bits of paper, pens, books and someone not particularly interested in helping me achieve what I want to do.

Would I choose an online bank over a traditional one? Yes, I already have. It has to be the future for this industry, whether it happens as a consequence of the credit crunch or later.

http://www.dailymail.co.uk/news/article-1209957/One-Halifax-branches-close-Lloyds-mole-reveals-plan-biggest-bank-cull-ever.html

Can Lloyds avoid increased Government ownership?

There have been rumblings for some time that Lloyds may be regretting not having taken the same route as Barclays, thus avoiding Government intervention, now looking more and more likely to increase as they scramble around trying to raise £15.6bn.

Watch this one with closely as it could get very interesting very soon:

http://www.thisismoney.co.uk/news/article.html?in_article_id=490175&in_page_id=2&ct=5

Arrears increase amongst 'prime' borrowers.

Moodys (the credit rating agency) have reported an increase of arrears amongst 'prime' borrowers, doubling from the same period a year ago.

The important aspects to remember here are rising unemployment, across all sectors, borrowers coming off fixed rate terms onto lenders standard variable rates and the lack of re-mortgage options on the market.

The 500,000 borrowers 90 days plus in arrears forecast by the CML at the beginning of the year may not be reached in 2009, but expect a steady increase through the latter part of this year and something very close to the forecast next year as these factors take effect.

http://www.mortgagestrategy.co.uk/cgi-bin/item.cgi?id=192437&d=403&h=401&f=402

Biggest monthly leap in house prices for 5 years...

It is worth considering exactly who the buyers are that are currently stimulating the property market. From my agency sources across the UK, this is predominantly cash buyers and those re-entering the market, with large deposits to attract still reluctant lenders. The key to the the property market recovery is first time buyers, seemingly willing but not yet flavour of the month with lenders and without the 'knock on' effect they initiate, there is still some way to go in terms of a general recovery.

http://news.bbc.co.uk/2/hi/business/8226416.stm

There is also the belief amongst property professionals and bankers alike that once the current property supply and buyers have been exhausted, a further blip downwards will occur.

Tesco the Bank...

When is a supermarket not a supermarket?

When it is a full retail Bank, of course.

http://www.guardian.co.uk/business/2009/aug/20/tesco-personal-finance-new-bank

Adopting a similar strategy to Virgin (who, funnily enough, also have a relationship with RBS, though Tesco recently bought out RBS' stake), Tesco have been building their credibility, educating customers, cementing relationships and gaining experience in the world of financial services for a number of years now.

Interestingly, both Virgin and Tesco have signalled their interest in 'the good bit' of Northern Rock (called the Bank Co. this is the deposit taking half of NR, the 'bad' half (debt) being the Asset Co.), which could be open to tenders by the end of the year if all goes to the Governments current plans for the nationalised bank.

The idea of huge brands leveraging their client base and expanding it through acquisition of 'complimentary' offerings, products or services is not new, but just how far should / can it go?

A book I am currently reading sheds some interesting light on this subject and is well worth a read to anyone interested:- Supercapitalism: The Battle for Democracy in an Age of Big Business by Robert Reich.

Legal Aid help at the 11th hour

This is very good to hear. Of course, the CAB or some other advice helpline should be the first port of call, but so few people realise there are people to run to:

http://www.morpethherald.co.uk/news/Easing-home-repossession-fears-for.5571170.jp

What this story also illustrates very nicely is that whilst short, or even longer term deferment of repossession is possible, if the reality is that the borrower really has no prospect of rehabilitating the debt, then it is only putting off the inevitable. But this time can be used to try and sell the property for enough to clear the debt, make alternative arrangements, or indeed, but time whilst a new job is found and payments are able to be made again.

Just how effective are the Government Mortgage Rescue Schemes?

Just how effective have the various Government Schemes to stop repossessions been? Find out below by following the link. This is put into perspective when considering 24,100 homes were repossessed in the first half of 2009.

Not such a comforting read if you thought the Government were going to save you from being repossessed.

The fact is that more needs to be done right now, if families are not going to have their homes taken away by the Banks who are responsible for the current economic climate.

Credibility Crunch

Credibility Crunch

Banking is not the first industry or sector to face a credibility crisis. Nor is it the first to nearly self-destruct, due to significant down prioritizing of the very thing that makes it strong; It is the scale of the consequences that make the credibility of banks so significant. However there is still much to learn from other credibility crises and how the players have responded.

Governments around the world have taken drastic action to shore up the financial credibility on which banks depend, but this will have only have a marginal effect on the reputation of individual banks and the banking sector as a whole. With intervention, Governments have assumed the credibility from the banks.....can Governments successfully transfer that credibility back to the market and how long will that take?

Governments themselves are not without responsibility for the Credit Crunch. For example the Community Reinvestment Act 1977 required banks to meet the credit needs of the "entire community". It became against the law not to lend. There was therefore more lending to those least able to repay. Fannie Mae and Freddie Mac (US Government sponsored mortgage giants) were encouraged to guarantee a wider range of loans in 1990's. Homeownership increased, more buyers drove prices up, making loans less affordable to the poor and 'requiring' even slacker lending standards.... Seeds were sown and banks looked to offload these assets quickly.

And of course we, the customers, are part of the equation too. Globally there are very different credit cultures: Japan's 125 year mortgages, Germany's absence of a house buying culture and general credit adverse nature (they insisted on the 500 Euro note!); Nordic countries strict bankruptcy laws (for life); America's no stigma to fail culture ; UK predominance of Credit Cards (125 Million Cards for 60 Million people vs Germany's 15 Million cards for 80 Million people)... And then we have Islamic Finance under which interest may not be charged. What is common is the lack of basic financial awareness among many banking customers internationally.

Banks - more than most rely on a reputation for probity and integrity. Credit is derived from 'credere' - to trust. Who would hand over their money to someone they did not trust? or trust to make a positive return? One strategy that will rebuild trust in the banking sector will be increased regulation by governments and international bodies.

However this alone is unlikely to be enough and banks may prefer to mitigate more draconian legislation by taking proactive action to rebuild credibility themselves, and thus, aid the process of transferring the temporary and artificially up-held credibility back to where it belongs.....with the market and the banks.

This paper explores ways in which others have responded to their own credibility crunch and how banks may be able to employ similar strategies and how those strategies might be implemented.

Pro Cycling - a cautionary tale

Just before the start of the Tour De France in 1998, an employee of the Festina Team was stopped on the border between France and Belgium. His car was found to be loaded with medical products that could be used to enhance the performance of athletes.

Up to that point riders, teams, sponsors, media, regulators, fans, governments and society at large had effectively condoned doping, by turning a blind eye to its practice. It was well known that past champions had used amphetamines and other stimulants to keep going and there was a tacit acceptance of this.

This acceptance of what they all knew to be wrong was protected by an ‘omerta’, a code of silence. That remained largely intact until the police intervened in July 1998.

Something had changed in the expectations of society. Whereas before July 1998 doping was an acceptable price that all involved were willing to pay, not only for success, but just to be at the table, after July 1998 it became increasingly unacceptable. Since July 1998 Pro Cycling has been in a protracted and damaging battle for credibility with fans, sponsors, the media, the authorities and society.

To begin with many teams were in denial that they had a problem. There was a little window dressing and a tightening of the code of silence, but for most it was business as usual.

With aching, painful slowness it has begun to dawn on most of the players that there will be no return to business as usual, that change has already happened. That they are no longer in the driving seat and they have quite some catching up to do.

What has changed is the expectations of society and once society’s expectations have changed there is no going back. Pro Cycling's resistance to change has made the process of change far longer and far more painful than it need have been.

Over the last few years we have seen the emergence of a new breed of cyclist and a new breed of team. Cyclists who wear their integrity with pride, support anti doping initiatives and openly condemn fellow riders who are caught cheating. Teams too have stepped up. There has been an emergence of explicitly clean teams who use transparent, independent oversight to ensure their credibility. There has also been a wave of emotional admissions of riders and ex-riders coming clean about their past.

The lesson for Banks

What went wrong for cycling was that they did not spot the changing standards that were expected of them until it was too late. This is analogous to the situation with banking; the credibility created by past greatness and achievement was slowly emptied without "filling the bottle". While everything was going well no one really questioned the culture of internal behaviour of banks - apart from the occasional “Fat Cat” headline and accompanying ineffectual murmuring of politicians.

Following the credit crunch the fat cat is firmly out of the bag and it will not go conveniently back into it. Societies expectations of banks have changed and they will not change back. There will be no return to “normal”.

What has made the credibility crisis in cycling longer and far more painful than it need have been, was the denial that there was even a problem to start with, and the sheer front with which teams and riders tried to return to normal. Those who saw the change as positive were outraged. A far more effective strategy would have been contrition, engagement with stakeholders and a transparent and explicit strategy for change. The crisis could have been over in 2 years instead of continuing after 10.

In the end what is finally making the difference for cycling is the cultural change of teams and riders. While banks, to a greater or lesser degree, understand and realize that they have a problem. And that this problem is self-inflicted. The path to recovery is far more uncertain and far more perilous. Their opportunity also lies in cultural innovation, to a way of being that is more in keeping with the morals and standards of today’s society. Because it is society which ultimately decides whether an industry, sector or individual institution is credible or not.

Moral movement

The morals and ethics of our society are not constant, they trend in a generally socially liberal direction (this is not the same as financially liberal). What was once acceptable is no longer acceptable; slavery, child labour, racism, homophobia for example. As more and more people are better educated this trend is accelerating.

Other sectors have been caught out by this moral movement. Many clothing companies have been caught out by the shift from cheap goods at any price to cheap goods as long as it does not involve child labour. Animal testing, fur farming, battery farming of chickens, excessive pesticide use, genetic modification of food, pollution of rivers, nuclear energy are all areas where whole sectors have been caught out by changes in the moral landscape of our society.

For the banking industry the moral shift we are seeing is away from profit at any price towards profit without gambling, profit without exploitation and profit with transparency.

The opportunity for Banks

As is often the case in these shifts there is a huge advantage for the first movers. The ones who proactively take the risk of doing something new and different. Except of course that in this situation the risk of doing something new and different is a far smaller risk than the risk of remaining in denial, not doing anything and just hoping it will all go away.

The first Banks to publicly acknowledge that there are things to learn and there might be better ways to be will have an advantage. The first banks to take steps towards transparency, integrity and authenticity will have an advantage. Banks that don’t move fast enough will be playing catch up for a very long time.

Authentic Banks

Authentic businesses are those which generate their profits through the pursuit of a profound and positive purpose. In the research for my book Authentic Business I came to the conclusion that authentic businesses spend, on average, up to 80% less on motivating people, both customers and staff, than other businesses. Authentic businesses also have impeccable credibility.

Authentic Banks exist - Zopa, Triodos and Grameen banks for example, but these are tiny players on the very margins of banking. The opportunity exists for a group of banking executives to embark on the authentic transformation of their bank.

To some extent this was trialled, with great success, by ANZ Bank in Australia. A few years ago they found themselves the least popular employer in Australia. They discovered that their unpopularity stemmed from same kind of moral movement. People were wanting their employers (and their banks) to stand for something they believed in.

ANZ performed a bottom up values led transformation and tripled their share price and became on of the most popular employers in Australia.

Values led transformation is powerful, but not as powerful as a purpose led transformation, which includes values as well. Bottom up transformation is nearly always more powerful than top down.

The opportunity lies in identifying the core motivations of a wide cross section of staff and using that core motivation to articulate the purpose of the bank. The purpose statement must inspire employees and deliver on established corporate objectives as well as delivering value for the wider community.

For example the opportunity exists for a mainstream bank to claim the "social role of banking" position. If money is the lubricant of our society then banks are the oil pumps (if you can forgive such a mechanical analogy). Credit Cards, loans, mortgages, savings accounts all have a vital social role as long as they are applied with wisdom.

Another available slot is for a bank position itself as a "financial coach", although it would be vital to do it without being perceived as either patronising or manipulative?

Imagine a bank providing free and unbiased education about finance with branding - but without any selling. This education could take numerous forms - the most obvious would be to ensure that all communication was clear, unbiased and easily understandable.

In this way the bank becomes a platform for employees to achieve something that they already believe in passionately. The requirement to motivate staff is turned on it’s head as they become fully engaged with the business.

Once the purpose is clear the project becomes one of identifying obstacles to it’s achievement and removing them. Once a team or business have a shared sense of purpose they are extremely motivated and quickly form teams to remove these obstacles. As the obstacles are removed the business becomes more and more authentic. The staff become more passionate and the customers more engaged.

Neil Crofts is the author of Authentic - how to make a living by being yourself and Authentic Business - how to set up and run your perfect business, he is also the founder of Authenticis a cultural innovations agency that helps businesses to profit from their authenticity.

neil@authenticis.com

Talking it up!

Welcome. To kick things off, here is a great response by Rob to a Press Release made earlier today.

From: rob@

Subject: Re: Assetz: Comment on Nationwide house price index

Date: 27 August 2009 12:26:06 GMT+02:00

To: S.L@

With all due respect, do you inhabit the same Universe as the rest of us??

The figures you're looking at are based on historically tiny numbers of transactions. If you know

anything about statistics, the smaller the sample, the larger the distortions. So what seems to be

happening here is that you're reading current tiny-sample trends, comparing them to large-

sample trends from two years ago, and seeing the mythical 'green shoots'.

The other thing you're failing to take into account (or perhaps ignoring) is that there has never,

ever been a V-shaped recovery from any recession in recorded history.

Then there's the continued toxicity in the banking system, massively low interest rates

subsidising us all, a possible devaluation of the dollar, etc. etc. etc.

I'm surprised you guys are not being a bit more responsible in what you put out.

Regards

Rob

On 27 Aug 2009, at 11:08, Sarah L wrote:

For immediate release - 27 August 2009

Stuart Law, Chief Executive of Assetz, comments on Nationwide's August 2009

House Price Index, released today:

"The doom mongers can no longer deny that all the evidence is pointing to a

recovery in the housing market, with Nationwide's figures showing the annual rate of

decline now standing at just -2.7% year on year.

"With these increasing signs of house price stability we should see more lenders re

entering the market and improved loan-to-values over the remainder of the

year. Overall house prices are poised for a return to positive annual growth by the end

of 2009, with a possible rise of 5% or even higher, as the shortage of homes grows

more severe and the competition among buyers for existing properties increases. "

-ENDS-

Notes to Editors

About Assetz plc

Assetz plc heads up a group of well-known and successful property investment and

development companies, delivering carefully selected UK and overseas property as well

as property funds, financial planning, education, finance and after-sales service. Assetz

offers expertise and peace of mind whether a buyer is seeking an investment or a

residential property.