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!