Moral Corruption

The European Commission has fined eight banks (including RBS) a total of £1.4 billion to the European Commission for forming illegal cartels to rig Libor and Euribor interest rates.

 

Are we really surprised by such illegality in the Bank Sector? No.

 

Do we expect further issues to come out of the woodwork in the future? Yes.

 

But here are the two key words in all of this mess…… ‘including’ and ‘RBS’.

 

We own RBS as tax payers. The fines are in addition to the previous £391 million RBS paid for other Libor ‘indiscretions’.  

 

We also owned RBS when the illegal rigging was taking place.

 

Is it just me or has this all been brushed under the carpet with the rest of the Banking Sector scandal? Well it shouldn’t. No other Government department / company would get away with this without a public inquiry and those responsible hung out to dry.

 

Why make allowances for something that is illegal and morally corrupt?

 

I just don’t get it. 

Old Argument

Having dissected the 123 Page Autumn Statement (welcome to my world), there was some clear and hard hitting words on the State Pension.

 

George Osborne announced in his speech plans for the pension age to "keep track with life expectancy"……or as I like to call it…...a £500 billion saving for the Government by ensuring we get the State Pension later in life.

 

It means people now in their forties will not get the state pension until they are 68, while those in their thirties will have to wait until they are 69. And don’t expect this to be the last time there will be increases.

 

You will see from my comments back in July, this will be a reoccurring problem unless the timebomb is addressed properly and not half-heartedly. 

 

http://stevesmithlive.blogspot.co.uk/2013/07/pension-time-bomb.html

 

So the question is……if we take the responsibility to save for retirement personally / privately to create additional income to the State Pension, how can we do so when the goalposts on age keep moving?

 

It is the longest running oxymoron coming out of Westminster……encourage us to save for old age whilst pulling the rug from beneath our feet.

 

The law of averages tells me that after decades of failure on this subject, sooner or later a Government has to get this right.

 

I live in hope.

 

Tunnel Vision

The Story……

 

The Government has unveiled its infrastructure spending plan for the next two decades, describing it as "a blueprint for Britain". About £375bn of investment in energy, transport, communications and water projects is planned.

 

At a time of austerity, the big question is……how will this be funded?

 

 

The Intrigue……

 

The National Infrastructure Plan (NIP) includes Private Sector investment as well as the Government selling some of its assets, including…….the Government selling off its 40% stake in the Eurostar rail service.

 

 

The Concern……

 

Eurostar has doubled its profit this year and has a massive expansion plan through additional European destinations. It’s pretty fair to state that the value of the shareholding will increase dramatically over the next 2 – 3 years in line with increasing turnover and profit.

 

So why sell now? Why sell an increasingly valuable asset to fund a project in 10 – 15 years (and beyond)?

 

Here is the key problem……you have people working for non-profit making organisations (AKA Politicians) making business investment decisions in a profit making environment. 2 + 2 = 3.

 

Have we not learnt anything from the farcical undervalued sale of Royal Mail?

Autumn Statement

Following the fallout from Thursday’s Autumn Statement, I’ll give you 2 options to ‘catch up’.

 

 

Firstly, the full report can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263942/35062_Autumn_Statement_2013.pdf

 

Secondly, invest 3 minutes to read below.

 

I’m happy with either – just make sure you know what you need to know!

 

Key Points:

 

State Pension age to increase for many (yet again).

 

UK economy to grow by 1.4% this year (double the 0.6% predicted in March) with 2.4% growth next year instead of 1.8% (luck more than judgement)

 

An extra £1 billion of cuts from the budgets of Government departments for each of the next three years (less money = poorer services).

 

Car tax discs to be scrapped and replaced by electronic vehicle excise duty system (massive investment for very little reward).

 

2014's planned 2p-a-litre fuel tax rise scrapped (political headline – why not reduce some of the taxes already levied?).

 

Borrowing falls more than forecast and employment forecasts are revised up.

 

Pensioners living abroad will have to prove they are alive (the angle was a crackdown on fraud but this was actually due to the volume of costly errors).

 

A major crackdown on tax-evasion and avoidance to recoup £9bn over five years (if the return on the investment is that good – why wait 5 years?).

 

Employer National Insurance contributions for under-21s earning less than £42,285 scrapped from April 2015 (political headline – cheap giveaway as very few under-21’s earn enough to pay National Insurance).

 

Tax breaks to encourage "fracking" for gas (political headline to suggest we are looking for alternatives).

 

A cap on total government welfare spending will start in 2015 (why wait?).

 

An extra £150m to update and build kitchens and dining rooms in English primary schools (nice headline but the reality is that works out at only £8,000 per school).

 

A move towards subsidising offshore wind farms instead of onshore wind farms (see fracking).

 

Plans for £375bn of investment in energy, transport, communications, and water projects

 

Selling off the government's 40% stake in the Eurostar rail service (farcical on many levels).

 

In summary, little to cheer and much to consider.

 

Has it ever been otherwise?

 

More RBS Muddy Waters

Yet more muddy water involving banks and politics……who’d have thought it!

 

The Story......

 

Business Secretary Vince Cable has referred the state-backed (80% tax payer owned) RBS to the City regulator (Financial Conduct Authority) amid renewed allegations over its treatment of struggling business customers.

 

The Accusations……

 

RBS has engineered the transfer of a significant number of business customers into a specialist division which manages the bank’s problem loans in order to profit from the higher fees it can charge.

 

RBS frequently appoint favoured accountancy firms to oversee the work-out process, resulting in the outcome desired by the lender but which sometimes entails companies being placed in administration.

 

My Thoughts……

 

We can debate long and hard about the moral position (or lack of) within the banking sector, but ultimately they will push the limits to the extreme for the benefit of their bottom line.

 

The morality of banks is not the issue here……why has it taken a politician to refer this to the regulator? Why has the Financial Conduct Authority not uncovered this as the regulator?

 

There can only be two explanations: (1) The regulator is incompetent and / or (2) no rules have been broken.

 

Inexcusable either way.

Co-operative Flowering

It’s been quite a few days for the ex-boss of failing Co-operative Bank Paul Flowers.

 

Tabloid revelations suggest that he has been caught buying Class A drugs as well as having ‘relations’ with ladies of the night.

 

I do not approve or understand the need for either……but the biggest scandal and story is perhaps elsewhere……

 

How did a man with ‘very limited’ experience (and I am being very charitable here) end up in March 2010 becoming chairman of the Co-operative Bank - a bank with £50bn of assets, £36bn of customer deposits and 4.7m customers?

 

How did he ever meet the requirements of the Financial Service Authorities regulatory requirements of a 'fit and proper' individual?

 

Answers on a post card? Perhaps not……

 

Gordon Brown’s Labour were in power in March 2010 – the time when Paul Flowers needed to meet the ‘fit and proper’ requirements.

 

Coincidentally……Paul Flowers currently sits on Ed Miliband’s Labour Finance Advisory Group.

 

Very good of Labour to be so ‘co-operative’!

Realty Reality

Will everyone just slow down a second……the housing market needs a reality check. In fact, David Cameron you need the biggest slice of fact as you have gorged on fiction yet again.

 

If you were to believe the Council of Mortgage Lenders, Royal Institution of Chartered Surveyors, David Cameron, anyone mildly associated with David Cameron, any Estate Agent, my Aunty Eileen……you would be under the impression that the property market had been rescued overnight……all due to the great success of the Help to Buy Scheme self-congratulatory introduced by……(you guessed it) David Cameron.

 

Let’s cut to the chase here.

 

Mortgage approvals for house purchases over the past month were 67,000. This is the highest level since February 2008.

 

HOWEVER:

 

(A)  Of this figure, only 2,000 used the Help To Buy Scheme. That’s less than 3%.

 

(B) The combined borrowing figure of £365 million using the Help To Buy Scheme  
      represented less than 1% of the total amount borrowed.

 

Perspective is worth so much more than cheap headlines.

 

If only Westminster realised this.

 

2 x Olympic Freebie

The 40% tax payer owned Lloyds Banking Group has announced that they have set aside a further £700 million to cover additional compensation they must pay out for PPI claims.

 

This will take the total compensation payouts across the banking sector for PPI claims to a staggering £18 billion pounds. To put this into perspective, this is twice the cost of the Olympics. That's scary.

 

Now I could spend the next fortnight slamming the morality and ethics (lack of clearly) of the banking sector......but here's my controversially positive take on things......

 

The basic reality is that the UK economy has had an £18 billion injection of 'free' cash distributed to consumers. And here is the crucial thing......there is now sufficient confidence for the population to spend it.

 

We are a consumer driven economy and our economic prosperity is based on the population spending money......this readily available £18 billion has brought us cash to spend.

 

The evidence in some sectors is staggering. Car sales are up 16% in the last year. Mortgage approvals are at their highest levels for 3 years. House sales are at a 5 year high.

 

Now I appreciate we have a long way to go to get prosperity back to pre Northern Rock times (can't believe that is 5 years ago) but a corner is being turned.

 

Lots of winners on the back of the banks being the loser!

 

And one final key point......do not let the political parties spin you into believing that this was down to their policies......it is purely down to the banks paying for their morality failings.

 

Long way to go but it is definitely a start.

 

Debt Ceiling Fall Out

An ‘interesting’ 10 days has finally concluded in the US with the debt ceiling being raised and Obama’s hands being untied……for now. In reality all that has actually taken place is the can has been kicked down Pennsylvania Avenue until January……when we do all of this again.

 

The whole episode has reinforced two strong beliefs I hold.

 

Belief 1

It never fails to fascinate me how important the US are to the UK yet at the same time so few people recognise and appreciate this. At the point when the political parties were close to agreement, BBC, ITV, Channel 4, Channel 5 and Sky reported live from Washington. The same day, only Radio 5 provided live coverage of Prime Minister’s Questions from Westminster.

 

This really tells a compelling story……US politics are far more important than our own. It is a reality that we have to accept and embrace.

 

Belief 2

 

I am flabbergasted how fragile the US political system is and by definition, their fiscal and financial policies. When Government departments are shut down and a default on public debt within hours of becoming reality, is this really how the most powerful nation in the world behaves……a house built on sand comes to mind.

 

This is a further national embarrassment (for the US and UK) on the back of a similar issue in December and it is about time that Obama forced Congress to grow up and govern with some modicum of orderliness and common sense.

 

I was sucked into the excitement and hope that Obama’s first term would bring refreshing change following the catastrophic 8 years under Bungling Bush……but it never materialised. Obama has a real chance now to make a difference and stop this ever occurring again. He may have 3 years left but he needs to achieve this within 3 months.

 

Yes it will take hard work……moving a supertanker always does……but why not? If not now, then when?

 

A very interesting crossroads for Obama……his legacy will be written based on the road that is taken.

 

The UK needs to hope he chooses wisely.

A Right Royal Rick

Question: Why Are The Queen’s Actions Causing Economic Concern?

 

In 1952, the Queen sent 255 telegrams to celebrate 255 people reaching the age of 100. In 2011, this reached 12,500.

 

So what?

 

Well, average life expectancy has risen significantly……it has increased by 10 years over the past 30 years and this creates a ticking time bomb for the State Pension.

 

So what?

 

There has been much negative comment regarding increasing the age of the State Pension by as much as 3 years for some and the maths just don’t stack up.

 

So what?

 

Let me explain. As things currently stand, the Government do not have a penny towards the State Pension for millions of people that are expecting it. They simply use the National Insurance Contributions from those that are working to pay for those that are in retirement.

 

If the number of people in retirement increases (the post war ‘baby boomers’ are coming to retirement now) and they live for longer, this significantly increases the amount of National Insurance Contributions required from those working to pay the State Pension for those in retirement.

 

Quite simply, there is a black hole between what is coming in and what is being paid out. Clearly, raising the State Pension Age by a few years when life expectancy has increased by 3 times that is doomed to failure.

 

But which political party wants to address the issue of needing to increase National Insurance Contributions significantly for workers and at the same time increase the State Pension age to 70+……none of them when we have an election on the horizon.

 

For the record……in 2034 it is predicted that the number of 100 year birthday telegrams will reach 92,000……that’s just 20 years away.

 

Tick, tick, tick……

Help Themselves Scheme

The news and media has been full of the ‘help to buy’ scheme that the Government has brought forward under the mask of ‘we must help more people to become home owners’.

 

In short, the Government will fund a 15% deposit interest free if the borrower puts down 5% and they can go to a lender to request the remaining 80%. This is all designed to ‘oil’ the first time buyer market and the housing market reinvigorated as a whole.

 

The reinvigoration will create demand for houses, the construction industry will bounce back and jobs will be created.

 

All too good to be true?

 

Oh yes. The Government has got a nice big fat angle on this one.

 

The Government will charge banks 0.9% of the total to be borrowed. That’s right, not the 15% they are funding but the additional 80% as well. Given that they have earmarked £130 billion for this scheme, the Government sets to make a cool £1.2 billion for the 0.9% levy. Not bad for simply being a middle man to give out money they don’t have.

 

Unless the mortgages go sour, the Government will literally clean up.

 

Question: If the Government is the winner, then who is the loser?

 

I’ll give you a clue……it is not the banks.

 

Answer: The Borrower. The banks will pass on the addition 0.9% charge to the first time buyer by way of a more expensive interest rate on the mortgage.

 

Remember the rules……don’t be fooled by the headlines……never trust a good thing from the Government!

 

There is always more than meets the eye!

 

 

Inglorious Gideon

Two things I learnt last week……actually it was more like a memory jogger (but you get the point).

 

Firstly, George Osborne (you remember him right? The most powerful man in the UK charged with managing the UK finances) changed his name in his teens……he was originally called Gideon Oliver Osborne.

 

Keen to enter politics, he changed his name as he didn’t want to come across as pompous, arrogant or wealthy and changed to a more credible George (due to the rich royal and political history of such a name).

 

Secondly, the Coalition Government (well George Osborne) proclaimed to all in 2010 that there would be economic growth of 8.8% by 2013. Well guess what, we have actually had 2.2%.

 

The thing is……it matters little whether you are Gorgeous George of Glorious Gideon if your finger is so far off the pulse of economic reality. The brutal fact is……you have achieved only 25% of the target you set yourself. There are not many that can fail so miserably and still retain their position.

 

Oh, and while we’re at it……it takes more than a change of name to stop being arrogant or pompous. Credibility is soooooooo much more than a name.

 

Just saying……

Shutdown State

I rambled back in August that a storm was brewing in the US…… 

 

http://stevesmithlive.blogspot.co.uk/2013/08/storms-ahead.html

 

Well, that storm has turned into an economic tsunami that has ripped through the political scene in Washington.

 

In short

The US Congress failed to pass a budget to fund the government for the next year on 30 September 2013. In particular, it did not agree to raise the public debt ceiling and the US Government does not have sufficient money to pay key Government staff.

 

All ‘non-essential staff’ (about 800,000 of the 2.1 million total) on the federal workforce will be told to stay home. If there is no budget bill that is passed by both chambers in the next week, the US Government will come to a screeching halt also.

 

Historical Evidence

 

You will see from the table above, the debt ceiling has been raised without much drama in the past. Since 1960, it has been raised 78 times. However, over the past three years, it has been used as a negotiation point for House Republicans who have sought to extract budget concessions from Mr Obama. To put that another way……you can have your way Barack but you must give us what we want first.

 

A Big Deal?

This is the biggest and most powerful economy in the world failing to pay Government staff. The news, investment markets and other Governments will get very twitchy over the next week. Expect plenty of unrest and media coverage.

 

Should you be bothered? Damn right……the UK is the 51^st State after all!

When Is Profit Not Profit?

The Chancellor has given the green light to sell 6% of Lloyds TSB (we’ll still have another 34%) bringing in £3.2 billion. This represents a cash profit of £61 million. So it looks like we are going to get a positive return on the funds that we used to bail out Lloyds TSB.

 

Or are we?

 

Oh, come on. You know the rules by now……don’t be blinded by the lights. Here’s the reality……

 

In real terms, there is no real profit on the deal, after adjustments are made for the cost of locking up all those billions of pounds in shares that didn't pay a dividend for all those years.

 

The simple headline is this……we have given up the use of £3.2 billion of public money for 4 years and in return have received a total return of 1.9%. However, take out the negative effects of inflation (at around 14% for the 4 year period) and deduct the money that could have been made elsewhere with £3.2 billion (the ‘opportunity cost’)……what does that leave us with……a big fat loss.

 

Not too many commentators being vocal on the 20% + loss. Not too many commentators worth their salt me thinks.

 

So there you have it……plain and simple.

 

Don’t be dizzied by the spin.

And The Next Bank Misselling Scandal Is……

Now I appreciate that PPI claims are still being settled and there are still billions to be paid out. However, just to wet your lips for what’s around the corner……

 

The Next Bank Misselling Scandal Is……Premium Banking

 

The Background……

All of the high street banks offer Premium Banking (AKA ‘packaged accounts’) where the customer pays a monthly fee in return for additional benefits ‘exclusive’ to Premium Banking customers. These additional benefits typically include Travel, Mobile and Car Breakdown Insurance.

 

The Issue……

When we look at the PPI issues, credit card / loan customers took out additional insurance (many were forced) to ensure that the monthly debt payment was made in times of sickness or unemployment. However, many of these customers could never make a claim on the insurance as they did not meet the criteria (too old, self-employed, unemployed, too tall, supported the wrong football team, wrong colour shirt, left handed……you get the picture!) and should never have been sold the insurance in the first place. Hence, they were missold.

 

Now let’s look at Premium Banking……you pay a monthly account fee to have additional insurance benefits. Many customers can’t claim on these insurances as they do not meet the criteria:

 

- Many types of holiday are not covered (skiing, Asia, South America, diving)

 

- Mobile could be insured with the telecoms provider or covered under Home Insurance

 

- Car breakdown cover not valid if using the car for work or commuting

Do we really believe the banks have done their due diligence with customers to ensure that they get full benefit from the additional features? I think not. There are literally millions of people paying monthly fees via Premium Banking for insurance they cannot claim on or they are insured identically elsewhere.

 

The next misselling scandal? Damn right.

 

Form an orderly queue please.

 

Surprisingly unsurprising.