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!