B&B: banking omens
You would be forgiven for thinking “banking crisis, what banking crisis?” on a casual reading of .
So-called “underlying” profit before tax is up 5% to £351.6m.
The dividend has been increased by the same percentage to 21p.
And the group’s capital ratios – the important measures of the strength of its balance sheet – have improved.
Since the B&B figures signal the beginning of the bank reporting season, should we all just breathe a sigh of relief and return to the traditional British sport of bashing the banks for allegedly making excessive profits?
That I think would be a bit premature.
Its actual pre tax profits, the number that the accounting rules determine as the proper one, actually fell and sharply.
In fact statutory pre-tax profit almost halved from £245m to £126m.
Ouch.
And here are some other disclosures by B&B, which ought to make us a little bit anxious about what its bigger brethren will reveal in the coming few weeks.
The cost of raising money for the bank has gone up significantly, so that its net interest margin – the difference between what it charges for loans and pays out for deposits and other forms of funding – has shrunk from 1.19% to 1.1%.
And it expects that margin to shrink further in the current year – which rather explodes the complaint against banks that they are failing to pass on the benefit of lower base rates to borrowers.
Also the number of mortgage borrowers in arrears on their payments by three months or more has gone up by a striking 42% to 6,170.
As a percentage of its loan book, these potential bad loans represent a relatively small proportion, just 1.63%.
But the trend is disturbing.
However it’s the size of the losses on its exposure to sub-prime and structured finance that stand out.
Just a few weeks ago, it did not expect to suffer any losses on its CDO and SIVs.
Now it’s disclosing £94.4m of impairment charges and a further £50m loss on a fall in the market price of derivatives built into an investment in “synthetic” CDOs (don’t ask, please).
So that’s £144.4m of losses that only recently it had not expected to incur.
What does that betoken for RBS and Barclays, whose exposure to CDOs is vastly greater?
Nothing good.
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Robert,
Any chance you will ever support British Banks in your blogs? Just curious as its getting a bit old now. We know Banking is going through a tough time so why not give the guys some space to work on it. How about you focus on Microsoft and Yahoo for more than a day, or Rio Tinto and its on off takeover, or the regulators going into Intel. This are all stories that deserve more coverage and would show you to be more than a headline grabbing journalist.
I don't trust any bank. The sooner our "financial industry" is pulled down several pegs the better for us all. I don't know why they are paid so much as they are like sheep...stock markets tell you that. Also big earners like hedge fund managers are nothing but gamblers but they gamble with the hard earned money of people who do a job that doesn't rely on someone else losing out. It will be painful to reduce or reliance on The City but it will be temporary and I truly dispute their value to UK PLC. When you consider the commercial inventions that the UK is responsible for and the paltry share of world goods we currently create then someone is responsible...and most of them live down south.
As expected as part of a general downturn in Western Economies, companies across most sectors are experiencing pain, through higher costs (industrials) and instances of default (finance). For the banks, numbers may be big in some cases but the business model diversity can take the pain. we can't all win all of the time.
Everything is becoming very complex and over technical in this whole business.
It all just stinks to me of attempts to cover up.
regards
I have just read the B&B press release accompanying their results and I almost ruined my computer with a mouthful of coffee.
"We believe the fundamentals that drive our specialist markets remain strong, and expect the buy to let market to continue to grow at a faster rate than the mainstream mortgage market."
The capacity of these gentlemen for self delusion is simply mindboggling. I think it may be time to bring in the men in white coats.
Agree with much of what Paul Anderson wrote.
I notice over on the FT's Alphaville site that they are having to dig deep into the announcement to find the true figures and 91ȱ tv have already announced a revision of their earlier view on the results.
It's quite clear that any link that there was between directors of public companies and the shareholders they are meant to represent has long gone. They are there only to serve their own best interests and any notion that they have an obligation to shareholders seems to have been lost forever in the mists of time.
B&B directors should be brought to book aver the way these results have been presented - they may technically be correct ie accord with accounting convention but as one commentator on the FT site has written morally what they have done is wrong.
Come on 91ȱ get your teeth into this whole issue of why it is acceptable for those appointed by shareholders to look after their interests to seek to then mislead and confuse using the accountancy rules to hide the real facts - there is I am sure a very big public interest story here.
If anyone thinks the Royal Bank results will be presented in anything other than the same format I am sad to say I think they will be disappointed the lying and subterfuge is now endemic
How on earth can the CDO and SIVs losses go from nothing to £144.4m in just a few weeks? This seems like complete incompetence in not having a clue about the risks or fraud.
Robert, your repeated ''something horrible in store'' suggests to me that you know something you cant yet say; however whilst there are always casualties during turbulence such as now, its likely that all of the top UK banks will post good profits inspite of the turmoil.
You probably already know that as well, but will doubtless focus entirely on the writeoffs.
With regard to mortgage margins; there are 8,000 mortgages on offer and lenders will still have to compete for the business, so they are/have/will pass on rate cuts.
Within hours of the last 2 cuts, the biggest lenders passed it on in full immediatley!
The UK's upcoming subprime problem has not yet seen the light of day. When Fund Risk Managers notice the proportion of mortgage repayment defaults dressed up as "holidays", and the proportion of dodgy 125% loans, self-cert "liar" loans and BTL cashback loans, money will get even more expensive. There's a lot more subprime slime in the UK than there ever was in the US ...
Surely there must be standard regulatory framework where the definition of these potential write-downs are understood. Prudence requires provisions to be set aside when a potential loss is identified or even suspected. What are bank auditors doing hiding behind all these "true and fair" opinions? The general investing public are the real losers or to coin the reality of the situation "left holding the baby". The big fat cats must be held to be accountable.
To go from no losses to £144.4m in a few weeks beggars belief. It sounds like either complete incompetence on the part of management who do not understand the risks or fraud.
Perhaps the fact that B&B actually played the American sub-prime directly via CDO suggests it had a similar attitude to the market in the UK. Perhaps it reassuring on the "Buy to Let" is another attempt to whistle in the dark.
The "Buy to Let" market appears pretty dead to me: despite all those cash-back incentives. B&B can suddenly find £100M loss on the CDO, how much when the light of day hits the quality of the mortgage book? 3 Month rears at 6,100 any guesses for the interim figures?
#1 is totally wrong in summary. Banks have been ripping of customers for decades but to say they are going through a tough time is a joke.
What ever losses they make they will run cap in hand pleading problems. Lets not forget what goes around comes around. Banks over the last 5 years have made in excess of £200 billion, and still have kept bonus payments at the highest level regardless of 'tough times'' which means just as night follows day they will not be telling the full story when they report over the next few weeks.
£144.4m of exposure that suddenly appears out of nowhere ! This is very unlikely and surely the regulators should be investigating why B&B misled the markets and investors.
Well done Ben its about time Mr Peston was put in his place. The B&B profits last year were so false due to the excessive lending by all lenders is it any wonder that they will show a loss this year. After all the excessive lending could not continue for ever. Mr Peston is only stating what we all already know. On a lighter note, can you imagine what he would have been like if he had stayed in the industry? The 91ȱ are welcome to him!!!
The big question is whether B&B have cleared out all the bad news in one go - or is there more to come? They are still profitable and because the share price is now depressed the dividend yield is around 10%. One to buy now?
#4 - I rather suspect someone has had a quiet word in their ear and told them to come clean!
#1 - There's no chance of leaving the banks alone. Pestonomics exists on finding problems or speculating on potential problems and the banking sector is really the only sector that provides a suitable story. Other sectors take their losses on the chin, sack those responsible and move on. Unfortunately financial service companies believe they have a God given right to make money and are trying to hide the problem or pass the problem on to customers and consumers.
This is now becoming a FARCE - we KNOW Banks and economy r in freefall - so what???. TRY for once to look on the bright side - there is plenty - if anyone has cash, and they have, keep buying - the profits willl be immense- why NOT state this Robert as your doom mongering is BORING.
On a lighter note, I see that Bill (#15) was somewhat effusive in his support for Ben's (#1)comments. Are Bill and Ben somehow related?
It's interesting that B&B claim that "buy-to-let market will grow even faster"; why on earth would it??? I just moved from the States and in 2003/04/05 everyone was saying that the housing market could NEVER crash in cities like Boston and San Fran! Hm, let me see, most of those people have been stuck now selling their houses for over a year and they took out extra equity loans as well! They cannot even get back what they paid for it a couple of years ago, and even at reduced prices, their houses are not selling! B&B is trying its best not to scare people off from buying propeties in this shaky economy; I'll say "sit tight on your money as what costs 250,000 now may be at a more reasonable price of about 50,000 less in 2 years time"! Why would UK not feel the effects of what is happening in the US? That afterall is the price of globalisation! I am not even an economist but it doesn't take much to put 2 and 2 together!
Although I enjoy reading your blog I must confess that I cannot help but get the feeling that your (Robert Preston) reports show you are too close to the problem and therefore unable to see the woods for the trees.
Your reports might accurately reflect the prevailing mood within the finacial markets/industry but, they seem to lack any real objectivity regarding how this relates to the broader aspects of everyday business life. The problem with the finacial markets and stock markets is they also lack any true long term objectivity. If we all behaved in this manner then we might as well shut up shop now and wait for the end of the world.
Whilst all of the banks will report, to varying degrees, that they have suffered from the mess the finacial markets have got themselves into, there is no doubting they will bounce back and very quickly. It is becoming increasingly evident that these institutions can pluck numbers out of thin air to suit the prevailing mood within the finacial, as and when they occur.
So excuse me for not shedding any tears for their plight.
It's interesting that B&B claim that "buy-to-let market will grow even faster"; why on earth would it??? I just moved from the States and in 2003/04/05 everyone was saying that the housing market could NEVER crash in cities like Boston and San Fran! Hm, let me see, most of those people have been stuck now selling their houses for over a year and they took out extra equity loans as well! They cannot even get back what they paid for it a couple of years ago, and even at reduced prices, their houses are not selling! B&B is trying its best not to scare people off from buying propeties in this shaky economy; I'll say "sit tight on your money as what costs 250,000 now may be at a more reasonable price of about 50,000 less in 2 years time"! Why would UK not feel the effects of what is happening in the US? That afterall is the price of globalisation! I am not even an economist but it doesn't take much to put 2 and 2 together!
Robert, lighten up. Every time I see you on the television or hear you on the radio you are a doom merchant. OK times are tough but it doesn't help when you embellish to such an extent that the financial world is likely to implode. Keep taking the pills.
Excellent exposé Robert and keep up the good work (same goes for your NR and SG coverage). Personally I couldn't give a toss about Intel, Microsoft, Rio or German chocolate manufacturers. The focus is finance and we depend on you. Please go on tailing its travesties as you do.
I seem to remember that the DWP gave erroneous advice about Pensions and has lost its Case to date.
If directors of banks or indeed any other company provide less than a true picture of their business to stockholders, and more importantly depositors, isn't it time that their responsibility was properly tested. Obviously it failed in the case of Equitable Life.
A 5% increase in dividend is a very positive statement and I trust that the Directors appreciate this.
The credit crunch has still not hit home (UK) yet. Guess when it does this year.
Expect job losses at Bradford & Bingley.
Not to forget the Chairman and bankers took fat pay cheques based on valuation profits which will never arrive
Less profit will lead to less tax taking for govt.
Banks made £40 billion last year they will make less this year.
Govt tax takings will reduce also the Corporation tax for big companies was reduced from 30% to 28%.
With govt. Balance of Payment (BOP) running at £50 billion loss each year its going to get worse.
Expect fall of pound and increase in inflation due to above.
This also explains why Reducing bank rate does not help. You can see the saving rates have not budged in fact increased See Alliance and Leicester's 8.5% current account and also rise in inflation
I think people in the UK under estimate the effect of inflation
If all growth is inflationary then you might have better numbers but in fact the growth could be negative
By the time Evan Davies will explain you this, you will be the last one to know
The directors can be held to account by shareholders at the AGM - they can refuse to re-elect the old directors.
Were adequate checks made that people could afford to pay back these huge mortgages? Or were the banks just chasing the next pound in profit!
Surely banks have to be responsible when lending these vast sums of money. However, it's not the banks that loose out is it!
Ben #1:
You have to be in the banking industry.
RP is one of the most honest and 'investigative' journalists in the 91ȱ today - he is only telling it as it is.
If you hadn't noticed, there is a MASSIVE problem in the banking system at the moment.
You're comment is indicative of the society that we have become - dumbed down, complacent and living a life of comfort that cannot in any way be challenged by real facts in case it leads to the loss of your BMW or plasma TV.
Left Field question for you Robert...As the finance sectors profits become reduced, what will the effect be on the treasuries expected income... and where will the taxation come from to support continued spending in excess of income already running a budget deficit.
Raised taxation or public borrowing. Mr Darling really has got an interesting job!
I notice that in Post 15 "Bill" supports the criticism of Robert made by "Ben" in post 1.
Are we, I wonder, witnessing the stealthy return of the "Flower Pot" men?
Left Field question for you Robert...As the finance sectors profits become reduced, what will the effect be on the treasuries expected income... and where will the taxation come from to support continued spending in excess of income already running a budget deficit.
Raised taxation or public borrowing. Mr Darling really has got an interesting job!
A thought for you on the £58 million loss on housing association loans. B& B sold about £4bn of loans for cash last year after the structured debt markets shuddered & shrank. It sold the loans at a discount to book value. So the markets believe that its best quality assets are worth about 98%. In happy times these could be sold at 104% or more. That sends a gloomy message about the value of the stuff that remains.
Trust in the British banking industry amongst the people in the street industry within the UK must surely be wiped out by the events of the last 8 months! Everything is shrouded in so much smoke and mirrors that it isn't even possible (when in a self-made crisis) to judge it's true extent and scale of the crisis! If only there was more transparency-I suspect no luck on that wish! We are all paying the price (and will continue to pay the price for some time to come I suspect) for a 'booming' economy that was in fact a credit and house-price bubble-a product of lax lending standards/lack of self-restraint on the part of the public and a truly "in-your-face" drive to sell property at vastly hyper-inflated prices on the part of the media/estate agents and banks! What goes around truly comes around.
FYI A Synthetic CDO's underlying 'reference' assets are not other bonds, or mortgage-bonds or loans or receivables as with a 'cash' CDO, rather the assets are known as "credit-default swaps" (wikipedia it)
A CDS itself references an underlying credit, e.g. a corporate, and hence the price of this CDS will fluctuate daily,as that of a share or bond. Hence, the value of a synthetic CDO will vary.
Seems surprising B&B didn't hedge their exposure to their s-CDO, unless it was meant as an investment.
Once agian we have a bank announcing lower than expected results and the World starts to fall apart.
Once again we see the bottomless pit for money - the Financial Services Authority sitting on the sidelines doing nothing.How many more pointless and wasteful Government departments do we need?
When the problems with the sub-prime market came to the fore the FSA should have grasped the nettle and insisted all the financial institutions immediately review their business models and exposure to sub-prime debt so that it could be dealt with and remedial action taken and not left to drag-on and on prolonging the economic uncertainty and allowing the doom and gloom merchants to talk us into recession.
Once again we have to question Gordon Brown's ecomomic competency
Bill and Ben let me let you into a secret.
Life isn't like the Hitchhikers Guide to the Galaxy. Glasses wont darken to hide the problems, now I really am showing my age.
Sitting in the corner with your fingers in your ears shouting la la la la also won't make it all go away.
We have all been living beyond our means for too long and many sane commentators have been seeing a correction as long overdue.
Gordon Brown and Allan Greenspan, amongst others could have brought a slow gentle cooling off a few years but no they didn't want that on their watch.
The problem with asset price bubbles is that they have to burst sooner or later the question is whether it is a slow and gentle deflation of a huge bang.
Is it heads you lose tails you lose for the banks at the present time?
I do not work in the city so I may have skewed opinions on the current situation, but isn't it true that no-one knows the extent of the problem.
Institutions have bought loans, but no-one knows how much of these loans will be paid back in the future. No-one wants to buy these loans because no-one wants to buy uncertainty!
If no-one wants to buy something, is it worthless? Surely these assets have value but how much?
If banks wrote off all these assets their profits tumble, but if they give these assets value they are accused of hiding losses!
It seems to me they cannot win!
If I am wrong I hope someone can enlighten me.
Where are our economists? The most effective fiscal instrument against the rising inflation and a slowing down economy would seem to be a reduction in fuel tax. It would reduce the cost of fuel and therefore the transport cost on all items (anti-inflationary if fuel prices are to blamed for the rises) and put some extra money in the pockets of consumers so kick-starting the economy. Remember that interest rates are not the only fiscal instrument; Tax is another major one - I was even taught this 30 years ago.
Sadly the BOE was given only control of interest rates to control inflation; it is like giving a mechanic just a screw driver to fix a car.
I agree in part with David Wright but would add one concern. Isn't it true that a major part of the cause of the current problem was lack of transparency by banks in terms of what loan packages they were buying and selling, and the trading in opaque, mathematically highly convoluted, non-inuitive and hard to decipher products? Now in reporting their losses which have resulted from this practice what do they do?, produce reports which are opaque, mathematically highly convoluted, non-inuitive and hard to decipher! The same bad habits in essence are resurfacing in the reporting of losses and this barely 8 months after the credit crunch broke! I think we can assume that even when this whole business is finally sorted out (whenever that may be) another version of essentially the same problem will come along at some point later via the same route, namely a desire for profits as the psychological drive and the hood-winking of some organization or other via the "smoke and mirrors" of complex financial transactions as the modus operandi.
In fact Robert Peston understates the case when it comes to the slide in B&Bs profits. Last year they had to set aside £89M as provision against claims for mis-selling endowment policies. Without that, the profit would have been £336M not £246M - so the fall in profits is actually nearer two-thirds (62.5%).
One point in B&B's favour is that they do at least seem to 'own up' and take action. The sale of the property portfolio in the autumn seems to have been a pretty sensible and brave tactical decision, even though it is now reported they made a bigger loss on the sale than was reported at the time.
That said, I don't think any of the board or senior executives deserve a bonus this year.
37 Ian Harris.
"We have all been living beyond our means for too long and many sane commentators have been seeing a correction as long overdue."
It is all very well commenting and complaining after the fact. What current trends and practices should we be aghast at?
I for one have been totally wasting my time complaining to my MP about the way the state is financing nonsense science and technology coming out of universities and the like.
Instead of everybody taking in each other’s washing we will all soon be living on grants and paying bankers for the privilege of being fleeced.
People that actually produce useful goods and services will soon die out.
So what financial product or practice should be stamped on? The government will not do anything about it anyway but at least you will have the satisfaction of being able to say "Told you so" in 2 years time.
Gee, does balanced journalism mean having a chip on both shoulders ?
You guys all seem to be taking delight in the mere possibility that people may lose jobs, and suffer.
The company has made a financial statement like many other PLC's over the years, and is now being singled out nay targeted, for rumour and abuse of its Directors.
Come on who is really in a conspiracy here ?
Are you Guys in the pay of some group to run down the share prices of selected companies ?
Your actions are real suspicious to me !
Maybe the serious fraud office should look into who you are and whether your trying to rig the market.
It's another one of Robert Preston's Bash a Bank days.
Well one thing is for sure I won't be watching him on the 91ȱ News when I get home as life is far to depressing as it is. Robert, as it's Valentines Day tomorrow please could you report on something positive?
The banks are only just beginning to feel the pain and my guess is there is a very long way to go in this whole unwinding process.
This necessary catharsis happens in the banking sector every few decades and will keep on happening as long as the current system they enjoy of privatizing the profits and socializing the losses is perpetuated.
As Nassim N Taleb once pointed out, in 1982 in one fell swoop the big American banks clocked up losses broadly equivalent to their total ie cumulative past earnings - in other words everything they had ever made in the history of US banking. That's what they are capable of and that's what could be on the cards once again.
Unless the ground rules are changed, eg banks are allowed to fail,
senior management and directors are not remunerated in a manner which makes them multi millionaires for gambling and winning with shareholders and depositors money but walking away unscathed when the gable fails history will be repeated - you can bet on it.
Hey anybody noticed the inflation report? I think the BOE should raise interest rates. Many Central banks including the ECB and Australia are either increasing rates or keeping on hold.
Everyone immediately assumes that they hid the 144 million pound loss until now.
But as a conspiracy theory...
What if the loss wasn't there, isn't there, and has been "introduced" with the sole purpose of fraudulently reducing their reportable profit.
Wouldn't that leave them scope to reinstate last month's value in 2008 and sell off more of their loan book at a loss in 2008 without impacting 2008's numbers... A year that they view the market will be expecting better numbers...
Should we be watching for another multi-billion pound sale fairly soon ? A deal that they started working on around about the time they "discovered" the 144 million loss...
Ben (#1) please rejoin the real world. What happens to banks matters. Try taking in a few facts such as the fact that B&B went from zero to £144m in a few weeks or check out some of the more sensible comments: SP at #35 who gives a good explanation of synthetic CDO's or try Ian at #37. Like it or not this stuff matters to British workers and tax payers. Yahoo or Rio Tinto do not (well, not nearly as much). Robert is right to highlight these problems. Think how much the city contributes to the UK economy. What do you think is going to happen if the banking sector turns out to be deeper into the mire than we thought? Keep an eye out for HSBC's results. Considering how far they are into the American market their write-off's will tell an interesting story.
The government must try to make Finance and Accounting less complex and opaque. Transparency and simplicity can only be good things, it will bring back trust in what is said and done.
#37 Ian Harris - Unfortunately, I think that you'll find that you're the person in the corner with his fingers in his ears, oblivious to any other important and interesting developments in the world.
Ben #1 is merely asking for Mr Peston's comments on other business stories. I don't think there is anything wrong in asking for some commentary on the takeover battle for Rio Tinto by BHP Billiton, since it will be the world's second largest takeover if successful.
Does his interest in something other than more salacious stories and commentary on another bank in trouble warrant abuse and patronising from you or any of the other writers on this blog?
In response to post No. 38:
"If no-one wants to buy something, is it worthless?"
Yes.
Come on folks,
Where would we be without his spectral presence to jolly up our day?
I must say I like the term "Pestonomics" viz
"Economics,gossip,histrionics,narcissism and melodrama" tastefully presented to a terrified population at the drop of a hat...wonderful stuff.
Keep it up Robert and I'll keep shorting the banks all the way to the bottom, you are better than Black-Scholes theory any day.
#38 - That is not quite right. If no-one wants to buy something, it is not worthless, but should descend to a point at which someone will buy it. However, it is that changing estimate of the actual value that means we will get the losses revised over the coming year. the estimate must be based on certain assumptions, such as the default level, but if that assumption changes, then so does the estimate.
"Now it’s disclosing £94.4m of impairment charges and a further £50m loss on a fall in the market price of derivatives built into an investment in “synthetic” CDOs (don’t ask, please)." Oh, come on Robert - a synthetic is simply two or more other but different derivatives, which together move in approximately the same way as the first instrument. Consequently, if B&B have some CDOs and some s-CDOs, they will fall in roughly the same way. The s-CDO was created because they could not obtain the CDOs. It shows in fact the blind desperation of people in B&B (and others of course) to get in on the CDO market.
It's another doom and gloom day at the 91ȱ Business Department. Robert, I think you should quit your job and join EastEnders as you would certainly fit in there, maybe you could even open a bank in the square!
Robert Preston's blog is a great read - succinct, relevant and feisty. Love it. Move over 'The Economist'
I'm sick of this. If bank-bashing becomes a sport we're bob on for London 2012.
Banks ARE responsible lenders (arguably not responsible borrowers, but that's all coming out in the wash now anyway). They don't want defaults or repossessions as it costs a fortune in debt recovery costs when this happens. The problem is, banks are not party to all the information that can guarantee very low levels of credit risk. There are very sophisticated systems in place to detect credit risk, but they are not 100% accurate and never can be.
Therefore, you have two choices:
Let banks pry into every facet of your financial affairs so that they can make an accurate assessment of your ability to pay. That means they can pry into every single financial relationship you have in minute detail. Personally I don't like the sound of that.
Take some responsibility for your own actions. Can you afford that loan? Is that mortgage beyond you? Do you know what you're doing? Banks make all the checks they can on your financial circumstances, but if you lie about it, or are deluding yourself, then I'm afraid YOU AND YOU ALONE are responsible. If I'm fat, is that Tesco's fault? If my phone rings in the middle of the night, is that BT's fault?
And a message for Declan Curry and Robert Peston... do at least try to be objective and hide your glee when a bank reports a loss or negative story.
David Wright wrote: "If no-one wants to buy something, is it worthless? Surely these assets have value but how much?" and asked for enlightenment.
David is confusing intrinsic value with market value (or market price). If no one wants to buy an asset, its market value is zero, even though it may have some other intrinsic value. To find the marked value, put the assets up for auction.
For example, say a house was purchased in 2006 for 300,000 pounds, and today no buyer will pay more than 250,000 for it. Its market value is 250,000, even though the seller may be convinced that it's worth 320,000, marked to model - the model being house prices only ever go up. If the model is flawed, the subjective intrisic value placed on the asset enters the realm of fantasy.
Richard - #15
The trouble with your suggestion that the FSA should have forced banks to review their business models when the sub-prime issue first came to light is that, by then, the damage had already been done and banks were already sitting on huge piles of this stuff. All that your suggestion would really have achieved is that the issue would have surfaced slightly earlier and we’d now be 6 – 9 months further along the timeline than we are currently. The scale of the potential losses would still be the same.
Also, why should the FSA take action just because B&B report lower profits? It isn’t their job to ensure banks continue to report bigger and bigger profits every year and having regulations that say you profits shall not fall would be just a tad difficult to enforce.
PMSL - B&B has been hemoraging cash for years, with hugh write downs every year for different incompetent losses, so much so, their cash is held in a colander.
Charcol - brought for £120M in 99, sold for £12M in 05.
2006 - Fines for mis-selling financial advice from 05...
2007 - Dumping of mortgage books at a significant losses
£144M ?! about average for the last decade then.
Has the Government's preffered bidder, Virgin Bank, any connection with Virgin Atlantic, who have just been fined for fixing prices with BA?
#39
This is exactly what the numpty at number 11 should do (reduce fuel duty) at the next budget on March 12th.
This should be deflationary and he'll still rake in more than the treasury has in recent years... Then the B of E may have more room to play with interests rates as the impending price increases that all retailers are going to have to pass on sooner rather than later from the high oil price will not occur....
Personally I hope he carries on been a numpty as although my fuel is costing me more I got out of the housing market last year and banked my cash and am now praying for a housing correction (whilst my housing costs are been subsidised by a BTL landlord who thought house prices only ever go up).
More likley will be the fact he freezes fuel duty and then interest rates will stay where they are give or take.... marvellous.
Oh come on now people, everyone knows the banks own the government.
Write about the 40% the banks make off us, or the secret interbank trading that has gone on for decades.
There is only one reason for this mess, greed.
Frank @ #41 makes some good points, however, B&B have now virtually cleared all their endowment mis-selling cases so that's one less drain on resources in the coming year(s).
A friend at B&B told me they had a big bond maturity on Wednesday 13th and by Friday 15th almost 80% of those customers had fully re-invested in B&B, so their customers seem confident.