A recent worrying trend that has begun to raise it head no doubt as result of the ongoing financial downturn is company directors pledging their share equity in companies as loan security, not necessarily for loans pertaining to their business. In December 2008 , a co-founder of Carphone Warehouse, David Ross, , resigned his post as deputy chairman of the company when he was obliged to admit that he had used his equity to guarantee personal loans on commercial property without his partner’s knowledge.

Yesterday, the city brokerage Icap also revealed that their chief executive Michael Spencer had pledged more than 90 per cent of his company shareholding in the company as security for a loan. Spencer who founded and acts as managing partner for Icap made his announcement as an FSA imposed deadline draws nearer.

It was also announced that towards the end of 2008, that Spencer, had also pledged shares in stockbroker Numis,, where he acts as non-executive chairman and is a major shareholder, as collateral for a loan with HSBC.

The FSA recently announced an amnesty on such undeclared loans giving executives, till the 23rd January 2003 to come clean on any similar arrangements.

On the FTSE, equipment hire group Speedy Hire saw their shares plummet by almost fifty percent to 48.25 pence after issuing a profit warning, based on predictions that revenues for the fourth quarter would be much lower than a year earlier. Forecasts are that Speedy Hire’s pre-tax profits for the year will run around 36 million pounds, a fall of 25% from 2007. . The company said uncertainty in the credit markets had affected confidence in the construction market

Leisure group JD Wetherspoon has announced that it will be cancelling its dividend as well as halting short term expansion plans. These measures are being taken in an attempt to conserve capital holdings, largely due to difficulties in raising funds. A company representative admitted that, as a result of the continuing turmoil in the banking system, refinancing “cannot be taken for granted”.

Britain’s largest real estate investment trust, Land Securities (LAND.L), has announced their intention sell off certain assets as part of a cash-raising initiative. Rental revenues are considerably down as more and more clients are closing down their businesses. Retail clients who have gone into liquidation currently make up around five percent of the company’s annual turnover, a rise from three percent in September.

In banking circles, newly formed Lloyds Banking Group was seen to attempt to strengthen their efforts to fight off government ownership. Their efforts not to follow the Royal Bank of Scotland into government ownership, was strengthened by bond holders injecting capital.

Lloyds, currently 43.4 per cent owned by the taxpayer, will pay state owned banking group GBP 480 million ponds this year

Financial analysts said the deal was good for both Lloyds and its bond holders, while the markets showed their disagreements. Shares in the bank closed 34 per cent down at 65p. Small potatoes when compared to RBOS but still a cause for worry

In the United States, trade was slack with most of the interest focused on the Presidential inauguration. One interesting development was the announcement that Mexican tycoon e Carlos Slim Helu is to invest about £170 ($250m) in the New York Times Company.

Rumours have it that the telecommunications tycoon is poised to shore up the publisher’s ailing finances, with the company’s board expected to meet Wednesday to approve the deal. The terms of the deal would see Slim issued with preferred shares in the company in return for his investment.

Slim, the third richest man on the planet with a wealth of $49bn from telecommunications, retail, construction, banking, insurance, among others, bought a 6.4% stake in the New York Times Company in September 2008 for (£73m) $128m. The New York Times Company publishes the New York Times, the Boston Globe and a string of local newspapers,

As European markets opened, Britain’s FTSE 250 Index fell -64.96 (-1.06%) to 6,077.10o while the FTSE 100 FTSE 100 Index fell -31.06 (-0.76%) to 4,060.34
whilst, Germany’s DAX rose 1.12percent and France’s CAC-40 was up 1.1 percent.

U.S. stock futures suggested a weaker open on Wall Street. Dow futures were down 38 points, or 0.5 percent, at 8,205 and S&P500 futures fell 3.8, or 0.5 percent, to 844.80.

In Asia, financial issues sank. Sumitomo Mitsui Financial Group Inc. fell 3.8 percent, and Mizuho Financial Group Inc. dived 6.2 percent.

Shares of Toyota Motor Corp. bucked the trend, rising 2.3 percent as investors waited for the automaker to name a new leader, which it did after market close.

Akio Toyoda, the 52-year-old grandson of Toyota’s founder, was named to lead the company through its biggest crisis in history, which led to a 4-percent fall in global vehicles sales last year.

Sterling was stable against other major currencies early Tuesday with rates as follows

Pound/US dollar 1.37617
Pound/Euro 1.06785

Pound/Japanese Yen 123.466

Oil prices fell to near $34 a barrel Tuesday in Asia as traders sold the expiring front-month Nymex contract due to a lack of space at a key U.S. storage facility.

On the Asian front Japan’s Nikkei 225 stock average lost 2.3 percent to 8,065.79, paring losses in the afternoon after dipping under the key 8,000-level during the morning session.

Natural resource companies were among the hardest-hit after overnight declines in commodity prices. Australia’s BHP Billiton Ltd. plunged 4.7 percent, and Nippon Oil Corp., Japan’s biggest oil distributor, retreated 4.1 percent

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Tags: Bank, Banking, British Economy, British Pound, Carlos Slim Helu, Carphone Warehouse, David Ross, HSBC, JD Wetherspoon, Land Securities, Lloyds Banking Group, Money, Recession, Retail, Royal Bank of Scotland, Sumitomo Mitsui Financial Group

The Government’s is set to crack the whip over banks refusing to lend fairly to homeowners and small businesses after bailing out the banking sector with a £500 billion rescue package.

New powers for fining banks that breach the banking code are expected as part of today’s Queen’s Speech in Parliament as part of several major financial changes included in a new Banking Reform bill.

Now the Government has a major stake in the Royal Bank of Scotland, HBoS and Lloyds TSB, there is a new determination to make sure the banks don’t squeeze small businesses and homeowners facing hardships over loan repayments due to the credit crunch.

The existing code of conduct sets out minimum standards banks must provide. This includes lending responsibly, giving help for customers who hit problems and more transparent bank charges.

The plans will allow the Financial Services Authority to police the banks and penalise them with unlimited fines for breaking rules or refusing to improve their service.

Royal Bank of Scotland was told yesterday that its lending policy, boardroom appointments and business strategy were under review as the government took control of 58% of the bank.

Meanwhile the bank promised to grant a six-month cooling-off period to homeowners struggling to keep up with mortgage payments. The move was welcomed by the Treasury and is expected to become an industry standard.

HBOS announced new support for businesses this morning. Small and medium-sized firms who are Bank of Scotland customers will be offered funding worth £250m, which will be available at up to 0.8% below standard lending rates, and guarantee pricing on small business customer overdrafts for 12 months from the date of arrangement for new loans and renewals.

On the markets, the FTSE closed up 58 points at 4123 and the DOW recovered 270 points to 8419. The Pound weakened against the US dollar to $1.47 and against the Euro to 85.74 pence.

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Tags: Bank, Bank Charges, Financial Issues, Lending, Loans, Mortgages, Overdraft

Without loans and credit, the world would not have advanced so much since the second world war. Arguably, people would still be yoked to a agricultural based economy and we would still be doffing our caps to the local landowners. 

But now, at the time of writing, it’s obvious that too many loans and too much credit can have a bad effect as well. Simply, when money gets tight and credit gets tight, people cannot expand as they once did, both personally and in business, and things start slowing down. Then the trouble starts.

But the fundamental principle of a loan remains sound. Someone, or something, has spare money which they can use more productively than putting under the bed, or getting a low savings interest rate, by loaning someone else for a higher interest rate. Everyone’s a winner.

And even in economically challenged times, all loans just don’t stop. The world keeps spinning and money keeps moving. And although the UK mortgage market has virtually collapsed (at the time of writing), this really is based on new mortgages; re-mortgages are still being written.

Now, in goods times when lots of money is around, there are usually lots of loan opportunities around. Ironically, when bad times hit and money is sparse, and arguably, loans are needed more, opportunities are harder to come by.

And now we also have a new financial term called sub prime. In the last boom it became obvious that with clever marketing, financial institutions had in many respects exhausted the mine of people that could well afford, mortgages, loans, pensions and finance deals. They had been tapped out. So, a new rich vein of opportunity was needed and thus the sub prime sector was invented. Looking back of course with 20/20 hindsight, the financial services sector was just building a time bomb which would eventually explode, but with the bonus culture at full pelt, who was going to cry foul? So, people who could barely afford to survive from month to month, were offered mortgages to buy their own homes. The pack of cards soon began to wobble when, en masse, these people handed back their keys and the sub prime lending panic was upon us. And low and behold, the institutions had happily sold these mortgage liabilities to all their friends, meaning that great banks and financial bodies were all holding a piece of the bomb.

Right, so now we are in a new economic climate with loans few and far between. And the big question, are they worth the risk?

For some there may  be no choice. If you have a business, or a personal financial situation that requires regularly funding, you cannot just stop. You have to try and arrange new funding and even if you succeed, you might find the new interest rate punitive.

In many respects, running a business, or trying to keep afloat, necessitates loans and credit supply, so pat advice saying do not get further geared (the amount of credit you might have) is not helpful. For some people, it’s a question of keeping the whole show on the road until good times return. And they will. If there’s one thing that history has taught us, it’s that the boom and bust culture has never left us, despite assurances from the politicians. 

But if you are looking for a loan, or mortgage for the first time, and it’s not a matter of life and death, think really hard about whether you can afford it. Take a critical look at your finances, consider the doomsday scenarios (redundancy, illness) and if you feel comfortable with those, then go ahead, if you can.

And also have a quick look over the abyss, make sure you know what happens if you default on a loan. On a secured loan, you default and you can’t renegotiate the terms, then the security that backs the loan is lost to you. But even if your loan is unsecured, the lender can still take you to court, and force a County Court Judgment against you, which in effect, means a ruined credit record and little chance of future loans for at least six years, if not for a lot longer than that.

So the risk of getting a loan can be great; it really comes down to whether you can afford it, or not, and what happens to you if its goes wrong.

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Tags: British Economy, Loans, Mortgage, Mortgages, Unsecured Loan

A new agency to make sure that money flows to parts of the economy where it is needed has been set up by the government. The new bail out agency will be responsible for making sure that the banks live up to their promises to lend again during the credit crunch which saw many of the balance sheets of financial institutions decimated. The urge for banks is to hoard capital and rebuild their finances…but this is a move that the treasury is keen to avoid.

Chancellor Alastair Darling set out the plans for the agency as he and Bank of England Governor Mervyn King got hauled over the coals from the MP over their handling of the financial crisis.

The key aim of the bailout agency is to ensure that small firms and mortgage holders get a fair deal form the under pressure banks’ at a time when many have been accused of profiteering. The agency, which will be “at arm’s length”, will manage the treasury’s stake in HBOS, RBS and Lloyds TSB.

The banks’ voluntary code on lending to small business is also set to be tightened this week, under pressure from the Government, to ensure customers are given reasonable notice before loans and overdrafts are axed or rates increased. The new agency’s terms were unveiled amid increasing political concerns that the part-nationalisation of the three high street banks is not reaping the promised benefits for small business.

After initially winning plaudits from the world’s financial leaders for their rescue of the banking system, Gordon Brown and Alastair Darling have been met with frustration by the CBI and industry and consumer watch dogs in general that the touted benefits have yet to come to pass of the huge bailout package.

Chairman John McFall said: ‘Taxpayers are very concerned about the scale of this investment.’

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Tags: bail out agency, banks voluntary code

The government must eventually tax the citizens to repay the money it owes to the central bankers. As time goes on, the tax burden grows and grows until the peasants can’t be taxed anymore and the government can’t borrow any more. So you will go to work…work 5 days a week…and at the end of the week, a bigger and bigger chunk of your earnings will go to repay the debt that the central bank says you owe to it. You work for the central banks mystery shareholders. What…didn’t they tell you?

If you have wondered why your taxes are rising and the services you get seem to be getting worse and worse as you get hit with more and more punitive charges from the state for everything from fuel to fines to everything else…now you know. The money has to go to the central bank’s shareholders.

But where does all the money that the central bank makes in profits go to? Well, like any bank, it goes to the shareholders. The Treasury of the UK owns half of the bank of England and the other half is owned by other parties, who are not publically known. So these guys collect half the interest on our national debt, which they supply out of thin air and have a legal monopoly on. WE can’t buy shares in the central bank….if we could, I’d sell everything I own and do it! 

 The second is that the central bank is a fantastic business model and an exceptional means of social control. All you do is create a few bits of paper and send it to the government and then wait until new houses, yachts, bars of gold and anything else you want comes flowing back in through the door! 

More importantly, you can regulate the economy through the creation and destruction of credit, the imposition of tight or lax lending standards over the population. Best of all, you get to play the stock markets and the property markets knowing the future….because you create it! What a wonderful scam…I just wish I’d thought of it first. The best part is….no one knows anything about it….people are completely oblivious to the existence of the other shareholders and the money creation process. I remember sitting in economics class when I was 15 having parts of this explained to me and I immediately thought that I had to become a banker…so I did. Now…don’t tell anyone!

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Tags: Bank of England, Central Bank, Money, National Debts, Tax, The Treasury

Hill house, the luxury riverside development on the banks of the Thames at Thamesmead was sold out before it was completed at £250,000 for a 2 bedroom apartment and £400,000 for a penthouse suite. Today, the development lies largely abandoned, swarming with vermin and drug addicts.

Built by Persimmon 2 years ago, the development has become a pointed reminder of the ravages of the credit crunch. The once glistening balconies and marbles hallways are now run down as front doors have been barricaded by metal sheeting to stop squatters. The amazing thing about Hill House is that of the 84 separate units that were initially sold; an unbelievable 82 have been repossessed. Apartments that once sold for £250,000 are now changing hands for less than half that amount or £115,000. The penthouses are fetching barely $135k. Soaring mortgage rates and huge hikes in the cost of living have seen almost all the buyers pushed past their limits and hit by heart-breaking repossession orders. 
 
Taxi driver David Adaiat is one of the two original buyers hanging in there despite his home having lost more than HALF its value. He bought his third-floor river-view apartment for £269,995 at the height of the buying frenzy in June 2006 as a family home for his wife Esther, 38, and their teenage daughter Dami. 
 
Shattered David said: “I’ve just had the place valued after my mortgage deal came to an end. 
 
“They told me it’s now worth just £130,000. I nearly fell through the floor. It’s unbelievable. That’s so much lower than we paid. 
 
“This whole place has become like a ghost town.”

Most of the repossessed properties are standing empty with only a few souls brave enough to live among the cockroaches, rats and squatters.  The once pristine grounds are overgrown and the development itself is a complete mess since the maintenance fees are left unpaid. A far cry from their initially £250k price tag, now the units are being bought up by local housing associations and rented to grateful students for under £400 a month.  The students who live there can’t believe their luck. Thanks to the credit crunch, they have great pads…it’s just a pity the neighbours aren’t a bit more sociable!

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Tags: Credit Crunch, David Adaiat, House Prices, Housing, Mortgage Lenders

Few could believe the facts and figures that spewed forth from the housing charity “Shelter” last week. The government is easily the most aggressive lender on the high street when it comes to kicking people out of their homes. As well as that delightful titbit, Northern Rock also has some of the worst savings rates and the highest mortgage rates! Who said the government couldn’t run a bank? They remind me of the infamous East End landlord of the 60’s, Peter Rachman. Is the government guilty of Rachmanism?

Not according to them they aren’t. (Shocker!) But the figures speak for themselves. In the three months to the end of September 2008, Northern Rock repossessed 4201 homes. This figure is higher than many other mortgage lenders and a 20% rise on the previous quarter.

So, should we immediately tar and feather the government for their uncaring attitude at this time? Well, not really. You see, the reason that the Northern Rock had to be saved in the first place was because its loan book was already very shaky. They lent out thousands of mortgagse at 100% and 125% of the value of the property and now that prices have started to come down, it should be no surprise that the mortgage holders are getting into difficulty and defaulting in droves. It isn’t that the government is being really mean and nasty to these borrowers; it’s that Northern Rock, which had to be rescued, has a far higher percentage of these borrowers than most other banks….hence the need to be nationalised.

The situation may yet get worse as the Rocks 2 year fixed rate comes to an end on the 31^st of October and members are moved onto the 7.34% variable rate from the fixed rate of 3.99%. That’s not only going to hurt them as well as taxpayers, but property prices will come under increased pressure from the likely defaults and repossessions that will arise from this. Assume the crash position.

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Tags: Gordon Brown, Loans, Mortgage Lenders, Northern Rock, Peter Rachman, Rachmanism, UK Banks

The fears over the Anglo Irish Banks loan portfolio started a chain reaction that ended in the Irish government guaranteeing all banking deposits, personal and corporate. What a master stroke! The Irish banks are enjoying an inflow of the world’s most precious commodity right now…capital.

The Irish cabinet took briefings from the head of several Irish banks the afternoon before the move was announced. The liquidity in the system was drying up fast and a possible bank run looked likely after the first refusal of the US Congress to pass the bailout package. This was the story…the state guarantee, eventually, was the result.

They won’t be telling many Irish jokes in Westminster this year….no…this year there will be gnashing of teeth and the prospect of nationalising more UK banks thanks to the unilateral Irish move to give a government backed guarantee to all Irish bank deposits. Gordon Brown was furious and demanded that the bill be reversed. Reportedly, Brian Cowen, the Irish Taoiseach reminded Mr Brown about the unilateral way he behaved over the Northern rock Crisis. Game over.

The British Pm is worried that there will be a flood of money out of British banks at exactly the time they could least afford it…and you can see his point. Brian Cowen said that Ireland simple had to look after their own banks…sorry about that Gordon. It has a kind of “we’re going to do it to you before you think of it and do it to us” feel about it.

In the first few days after the move, the noises coming from Westminster were very different from the ones coming from the Dial. Westminster said it wouldn’t matter much (why all the fuss then?) and the Dial and the Irish treasury said it had seen a large swelling in the number of account openings. One large European company has reportedly transferred half a billion Euros in a single transaction.  By acting in the way it did, the Dial made sure that all Irish banks would be recapitalised before the financial tsunami that is engulfing us all hit its shores with a vengeance.

It’s looking more and more likely that the UK will have to follow suit as Germanys chancellor Merkel, after chastising Brian Cowen for his unilateral bank guarantee was forced to give a similar guarantee to German depositors…how embarrassing! This week will tell if the UK banking system needs such a guarantee…if it doesn’t get it, the stream of money flowing to Dublin from the city could turn into a torrent if any more nasty surprised turn up.

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Tags: Bank of Ireland, Banking, Ireland, UK Banks

Finance watchdogs are about to tighten the rules on payday loans as the first stage of an investigation in to irresponsible lending comes to a close.

Payday loans are generally loans of less than £1,000 taken out to pay bills until the workers are paid again at the end of the month.

The industry has exploded from a fringe operation only a few years back to a huge high street and online industry as hundreds of lenders have moved in to the UK after US authorities restricted their activities or shut them down in several states.

The Office of Fair Trading announced payday loans one of their targets in their current review of irresponsible lending – and debt counselling organisations have been lining up to complain during a public consultation period that ends on October 24 (2008).

Payday loans are under attack from debt counselling organisations claiming the lenders charge interest rates as high as 2,000%.

As the credit crunch bites and people with poor credit histories find loans harder to come by, business has boomed for the payday lenders.

“The OFT is undertaking a project looking at what constitutes responsible lending under the Consumer Credit Act and how this affects companies’ holdings of consumer credit licences.
“This project will examine several areas of consumer lending, including payday loans,” said an OFT spokesmen.

A quick Google search throws up more than 500,000 results for ‘payday loans’ in the UK.
Typically, the lenders offer £300 available the same day without any credit checks providing the borrower:

• is aged over 18 years old
• has a full-time job
• takes home pay of more than £750 a month
• has a valid bank debit card

The interest payment is £25 per £100 borrowed or 1845% APR.

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Tags: Bank, Credit, Global Credit Crisis, Loans, Payday Loans